Yield farming is a concept that has gained great popularity in recent years in the DeFi world. It’s an investment strategy with which token holders seek to obtain excellent returns for their money, investing and participating in different DeFi platforms, always with the intention of finding any financial advantage that allows them to maximize profits.

Without a doubt, this is a form of investing that can generate excellent returns if done correctly and has quickly gained a lot of momentum for its application on many platforms within the crypto ecosystem.

But what are the 4 types of yield farming and is yield farming halal?

Generally speaking, the 4 types of yield farming are as follows: 1) Liquidity Pools, 2) Lending and Borrowing, 3) Staking (proof of stake), and 4) Holding for a Redistribution Fee. As for if yield farming is halal, not all types of yield farming would be considered halal. It depends on the type of yield farming you participate in.

Let’s take a closer look at each of the 4 types of yield farming and let’s see which type of yield farming would be considered halal and if any of the 4 types of yield farming would be considered haram.

What is yield farming?

Yield farming is a formula by which investors try to obtain profits from the storage of cryptocurrencies. With this investment method we have two key factors to consider:

1. Liquidity provider (LP) – A user who brings cryptocurrencies to the market
2. Liquidity reserve (LR) – A smart contract that validates and manages the funds provided by the LP

Basically, in yield farming, LPs obtain rewards in exchange for providing liquidity through their funds, something similar to the interest paid by banks to those who keep money in them for a certain period of time. But one main difference is that in Islam, it is haram to collect bank interest since it is derived from usury, but with yield farming, some types of yield farming are halal. We’ll touch on this more later in this blog post.

How does yield farming work?

In a yield farming system, investors transfer or deposit assets into a smart contract providing liquidity. In exchange for this, the system will offer them a benefit for the immobilization of these assets.

This can be done through specialized platforms that facilitate the whole process, usually on Ethereum ERC-20 tokens, but since there is no single model or a single system to apply this formula, each platform usually applies its own rules, which can be modified from time to time.

What are the 4 types of yield farming?

Here is a list of the main methods of yield farming that you can find in the market. Of course, it is also possible to find some variations of these methods, but in general, they’re as follows:

1. Liquidity pools

A liquidity pool is perhaps the most common form of yield farming. As I already explained, this works with a smart contract that blocks tokens to ensure liquidity on a decentralized exchange platform. The users who provide these tokens are called liquidity providers.

The liquidity pool will hold two tokens in a smart contract to form a trading pair. Suppose there are tokens “A” and tokens “B”. Suppose also that the price of A can be equal to 100 B.

LPs must contribute the same value of A and B to the pool so that someone who deposits an A token will also have to add 100 B to the same contract. So when someone wants to exchange A for B, they can do it based on the funds deposited in the contract, instead of waiting for another user to appear who wants to do the opposite operation – as happens in crypto exchanges.

LPs are then incentivized for their contribution with different types of rewards, which usually are native tokens of the platform that provides the service.

What are the risks of liquidity pools?

Although this activity can be very profitable, it’s important to be aware of the risk of impermanent loss (IL). This means temporary losses of funds due to the high volatility of the trading pair; the higher the volatility, the higher the IL risk.

In this case, the losses are for less money at the time of withdrawal, which means that a liquidity provider can end up with a greater amount of the B token and slightly less of the A token or vice versa. However, IL can be compensated by trade commissions and other additional rewards earned by LPs.

2. Lending and borrowing

The idea behind a lending and borrowing mechanism is very simple: lenders provide funds to borrowers in exchange for a regular interest rate.

In the crypto world, lending and borrowing are carried out through different types of platforms that can be centralized or decentralized.

If we take this to the world of DeFi, both providers and borrowers interact in fully decentralized platforms in which they have total control over their money, thanks to the use of smart contracts that operate mainly on the Ethereum network.

The way this works is very simple: user X sends a certain amount of funds to a lending platform using a smart contract, which will then provide them with earnings in the form of interest, usually in the platform’s native token.

Such a smart contract then becomes a kind of intermediary available to other users of the platform who want to apply for a loan – the money contained in the smart contract. Subsequently, lenders can withdraw their earnings from the platform from time to time in the form of interest in native tokens.

As a general rule, for a user to be able to request a loan in native tokens, he must previously deposit in the form of a guarantee, an amount in another cryptocurrency, equal to or greater than the amount of the loan that he’s going to request.

