Traditionally, exchanges on a blockchain are recorded by solving highly complex computational problems. Although it keeps data secure, the energy needed to run this system has always been a liability.As a solution, a new consensus-based mechanism known as crypto stakinglets token owners validate the addition of blocks to a crypto chain. Besides being energy-saving, it is also rewarding for the validators involved.
In this article, we explore whether you can earn profits through crypto staking and if there’s room for halal crypto investing in this system.
What is Crypto Staking?
Crypto staking is a way of earning rewards by using your existing cryptocurrency holdings as Proof-of-Stake (PoS) on a blockchain. In this process, the PoS consensus mechanism is applied to validate the addition of newer blocks or verify transactions in a blockchain network.
In simple terms, your crypto funds will be locked up for a certain period to support a blockchain’s activity. As payback for staking your currencies, you will get staking rewards akin to earning dividends on underlying crypto assets.
Staking can be conducted in two ways:
1. Independent Staking
With this method, an individual who deposits their crypto tokens acts as the sole validator within a blockchain. To become eligible for independent staking, you need to own a minimum number of tokens. In the case of ETH, this amount is 32 ETH. Although the minimum token deposit criteria may be a barrier to entry for many, participating in this style of staking has some clear perks. These include being able to have direct control over your coins and getting to keep the entire share of rewards earned.
2. Staking Pools
When a group of people pools their tokens together to stake in a blockchain validation protocol, it is called a staking pool. This method allows individuals to overcome financial and technical barriers which they could face in independent staking. For beginners with little knowledge about the crypto market, these pools are a much more effective and risk-free way of making profits. They are usually managed by experts and charge a certain percentage of the rewards earned as fees.
Islamic Perspective on Crypto Staking
Islamic finance provides a set of principles that help Muslims adhere to a morally upright and socially responsible way of wealth management. Muslims refrain from participating in financial institutions or businesses that contradict the rules of Islamic finance. Given this scenario, joining the crypto bandwagon brings some hesitation and doubt.
When it comes to crypto staking, understanding the mechanism that governs this process becomes necessary. Once you know exactly what happens when you deposit your halal crypto tokens in a staking project, you are better able to discern the ethical status of staking.
In a PoS system, the halal crypto you stake are used for strengthening the integrity of a consensus-based blockchain network. You will receive rewards for being a validator for the blockchain and helping to build a more robust network.
Essentially, the profit you make from staking is the reward you get for investing in a blockchain and sustaining its functions. As such, staking as a concept is not Islamically problematic.
The only thing you need to consider now is the quality and intent behind the project you choose to invest in. If you choose a project that supports nefarious activities such as alcohol, p*rnography, hate speech, or gambling, then your stake would be considered haram. However, if you invest in a morally sound project that supports socially productive activities, the rewards you earnare permissible. Hence, it is of utmost importance to place your crypto stakes in well-researched and Sharia-compliant projects.
Does Staking Involve Riba?
Riba is the usurious practice of charging interest on a loan of money. In Islam, loans should be extended to others as charity for the overall growth of a community. Asking for interest in return for borrowing money can promote distrust or resentment in society. Hence, riba is not permitted in Islam. Thosewho lend their money must do it out of kindness and goodwill towards society.
When we look at the passive income generated through crypto staking, it can seem like interest earned on deposits. However, this is not a correct assumption as it ignores some technical details about how the POS system works. The tokens you stake in a blockchain project cannot be considered a loan in any way. There is no person on the other side of the equation who would benefit from your deposited holdings. Instead, staking is more aptly understood as a mark of trust that you show in a particular blockchain protocol itself.
The larger your blockchain network grows, and the more people show confidence in its future, more profit will be earned by everyone involved. In short, building and running a blockchain under the PoS system is a joint endeavor.
In a system where transactions gain legitimacy through randomized consensus, your stakes will serve the purpose of maintaining a network. The rewards you earn through this system can be seen as a mark of the overall appreciation of your blockchain protocol. This type of earning, although it seems passive, is a result of the value your halal crypto tokens add by contributing to a project. We can consider such a reward-based profit completely justified under Islam.
Is Crypto Staking Halal or Haram?
Islamic rules of finance consider currency to be a tool for measuring value, but not an asset on its own. So, it is more important to note the wider objective or intention behind the projects we invest in, rather than debating about the implicit value of a currency or investment style. At its core, crypto staking can be seen as a style of investment for people who want to build wealth through the blockchain.
To comment on the moral status of crypto staking, we must investigate the governance structures of the project in question. If the business and long-term growth prospects of this project confirm halal principles, then staking your tokens for it is encouraged. However, if you find that a project seems to invest in ambiguous or unlawful activities, staking your assets here would be haram.
MRHB Halal Crypto Staking Solution – M.I.R.O.
We know that the governing values of a blockchain platform determine its ethical boundaries. The types of digital assets and projects you choose will ultimately decide the future success of your investment decisions. However, conducting detailed research about all aspects of a particular token or wealth-building scheme can be difficult for a new investor. This is where the MRHB Network comes to the rescue with a DeFi marketplace that is completely dedicated to ethical and halal crypto.
To encourage faith-based communities to take up staking, MRHB has launchedM.I.R.O. — Marhaba Incentivization & Reward Offerings. Built to promote value-driven finance, M.I.R.O is the world’s first halal crypto staking solution. The longer you stake the MRHB Token ($MRHB), the more voting power you acquire, and the higher the share of reward you’ll receive. Connect your Sahal Wallet and start building your halal crypto wealth today.
