Recently, in a bid to build a digital wallet for the metaverse, Facebook rebranded its online payments service, Facebook Pay, to Meta Pay. This vision improves its interoperability and aligns the firm's payments offering with its grand ambition to build the ultimate metaverse. In 2021, $10 billion was raised by metaverse-related companies,  surpassing as much as twice what they had raised in the previous year. Citibank believes the global value creation opportunity from the metaverse could be as much as $13trillion. In previous articles, we have looked at how the metaverse influences society and commerce and in this article we will be discussing the opportunities of the metaverse for Muslims. 

Shariah-compliant metaverse

Shariah operates on the principle that "everything is permissible unless there is a clear prohibition." Technology, no matter how new, must be innovative, creative and, most of all, beneficial for humanity. Shariah is about adding meaning and any activity performed by a Muslim should be about meaning. Earning money or using technologies, in themselves, are not prohibited, but they have to be done in an honourable way - without harming or cheating others. This shows the importance of engaging Shariah experts in the co-creation of valuable endeavours together with understanding the Shariah boundaries. A Shariah-based metaverse could have the potential to be value-adding and beneficial for everyone - Muslim or non-Muslim.

With this in mind, the foundational blocks that need to be focused upon in developing a Shariah-compliant metaverse include:

• Utility: Shariah is founded and based upon both wisdom and principles that bring value to people in this world and the other world. It encourages us to be entrepreneurial and creative in trade and business in order to fulfil our worldly needs. However, there is still a framework that governs practice. The Qur’an encourages believers to stay away from pursuits which are frivolous, aimless and unproductive. Not everything can be monetised; money should only be gained from goods and services which are lawful and deemed to have a reasonable benefit. In fact, an underpinning property for tradable goods or services in Shariah is that there should be a reasonable benefit. Therefore, the activities in a Shariah-compliant metaverse should be focused on utility and benefit.

• Real vs virtual: any activity in the metaverse which impacts Shariah obligations or people’s rights will become impermissible.

• Representation: designing avatars and concepts in the metaverse should follow the Shariah rules, not touching anything considered sacred or unlawful in Shariah.

• Experience: for a Shariah-based metaverse, the experiences should be inspirational, educational and spiritual. A rule of thumb is that whatever is typically permissible to do in the world, according to Shariah, is generally permissible to do in the metaverse. For example, building casinos or nightclubs and similar experiences or engaging in such events in a metaverse would not be Shariah- compliant.

• Trading: transactions in the metaverse must avoid all the prohibitions of Shariah, such as Riba, Gharar and others.

Warba Bank

Warba Bank, established in 2010 pursuant to an Amiri Decree aimed at reviving Kuwait’s economy after the country’s economic turmoil, recently announced that it owns two sites in the metaverse, one on Sandbox and one on Decentraland. With the focus to increase communication with the younger and millennial generation, Warba Bank becomes the first Islamic lender to enter the metaverse. The bank intends to collaborate with its clients to introduce its products and services in virtual reality. Of note, the Kuwait government does not acknowledge cryptocurrencies for official business transactions and the Central Bank of Kuwait also restricts the banking industry and entities under its jurisdiction from engaging in cryptocurrency transactions. However, the metaverse and cryptocurrencies cannot be separated since their basic technologies are the same and cryptocurrencies are intrinsic to the regulation and operation of the metaverse.

Halal metaverse to be launched 

About 1.8 billion people worldwide practice the Islamic faith, 240 million of whom live in Southeast Asia. Therefore, for a metaverse to be generally permissible in this area of the globe, it would need to be in line with Shariah, the guiding principles of the faith. IBF Net, a blockchain-based firm, has begun work on building a metaverse that is compliant with Shariah teachings, intending to unveil it before 2022 ends. The project aims to create a metaverse that gives due consideration to the uniqueness of the Southeast Asian region in terms of its faith, culture, regulatory and policy environment. The project has two goals: one is to create an open and meta learning place for acquiring and sharing knowledge anywhere, anytime; and the second is to create an open and meta marketplace for buying and selling with higher levels of information and significantly higher consumer and investor protection. It will redesign and transform the present miniature Islamic economy developed by IBF Net, which is a centralised community-focused system, to an open system with far superior features introduced by metaverse technology.

On July 18 2022, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Prime Minister and Crown Prince of Dubai unveiled the Dubai Metaverse Strategy which aims to create 40,000 virtual jobs and add $4 billion to Dubai's economy in five years. It will turn the emirate, which is already home to about 1,000 companies operating in the blockchain and crypto space, into a global hub for crypto and blockchain technologies, thereby adding $500 million to the national economy. The objective is to build the required talent and also invest to provide the necessary support education around the metaverse aimed at developers, content creators and users of digital platforms in the metaverse community. Dubai's hope is to create the most advanced ecosystem for the metaverse and be a frontrunner in adopting digital solutions globally. In April 2022, global investment bank, Citi, announced that the potential size of the metaverse market around the world could be between $8 trillion and $30 trillion by 2030. However, other companies such as big four accounting firm, KPMG, have said that these figures could actually be too conservative. As for the UAE, augmented reality (AR) and virtual reality (VR) technologies alone could contribute $4 billion to the UAE (or 1% of its GDP) by 2030, according to a 2020 report by management consulting firm, PwC.