What are the risks of lending and borrowing?

Although this financial activity is usually quite safe in the DeFi context, there are also a couple of aspects that need to be considered.

First, there is always the possibility that the smart contract used for the operation receives some type of manipulation. This is more likely in the cases of smart contracts provided by third parties.

On the other hand, borrowing APYs on some cryptocurrencies could suddenly go up for some reason, which could lead to the most careless users ending up paying more than expected.

3. Staking (proof of stake)

Staking within the universe of cryptocurrencies involves keeping a certain amount of funds in a wallet in order to obtain yield for keeping this crypto locked up or “staked” on a blockchain.

This action of holding funds in a crypto wallet, also known as staking, serves to support the security and operations of a blockchain network by validating transactions on the network. In return, they are able to generate yield, or rather, earn cryptocurrency, for providing such a service to the network.

This consensus system is known as Proof of Stake (PoS) and is based on the fact that to obtain consensus, users must demonstrate possession of the indicated funds.

The idea is that users block cryptos and from time to time, the network randomly assigns the right to one of them to validate the next block, the probability of being chosen is directly proportional to the amount of frozen funds held on the network.

In this system and unlike what happens in other consensus mechanisms – such as PoW in Bitcoin – the users who act as validators, don’t compete with each other using the computing power of their equipment, but instead, put up a share of assets to certify that they’ll validate transactions in an honest way.

What are the risks of staking?

In the case of staking, you have to consider the risk of keeping a high amount of funds locked on a blockchain for a long period of time. Remember that there can always be attacks on these platforms that end in the partial or total loss of the funds held, something that has already happened on many occasions.

In addition, in some cases, these funds are placed in the hands of third parties, which implies a risk if there is an internal theft attempt on the platform.

4. Holding for a redistribution fee

Some decentralized exchanges facilitate the buying and selling of different crypto assets between users, but they do so through a model called automated market making (AMM).

Users can add their inactive tokens to the liquidity pools available on the platform and earn passive income according to their contribution and at the same time, other members can exchange tokens from these liquidity pools – the profits go to the community of users.

In the case of SushiSwap for example, anyone can provide liquidity through its internal app. When they do, they’ll receive SLP tokens (SushiSwap Liquidity Provider tokens). For example, for a $SUSHI and $ETH pair, the user would receive SUSHI-ETH SLP tokens.

Any user can create a new liquidity pool simply by providing a new pair, and it’ll be the proportion of tokens that the user adds, which will set the price of this new liquidity pool.

Afterward, other users can trade any ERC-20 token and when transacting on SushiSwap Exchange, a fee of 0.3% will be charged and 0.25% of this trade will go back to the users that make up the LP group.

In exchange for maintaining liquidity in these groups, LPs are rewarded with these fees, in addition to a portion of the SUSHI minted daily on the platform. The best part is that users can claim their funds at any time.

What are the risks of holding?

As with any liquidity pool, there is a risk of suffering losses due to IL, but also that the borrowing APY goes up in price or that the platform suffers from theft of funds.

BONUS

5. Hodling

The term “hodling”, also known as “hold on for dear life” in the crypto world, is used to define those who simply hold onto their cryptocurrency as a long-term investment strategy without worrying about the rise and fall in the price of tokens.

This is not a form of yield farming in its most pure essence, but you can also see it that way for your convenience – especially if you don’t have experience with crypto finances.

Hodling is a strategy used by people who don’t have the skills or the time to perform other types of operations, so these people invest in well-established projects for long-term investment.

The objective of hodlers is that, over time, the value of the selected cryptocurrency will increase, so the most common strategy is to invest in the purchase of relatively new cryptocurrencies with very low prices so that, as the value of these assets increases, they can, insha’Allah, make a good profit on such an investment.

This form of “yield farming” has proven to be one of the strategies that has worked best for Bitcoin users.

For example, if you had invested $1,000 to acquire 1,000 BTC when the price was at $1 during 2011, at the time of publishing this blog post, you would have approximately $60 million in a period of only 10 years!

What are the risks of hodling?

HODLing won’t increase the number of cryptocurrencies you have in your hands. This means that you will only make a profit if the cryptocurrency increases in price in the long term. But remember that the opposite could also happen, with which you would lose money instead of increasing.

