INTERVIEW-Certified Shariah-compliant GOLDX to set gold standard for blockchain in Islamic fintech

GOLDX is the world’s first cryptocurrency to be Shariah-certified but that’s not the only thing that makes it interesting. 

Malaysia-based company HelloGold announced in late February it was certified Shariah-compliant for its gold-backed cryptocurrency GOLDX by the prominent Islamic finance consultancy Amanie Advisors. Unlike most other cryptocurrencies, GOLDX only issues tokens backed by physical gold stored in a vault in Singapore. The CEO and co-founder of HelloGold, Robin Lee, told Salaam Gateway that GOLDX is part of his company’s mission to “democratize assets such as gold for the mass market” via new tech, starting with setting a high standard for the use of blockchain.

“Gold is a well-known savings vehicle in Asia, but high distribution and storage costs mean that it's an unaffordable investment asset for medium- to low-income buyers, and yet they still do it,” said Lee.

“HelloGold was created to meet the needs of these consumers by enabling easy and affordable access to gold through the fractionalization and digitization of gold bars, distributed through a cost efficient mobile app.”

Lee has solid gold credentials. He is the former CFO of the UK-headquartered World Gold Council, a market development organization for the gold industry, and Principal Accounting Officer for SPDR Gold Trust, the world’s biggest gold exchange-traded fund with $30 billion in assets under management. Prior to that, Lee worked with the Industrial and Commerce Bank of China to introduce a gold savings program which grew to 11 million customers and generated sales of $6.5 billion in four years.

He touts the security and transparency of GOLDX’s transactions and also referred to it as “platform-agnostic,” meaning users are able to trade the token outside of HelloGold’s application.

However, GOLDX has not yet been integrated into the app. Lee expects it to be by the fourth quarter of 2018. According to him, it has taken HelloGold more than two years of development to arrive at this stage. 

WHY SHARIAH COMPLIANCE?

Industry observers are probably wondering whether grabbing the moniker of “the world’s first” Shariah-compliant cryptocurrency has already been claimed by any other company such as UAE-based OneGram, which launched its gold-backed crypto in May last year. OneGram keeps a Shariah advisor on its team but it isn’t certified Shariah-compliant by an external and independent body.

A Shariah-compliant rubber stamp can give Shariah-sensitive investors and users peace of mind that the product they’re using adheres to Islamic principles and requirements. But in terms of its actual benefit to the company, observers are likely to ask whether the certification will actually help HelloGold get more users. Further, industry stakeholders are likely keen to know whether the work associated with getting the certification will be worth it in the long run.    

According to HelloGold, Shariah-compliance is key for its app, particularly in Muslim-majority markets like Malaysia.

“As HelloGold’s first market, Malaysia is a good example of the significance of Shariah-compliance for Muslim consumers. About 40 percent of comments on our Facebook page are related to Shariah-compliance. Additionally, we have seen a 25 percent increase in new users since announcing that GOLDX is Shariah-compliant,” said Lee.      

He did not share the actual number of HelloGold’s active users since the company’s inception in 2015. But according to Google Play at the time of writing this story, the app has been installed by the public somewhere between 10,000 and 50,000 times. Apple’s App Store does not share such information.

Using Malaysia as its petri dish for onboarding users who care about Shariah compliance, HelloGold believes similar opportunities exist in the Middle East. According to the World Gold Council, average annual investment demand for gold in the Middle East in the ten years between 2007 and 2016 was just shy of 70 tonnes. “It's a very large market that is now accessible to HelloGold,” said Lee.  

HOW GOLDX WORKS

“When we say that the GOLDX token is backed by 99.99 percent gold we mean that each GOLDX has one gram of gold fully backing it,” explained Lee. “The physical gold can be redeemed by exchanging the token for one gram of gold, sold to other people, or sold back to us at a price indexed to the spot price of gold.”

At the moment, users may only buy GOLDX via HelloGold.org using cyptocurrencies Bitcoin or Ethereum as the currency of purchase. Before GOLDX can be listed on any crypto exchanges, the team says it wants to “stress test” the product’s back-end. The phase is meant to confirm that GOLDX’s technical processes are stable enough to operate at scale.

“Security is paramount for us as customers are entrusting us with their gold,” said Lee, adding that he is currently negotiating with two exchanges – without giving any further details – and plans to list GOLDX during May or June of 2018. HelloGold’s chief marketing officer Manuel Ho told Reuters last week the company plans to launch its online gold platform in Thailand later this year.

Although GOLDX is not yet listed, it can still be sent or received by any crypto wallet outside of HelloGold’s systems. Essentially this means that GOLDX can play a more stable role than other (more volatile) tokens such as Bitcoin or Litecoin when it comes to cross-border remittances, a market in which 230 million people send $500 billion per year.

HelloGold also claims to see strong potential for GOLDX in the asset-backed lending space. Gold is typically an asset favored by bankers, but it is expensive and difficult to handle. This makes it out of reach for most borrowers. By fractionalizing and digitizing gold ownership, the company is able to reduce associated costs for both borrowers and lenders.

HelloGold is currently working with Malaysia-based AEON Credit Sdn Bhd to provide the app’s users with access to financing at half the profit rate of AEON customers who don’t have gold or gold-backed assets.  

HOW GOLDX WORKS ON THE ETHEREUM BLOCKCHAIN

Gold is one of six ribawi items (staple, everyday commodity; the other five are silver, dates, wheat, salt and barley) governed by strict transaction rules that were created to prevent injustice or inequality between transacting parties. Ribawi items must be bought and sold on spot and in equal quantities if exchanged in kind. What this means for gold is that it must be sold on weight and measure and cannot be traded for future value or speculation.

On the HelloGold platform, users are able to see buy and sell prices including all fees before entering into a transaction. Transactions are performed on spot at a mutually agreed monetary price and gold weightage. For example, gold becomes legally owned by the buyer instantly when cash payment is made to HelloGold.

GOLDX operates on Ethereum, which is a blockchain platform used by the cryptocurrency Ether. A blockchain is a shared record of information that is maintained and updated by a network of computers rather than a central authority, and on which transactions can be seen and tracked by all users.

There are separate blocks for each use, for example the Bitcoin block is separate from Ethereum. A blockchain is the online ledger or platform on which to write, run and execute smart contracts, which are programmed by computers to hold rules and conditions as in traditional contracts, as well as enforce them. Smart contracts reduce significantly the possibility of downtime, censorship, fraud, or third-party interference.

Ethereum is the most popular platform for writing smart contracts because there is a deeper pool of talent when it comes to finding developers with the appropriate skills and experience. As a result, Ethereum is increasingly being accepted as the industry standard with arguably the most stable platform. 

This dynamic may be able to help Shariah-sensitive users gain further peace of mind in terms of staying true to the principles of Islamic finance; namely when it comes to prohibition on excessive risk (gharar) and prohibition of illegal activities (haram).

“HelloGold’s advantage over the rest of the blockchain industry lies in the fact that we follow know-your-customer and anti-money laundering best practices; gold is a well understood asset from a regulator’s point of view; and fractionalization and securitization of gold is a well-known investment product from the investor’s point of view,” said Lee.

(Reporting by Leighton Cosseboom; Editing by Emmy Abdul Alim emmy.alim@thomsonreuters.com)

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