Whilst there is notable enthusiasm for the metaverse from some quarters, the concept is still strange to most which can lead to confusion, apathy, and fear for some people. In the US, a survey of over 2,500 adults by Axios and market research survey firm, Momentive, revealed that 32% of the respondents were more fearful than excited about the metaverse idea. Only 7% were excited, whilst 58% were ‘on the fence’. To the cynics, metaverses are merely a fad; but the optimists consider it the future. Tech firms have collectively invested billions of dollars into building virtual worlds. Whilst some take a wait-and-see approach, risk-takers such as Microsoft, Tencent, Meta and Google have harnessed their deep pockets to gain first-mover advantages and grab a slice of this new digital economy. But who will win and will we allow our data and on-line lives to once again be dominated by big tech?

Source: Remitano

The difference between CBDCs and stablecoins is that CBDCs are digital versions of a country’s fiat currency whilst stablecoins are a little more complex as they can be pegged to fiat currencies such as USDC, or indeed a basket of cryptocurrencies such as MakerDAO. CBDCs are issued by governments, whilst stablecoins are typically the products of private companies. Adam Back, from Blockstream, recently described CBDCs as being “worse than bank accounts”, further stating that they “will be worse than paper cash, stablecoins or even Bitcoin”. Back, a proponent of Bitcoin, must have been appalled to even include “worse” in the same line as Bitcoin but, no doubt, all in a bid to emphasis his concerns relating to CBDCs. CBDCs hold no real threat to cryptocurrencies but to online banking, maybe. All this is made evident when looking at those countries which have adopted CBDCs.

Source: Elithium

China is a leader in the CBDC space, with over 250 million registered wallets to its digital Yuan (which, incidentally, does not use blockchain technology). But it is not merely China that is interested in CBDCs as, according to the Bank of International Settlement (BIS), 90% of central banks are exploring CBDCs. Indeed, before China, Ecuador had launched its digital currency back in 2015 - Dinero Electrónico - but, although attracting 500,000 users, the government eventually withdrew it. Other countries which have CBDCs besides China are the Bahamas, the Eastern Caribbean Union and Nigeria. Countries which are currently testing CBDCs in pilot projects are South Korea, Jamaica, Ukraine, Sweden and Japan, and those which have CBDCs in development are India, Eurozone, the United Kingdom and the US. A BIS survey on central bank digital currency revealed that 60% of central banks were conducting experiments or proofs-of-concept, whilst 14% were moving forward to develop and pilot arrangements. These arrangements take one of three models - retail, wholesale or hybrid CBDCs. So, what are the differences between these types of CBDCs?

• Retail CBDC is defined as the model wherein "the digital currencies are issued to the general public. The system is based on a distributed ledger and ensures anonymity, 24/7 availability and traceability. Moreover, it makes the application of interest feasible. Developing or emerging economies generally opt for the retail model with the thought of leading the emerging fintech industry. However, anonymity brings several hardships in terms of fraudulent activities."

• Wholesale CBCD is defined as the model wherein "Wholesale CBDCs are offered to financial institutions that carry reserves with a central bank. It can improve the efficiency of payment and security settlement between financial institutions. Although it is suggested for developed economies, the benefits of wholesale CBDC are increasing points for its adoption at a global level."

• The hybrid model allows for the central bank to issue the CBDCs whilst ‘middlemen’ facilitate retail payments. 

However, many still think these CBDCs are the wrong way to go about involving governments in the digital assets space. At the third G20 Finance Ministers and Central Bank Governors’ meeting, Phillip Lowe, Governor of the Reserve Bank of Australia, shared that he thought it better for the private sector to issue stablecoins as opposed to CBDCs and that he was concerned about the costs for central banks to issue a CBDC, believing that the private sector would be faster to adapt and create viable digital currencies. The conversation veered towards stablecoins when Lowe further suggested that another entity (aside from the central bank) must issue and back a payments token, although still denominated in its native currency. That is the crux of what stablecoins are. Meanwhile in the UK, the Poundtoken, a stablecoin pegged to the British pound, was launched recently by Blackfridge, a pioneering blockchain fintech company. Blackfridge is regulated by the Isle of Man Financial Services Authority and audited by KPMG, which itself will check each month that the value of issued Poundtokens is equal to the value of physical £ being held to back this stablecoin.

The Poundtoken

Source: Poundtoken

Interestingly recent paper from US Treasury's Office of Financial Research could be positive for  financial markets as information about deposits and withdrawals in and out of CBDCs could be made available in real time so giving authorities real time information of fund flows. The report finds that one risk often raised around the introduction of a CBDC— “bank runs—is not as big as initially feared”.

Arguably, it is safer to create a stablecoin backed 100% by the fiat currency of your choice as opposed to holding your cash in a bank. The reason for this is, if you place your cash in a bank account you have no control as to where your money is invested. Because of fractional banking, the bank then uses the cash to make loans which, should they default, then the bank faces a loss. In an extreme case, e.g., Lehman Brothers, then your bank goes bust. The alternative is that you use the same bank and ask it to provide treasury management services whereby, instead of putting your money in one of its bank accounts, the bank holds the cash in a segregated treasury account - ringfenced from other clients or the bank’s assets. The bank only invests in those assets specified by you, e.g., low risk, highly secure, short term money instruments - and you could even add an ESG criteria too. You then create a digital currency/stablecoin pegged to your treasury account. The trouble for the banks is that, instead of making 2% to 5% from clients’ bank account deposits, they would only be able to charge 0.5% for treasury management services.