Is Yield Farming halal?

Is yield farming halal? When it comes to yield farming, staking, as in Proof of Stake, is generally considered halal, while the other 3 types of yield farming, liquidity pools, lending and borrowing, and yield from redistribution fees would be considered questionable or even haram.

Proof of Stake is generally considered halal as you are earning yield for providing security to the network. This is obviously assuming that the network itself is not dedicated or established for some haram type of activity.

Earning yield from liquidity pools could be halal so long as the pool itself is not being used for haram operations such as loaning money to others to earn interest on the loan. Muslims should strive to not purposely put themselves in situations where they are directly contributing to what is known to be haram.

When it comes to earning yield from lending and borrowing, many scholars would say that this is haram as the objective of most DeFi projects is to establish lending and borrowing contracts that will allow the lender to earn money from interest. However, this may change if lending and borrowing contracts are established under Islamic finance investment tools such as “Murabaha” or other sharia compliant guidelines.

And as for earning yield from redistribution fees, this could also be seen as halal since you are providing a service to the platform so long as the purpose of the platform or DEX is not a lending pool where the goal is to earn interest off of loaning money by way of crypto.

All of this is said by making the assumption that the cryptocurrency you are using for yield farming is already seen as halal by scholars.

Final words

We have now explored the most common types of yield farming strategies, acknowledging that there are many variations in them. If your intention is to enter the world of yield farming, you should first familiarize yourself with the operation of the different platforms that offer this form of investment making sure that they are in harmony with Islamic principles.

Take into account that if you don’t understand what you are doing, you’ll probably lose money. Remember that the most profitable yield farming strategies are also the most complex ones and are recommended for advanced users.

It is not just about buying crypto when Elon Musk makes a comment that boosts its price, but there is a whole range of possibilities to earn much more money out there in a halal way. You just have to be well prepared and do your research.

May Allah guide you to success, Ameen.

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In 2017 I wrote a blog post called, Is Bitcoin Mining Halal or Haram?, and we came to the conclusion that at that time there was no consensus among scholars about whether mining Bitcoin is halal or haram. Rather, we stated that Bitcoin mining is halal because there was no obvious evidence to suggest that mining Bitcoin is haram.

However, years later, this question is still being asked by many so I figure it’s time for an update.

Is cryptocurrency mining halal or is Bitcoin mining halal? The simple answer is, yes. Bitcoin mining is halal. Bitcoin mining is nothing more than the act of verifying transactions on the Bitcoin blockchain by a Proof of Work protocol. Bitcoin miners who successfully verify transactions are providing a service to Bitcoin users as well as providing security to the Bitcoin network and they are rewarded Bitcoin for their effort and there is nothing haram with this.

Great! You have an answer to your question. But now you must be thinking, but what about those who say Bitcoin is haram and in addition to that also say, or imply, that Bitcoin mining is haram?

If this is your thought process, then please read on.

Is mining crypto haram?

In my previous blog post, Is Bitcoin Halal? 10 Scholars’ Opinion on Bitcoin, I noted that some scholars have said that all aspects of cryptocurrency are haram and this includes mining Bitcoin.

Two of the main reasons some scholars have said that crypto mining is haram are:

1. Bitcoin (or any cryptocurrency for that matter) is not backed by a government; therefore, all aspects of Bitcoin, including mining bitcoin, is haram since there is no government approval.
   
2. Bitcoin mining is resource intensive and uses too much energy which in turn is bad for the environemnt; therefore, Bitcoin mining is haram.

But how accurate are these two reasons as to why some scholars would rule Bitcoin mining as haram and can we say that the above-mentioned reasons are, reasonable?

Bitcoin backed by government

For those scholars who say that all aspects of Bitcoin are haram because Bitcoin has no government backing, they mean that governments do not recognize Bitcoin as currency, money, or legal tender; therefore, Bitcoin, and this includes Bitcoin mining, would be seen as haram.

However, over the past 10 years since Bitcoin has been around, more and more governments have changed or updated their laws allowing their citizens to participate in crypto markets with governments recognizing Bitcoin as either a currency, an asset, or even property.

2021 has also marked the first time that a country’s government has not only allowed the permissibility of Bitcoin use for its citizens, but it is the first time that a government has also recognized Bitcoin as legal tender. In other words, we finally have Bitcoin backed by a government.

