An Evaluation of Smart Contracts: Practices, Legality, and Sharī‘ah

Nor Razinah Mohd. Zain () and Khairul Azmi Mohamad
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Nor Razinah Mohd. Zain: IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia
Khairul Azmi Mohamad: Harun M. Hashim Law Centre, International Islamic University Malaysia

Chapter Chapter 6 in Islamic FinTech, 2021, pp 91-110 from Springer

Abstract: Abstract The increasing usage of blockchain technology in digital investment, cryptocurrency, and financial technology (FinTech) has led the global financial market to a new innovation of concluded contract. Instead of depending on legally drafted documents, smart contract is concluded through the computerized algorithm. Based on the smart contract, the legal relationship between the involved parties is completed online without being limited to time and space. Thus, the application of smart contract needs to be explored from both Common Law and Sharī‘ah perspectives. By adopting qualitative research design and doctrinal legal analysis, this research evaluates the best practices of the selected Commonwealth countries in accepting the application of smart contract. While evaluating the practices on smart contracts from the majority of Commonwealth countries, Malaysia is selected to represent the Commonwealth country with a majority Muslim. Additionally, the practices on smart contracts as applied in Australia and United Kingdom are also appreciated. The evaluation of smart contract from Sharī‘ah perspective is done by investigating the views of the four main Islamic schools of legal thought, which are, Mālikī’s, Ḥanafī’s, Shāfiʿī’s, and Ḥanbalī’s. A comparative legal approach is considered in analysing similarities and differences between the perspectives of Common Law and Sharī‘ah relating to the smart contract. These approaches are necessary to be carried out in ensuring the workability of smart contracts in blockchain for Sharī‘ah-compliant start-ups. This is essential especially to those Muslim countries that stand with Common Law background. As a part of the findings, the researchers found that as long as the smart contract fulfils the required legal elements as required under Common Law and the principles of Sharī‘ah, it can be used and referred to by the concluding parties.

Keywords: Smart Contract; Blockchain; FinTech; Common Law; Sharī‘ah (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-45827-0_6

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DOI: 10.1007/978-3-030-45827-0_6

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