In June of 2021, President Nayib Bukele of El Salvador made history by passing a bill in the Salvadorian congress making it a law approving Bitcoin to be used as legal tender.

This now begs the question, since Bitcoin is backed by a government, El Salvador, is it then halal for Muslims in El Salvador to use Bitcoin? It seems that the answer would be, yes.

And what about mining Bitcoin? El Salvador has not only recognized Bitcoin as legal tender but the government will launch a Bitcoin mining initiative for the country as well. We’ll touch on that later in this blog post.

Now, are we saying that all countries recognize Bitcoin as legal tender or all countries approve the use of Bitcoin – and this includes Bitcoin mining – of course not. We know that China has just recently banned Bitcoin mining in their country.

Update: China has now banned ALL cryptocurrency activities.

Regardless of this, we are observing a growing acceptance by governments worldwide to explore the use of cryptocurrencies in their countries and/or allow their citizens to use cryptocurrencies even when there are no clear laws or guidelines in place or even if the government does not implement a law stating that Bitcoin is legal tender.

Bitcoin energy consumption

Another argument made by some scholars as to why Bitcoin mining is haram is because it is commonly stated that Bitcoin mining electricity consumption utilizes large amounts of energy to mine transactions and is therefore bad for the environment.

This has also been mentioned by our sheikh, Assim Al Hakeen, and I have touched on this in a blog post called, 10 Reasons Why Bitcoin is Haram. Sheikh Assim Al Hakeem Bitcoin Fatwa.

I have also been of the mindset that Bitcoin mining is resource-intensive and uses a high amount of energy to mine Bitcoin. However, the question that I failed to ask myself was, Bitcoin mining is resource-intensive compared to what?

When comparing Bitcoin mining to the energy consumption of the banking and gold industry, two industries that Bitcoin is regularly compared with, then we begin to see a different story.

Galaxy Digital has released a report called, On Bitcoin’s Energy Consumption: A Quantitative Approach to a Subjective Question, which states that Bitcoin mining uses less than half the energy of what is used in the banking or gold industry.

The chart below shows that the banking industry uses around 263.72 TWh per year and the gold industry uses about 240.61 TWh per year and Bitcoin uses less than half the energy of both of these industries, 113.89 TWh per year.

So, is Bitcoin mining resource-intensive? Does Bitcoin mining use a lot of energy? The answer is, yes. But so are other industries that are a mainstay of human life – the banking and gold industry. As we stated, annually, they both consume more energy than Bitcoin.

So if the argument is that Bitcoin mining is haram because it is resource-intensive and not environmentally friendly, then the same argument must be made for the banking and gold industries.

So what are possible solutions? Are there alternatives as to how we can mine or verify Bitcoin and cryptocurrency transactions in a manner that is environmentally friendly?

The answer to that is, yes. We are now seeing cryptocurrencies such as Cardano, Dash, and Ethereum already utilize or plan to move to a Proof of Stake (PoS) protocol which utilizes less energy consumption than a Proof of Work (PoW) protocol.

Cardano claims that their PoS protocol utilizes 6 gigawatt-hours of energy annually which is far less than Bitcoin. Now, will we see Bitcoin move to a PoS protocol? I doubt it, as many Bitcoin advocates hold the belief that Proof of Work is the most robust and secure way to secure the network and do not want to see that change, but it could be that future cryptocurrencies will put their focus on PoS rather than PoW to address environmental concerns.

In addition to moving to Proof of Stake, another solution would be to utilize renewable or clean energy for mining cryptocurrencies.

Remember how we noted that El Salvador has also launched a Bitcoin mining initiative? Well, the El Salvadorian government is planning to utilize their geothermal resources, volcanic energy, to mine Bitcoin thus making Bitcoin mining environmentally friendly by utilizing renewable and clean energy.

So, do we finally have Bitcoin that is backed by a government? Yes.

Do we have Bitcoin being mined by clean energy or do we have cryptocurrencies moving to a more environmentally friendly way of verifying transactions by protocols such as Proof of Stake? Again, yes.

Since this is the case, then I foresee scholars changing their opinions on their ruling of Bitcoin and not making such blanket statements.

Muslim countries and cryptocurrency mining

Now you may be saying, well, that all sounds great for El Salvador, but what about Muslims in Muslim countries? Is cryptocurrency mining halal in Muslim countries?

Well, I have another blog post called, Muslim Countries Where Bitcoin Is Legal Or Illegal, where you will not only see a list of Muslim countries and their legal stance on Bitcoin but you will also see that some of the countries highlight cryptocurrency mining initiatives that are underway in their respected countries.

Pakistan is one of those countries. Pakistan has launched a cryptocurrency mining initiative for the province of Khyber Pakhtunkhwa to build Bitcoin mining farms with the hopes of opening up their mining farms to investors in the future.

Kazakhstan has also been taking lead in the Muslim world when it comes to having government-backed cryptocurrency mining initiatives and has already produced a number of cryptocurrency mining farms.

In an article by Aizhan Abilgazina, A New Kind of Mining: Kazakhstan Stakes Its Claim in the Cryptocurrency Industry, Aizhan states,

Kazakhstan has seen a significant growth in cryptocurrency mining activities with around $200 million having been already invested in 13 mining farms that are operational around the country with four more under construction.

By Aizhan Abilgazina

The Kazakhstan government also has plans to actively seek outside investors who are seeking cryptocurrency mining in their country.

Last month, Kazakhstan’s minister of digital development, innovation and aerospace industry, Askar Zhumagaliyev, announced that the department is planning to attract 300 billion tenge, or $738 million, worth of investments by 2023 for activities related to cryptocurrency mining.

Source – Asia Times

The only downside I see to cryptocurrency mining in Kazakhstan is that half of their energy consumption comes from coal and coal tends to be considered as “dirty energy”.

Conclusion

Again, we are seeing an evolution as to how governments, more specifically, Muslim governments, are interacting with cryptocurrency and the blanket argument that Bitcoin does not have government backing and therefore Bitcoin mining is haram does match realities on the ground.

And in all fairness, many of the scholars who said that Bitcoin and Bitcoin mining is haram had declared such opinions years ago. Times change, new information becomes available, and it may be that these scholars have also changed their opinion.

We have come a long way since Bitcoin and cryptocurrency hit the world stage over 10 years ago and as our overall understanding and education of cryptocurrency has evolved, so has the opinion of our scholars.

So, is Bitcoin mining halal? According to a number of scholars, yes. You are providing a service and being compensated for that service. The only thing you must do now is to check your government’s legal rulings on cryptocurrency.

And in the end, Allah knows best.

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Even though today, the interest of the general public in cryptocurrencies has increased considerably, there is still a need for projects to focus on ease of use in order to increase mass adoption of this new technology.

Dash is a cryptocurrency that was born with this idea in mind; a solution to make person-to-person payments in a quick, easy, and effective way, differentiating itself from other projects by presenting interesting and new features for mass adoption of cryptocurrencies.

The great effort that the team behind Dash has been making to promote this cryptocurrency in regions heavily hit by economic and political crises, such as Latin America, has resulted in a growing popularity of its cryptocurrency.

In this guide, you’ll learn what is special about Dash and why we think it has a promising future. Let’s get started….bismillah. (In the name of Allah).

What is Dash crypto?

According to its White Paper, Dash is a digital currency that’s based on the fundamental idea behind the creation of Bitcoin, but providing some elements of its own, such as the use of masternodes and interfaces to access specialized services such as PrivateSend and InstantSend, which allow the sending of money privately and instantly in an easy way.

As with Bitcoin, Dash also has a limited production of coins, standing at 18,900,000 Dash units, a limit that according to its developers, will be reached around the year 2150.

The Dash network is also more “dynamic” than other blockchains, since a Dash block is generated every 2.6 minutes, and the reward within each block is reduced each year by 7.14%, much faster than what happens with other cryptocurrencies like Bitcoin.

This provides a more dynamic, fast, and stable network, ideal for day-to-day use.

The beginnings of Dash

The first version of the Dash software was named XCoin and was released on January 18, 2014, following an announcement on the famous BitcoinTalk forum from its creator, developer Evan Duffield.

The community around the project considered that the XCoin name was uncommercial and flashy, so on February 28, 2014, the name was changed to Darkcoin.

However, this name would also be short-lived, as they thought that it could give a negative perception about the coin to many users, so finally, on March 25, 2014, it was changed to Dash, a reduction of “Digital Cash.”

The cryptocurrency had a somewhat bumpy start since shortly after its launch, the network presented some technical failures that, however, were quickly resolved. After this, the development team has been growing at a constant and stable pace.

Finally, in December of 2017, and thanks to the boom in the cryptocurrency market, Dash reached an all-time high price of $1,642.22 USD, which served to place this cryptocurrency among the most desired assets in the market.

How is Dash different from Bitcoin?

As usual, let’s see how Dash compares to Bitcoin, the most popular cryptocurrency.

The consensus algorithm

Here is where we can find the main difference between both cryptocurrencies; while Bitcoin uses the Proof of Work (PoW) algorithm, Dash uses X11, a combination of PoW and PoSe (Proof of Service).

This feature already makes Dash a much more scalable, dynamic, and sustainable cryptocurrency over time. Additionally, Dash uses CoinJoin mixing to facilitate private transactions within the network.

Transactions

In Bitcoin, the system requires that transactions are validated by the entire set of nodes that make up the network; this avoids requiring a central authority to perform this process.

The problem is that the PoW-based mining system requires a continuous and increasing investment in different resources like hardware, energy, and time. All this contributes to slowing down transactions within the network, but also in making them more expensive.

To solve this problem, Dash uses a masternode-based system. In this system, a subset of users that are part of a kind of staking pool, have special privileges to offer services within the network, at the same time that they receive rewards as a form of payment for their work.

Governance system

While Bitcoin requires the support of a community of academics to continue evolving, Dash has its own self-financing model. In this case, the system splits the rewards between masternodes, miners, and treasury.

Masternodes are the pieces that receive the highest percentage of rewards, and at the same time, they are the ones with the voting power to decide the future direction of the network. Another percentage of the rewards goes to the treasury which will then use the funds to finance future projects that might arise from these voting decisions.

The Dash network power resides in the masternodes

Masternodes are full nodes in the Dash blockchain whose main objective is to ensure the proper functioning of the network. Basically, it’s as if they were supervisors within the blockchain since they must control the updated consensus, the development process, and the economic system on the network.

Masternodes must verify, validate and/or reject new blocks generated by miners, but also provide services that are essential to the blockchain, such as PrivateSend and InstantSend.

Due to their importance and the work they do, masternodes must be rewarded when miners spawn new blocks. In this model, the rewards are distributed as follows:

• 45% for miners
• 45% for masternodes
• 10% is reserved for the budget fund (treasury)

All this is possible thanks to the particular mining model on the Dash blockchain.

In this model, the mining nodes try to solve the mathematical problems imposed by the X11 algorithm – specific to Dash – while the masternodes take care of the rest of the functions in the network.

It’s thanks to this system that Dash can implement many of its features, the main benefit being a great improvement in the security and scalability of the blockchain in general.

Any user can be a masternode, but there is a condition for this: each masternode must have a stake of a minimum of 1,000 Dash as collateral in order to participate. This model helps to control the number of masternodes within the network.

How Dash will improve user experience

The objective of this cryptocurrency is clearly defined on the official Dash website:

“To be the most user-friendly and scalable payments-focused cryptocurrency in the world.”

Dash Core Group, one of the organizations behind the cryptocurrency, has been promoting Dash as a digital currency focused on the transfer of value, to be used on a day-to-day basis, quickly, easily, and safely, including all types of users and institutions.

For example, in 2018, the Dash team began promoting their cryptocurrency in the Latin American region, specifically in Argentina, Colombia, and Venezuela. The cryptocurrency has gained wide acceptance in these countries thanks to its ease of use, especially in Venezuela, due to the great popularity that cryptocurrencies have in this country.

Let’s take a closer look at the features of Dash that have made this cryptocurrency so attractive for many people.

InstantSend

InstantSend is a service that allows for super-fast transactions. For this, each transaction that uses this service is sent to be verified and validated by community consensus in the masternode network.

The transactions and blocks that present any conflict are rejected, and in case of not reaching an immediate consensus, the validation is then carried out through the standard system of validation.

PrivateSend

PrivateSend is an optional service that a user may select when it is necessary to keep one’s information private.

PrivateSend is a service that combines transactions in different currencies using the masternodes and the CoinJoin protocol. Each transaction that PrivateSend uses is the product of a combination of funds that come from a minimum of three different places.

In other words, the transactions of one user are combined or “crossed” with those of other users to make it much more difficult to trace transactions. This combination occurs within a masternode, without the need for information exchange that may reveal the identity of the involved users thus providing them security and anonymity.

Dash Platform

Dash Platform is a powerful set of cloud-based tools for developing decentralized applications (dApps) on the Dash blockchain.

Developers can use these tools and integrate them into their own applications quite quickly and easily through various SDKs (Software Development Kits) available on the platform and add different types of functions to their applications such as:

• A decentralized payments infrastructure
• Application data storage
• A user registration and identification system
• A robust cryptography system to secure user data and operations

The platform is designed in such a way that it makes the development and integration of applications in the Dash network much easier, while significantly reducing their development time.

DashPay Wallet

DashPay is a crypto wallet available for Android and iOS that has been developed using the tools available on the Dash Platform. DashPay is an application that brings interesting functions to the ecosystem. With DashPay wallet, normal users can:

• Create a unique user ID on the blockchain
• Create and customize a user profile
• Add a contact book to make payments
• Search contacts by username
• Make instant payments using only username

This new system allows the long cryptographic addresses that are typical of cryptocurrency wallets, to be exchanged for a simple username so that it is much easier to send money to other people using only the recipient’s username.

This form of identity within the blockchain is not limited to just the wallet address, as this system also allows you to add a profile photo, display name, and a short biography.

In addition, being based on contacts and not wallet addresses, once you have made a payment to other users, you can also add them as contacts for future payments, saving you from the long and tedious work of copying and pasting cryptographic addresses.

Once a username is registered, you’ll only have to pay a small fee to securely store your data on the network, including your profile photo, username, and contacts. Once the payment is confirmed, this user profile will be permanently recorded on the blockchain and you won’t be able to modify it.

FastPass

FastPass Network is an initiative that allows users to make deposits, transactions, and withdrawals almost instantly within a network of partner platforms.

The goal of FastPass is to provide a better trading experience for Dash users through a reputable partner network made up of a set of companies that offer different services related to the crypto ecosystem.

Some of the large organizations that are already part of this platform include:

• Coinbase
• CoinbasePro
• Liquid
• KuCoin
• Binance
• OKEx
• HitBTC
• WhiteBIT
• Indodax
• eToro
• Hummingbot
• Quadency
• Messari
• IntoTheBlock

Among many others.

This service operates through InstantSend or ChainLocks, which allow users of the associated platforms to perform operations with Dash with greater speed and security, and with much more competitive fees.

DashText

DashText is a special service that allows Dash users to create a wallet using just a phone and an SMS text message. This system was developed to make the use of Dash easier and more accessible in areas with very poor internet connection.

It is a solution designed especially for those who don’t have a smartphone to use Dash. This program started in Venezuela and has been spreading to other countries in the region. It is a free service with which it’s only necessary to send a text message to check your balance and the price in the market, but also for sending and receiving Dash.

Conclusion

Dash’s vision is pretty clear:

Provide a fast and efficient payment platform for as many users as possible around the world.

The Dash ecosystem already has partnered with almost 5,000 merchants and service providers around the world; they’re providing a quick and accessible payment system to hundreds of thousands of users in many countries. This vision is what has allowed it to gain wide acceptance among a large number of users, especially in certain regions of the world.

In general, the growth of Dash and its platform has been quite successful, even though the value of the cryptocurrency in the market does not reflect this great success.

Even so, it’s an asset with a very promising future, since the organizations behind the project continue to add improvements in their effort to obtain massive adoption of this cryptocurrency.

As always, even though Dash is a project worth keeping an eye on, you must also consider the risks involved when investing in any type of cryptocurrency. Never invest money you can’t afford to lose.

And in the end, Allah knows best.

If you’re relatively new to the world of cryptocurrencies, then you may have heard of Proof of Stake, Proof of Work, or Proof of Authority.

But what is Proof of Stake, Proof of Work, and Proof of Authority?

Simply put, Proof of Stake, Proof of Work, and Proof of Authority are protocols used to achieve consensus, agreement, and validation of a transaction or transactions on a blockchain.

However, it’s likely that some of these terms are still unknown to you, and since it’s very important to know what each one means in order to better decide which crypto asset to invest in, we’ll analyze in detail the different consensus mechanisms available today:

Proof of Work, Proof of Stake, and Proof of Authority.

What is Proof of Work?

Proof of Work (PoW) consists of a series of expensive computer calculations that must be performed to create a new transactions record (block) in a decentralized database called, blockchain.

This is known as “mining,” and it has two purposes:

1. Verify the legitimacy of a transaction, avoiding double spending.
2. Create new cryptocurrencies and reward miners for their verification work.

This system works in the form of a computer algorithm and allows the existence of a trustless distributed consensus.

This means that if you want to send and/or receive money from another person, you don’t need to trust the service of any intermediary who verifies the legitimacy of the transactions – be it a bank, Visa or PayPal.

With Bitcoin and other cryptocurrencies, everyone has a copy of the main register called blockchain, so anyone can verify the records of the operations.

How does Proof of Work work?

When someone performs a transaction on the blockchain, the network – specifically the mining nodes – must perform a series of operations:

• Organize each transaction together with others in what is known as a “block.”

• Solve a mathematical problem (Proof of Work) to verify that these transactions are legitimate.

• Give a reward to the first miner who solves the mathematical problem of a specific block.

• Store each verified block in the public database.

What the blockchain does through the PoW algorithm, is trying to detect possible manipulations in the blocks – by malicious users – by means of a hash, a long row of unique and unalterable numbers that is the proof of the work accomplished.

What work?

That each transaction is unique and was correctly validated by most of the nodes that make up the blockchain.

If any transaction had been manipulated at some point in the chain, a completely different hash would be generated, causing a ripple effect throughout the chain, producing a different hash on all subsequent transactions.

The result would be an unrecognizable blockchain that is not in consensus with the public and distributed version that most nodes have, making that chain rejected by all.

Some Proof of Work coins

Bitcoin (BTC)
Created in 2008 by the mysterious Satoshi Nakamoto, it’s the most famous cryptocurrency. Its value hasn’t stopped growing.

Ethereum (ETH)
Decentralized platform for the creation of smart contracts and decentralized applications (dApps) that has its own currency, Ether.

Litecoin (LTC)
It’s a currency very similar to Bitcoin, but its platform is faster when making transactions.

Pros and cons of Proof of Work

Advantages of Proof of Work

• Eliminates the figure of a trusted third party, which allows decentralization

• It makes hacking the blockchain extremely difficult due to the large amount of computing power required to do so

Disadvantages of Proof of Work

• High energy consumption – as much as a small country

• The large amount of hardware resources needed today to mine centralizes the mining power in a few privileged groups

• If 51% of the nodes agree, they could force changes in the network.

• Slowness in processing transactions

• Poor scalability

Is Proof of Work halal?

Is Proof of Work halal? Yes. Proof of Work is halal. Even though there has been debate among some scholars that the Bitcoin network PoW protocol utilizes high energy consumption, we can still say that the technology and function of the Proof of Work protocol is halal as the miner is providing a service by securing the blockchain network.

And in regard to the high energy consumption argument of Bitcoin’s Proof of Work protocol made by some scholars, the counterargument is that the banking and gold industries consume more energy than the Bitcoin network yet we do not have a blanket ruling saying that the entire banking and gold industry is haram.

Here is a great article that touches on this subject, Is Cryptocurrency Mining Halal? UPDATE.

What is Proof of Stake?

As with Proof of Work, Proof of Stake (PoS) is a consensus algorithm designed to reach the same goal: achieving network consensus to validate transactions and avoid double-spending. But PoS does this in a different way.

In a PoS-based system, there are also miners (validators), but they don’t compete with each other through the computing power of their computers; in PoS, the algorithm assigns computing power based on the percentage of cryptocurrencies that each miner retains on the network.

This means that the higher the percentage of cryptocurrencies that the miner owns, the higher the percentage that they can extract from a block.

Of course, the validators will be rewarded for their participation in the process, always based on the percentage of participation they have.

If a validator tries to cheat the system, it’ll punish them by taking away a high percentage of their cryptocurrencies and even ban them from the network. In this way, validators are forced to work honestly for the benefit of the community and their own.

Some Proof of Stake coins

Ethereum 2.0 (ETH)
Although Ethereum still uses a PoW mechanism today, the next big update (Eth 2.0), will remove PoW to implement PoS.

Cardano (ADA)
Cardano is a platform very similar to Ethereum in its basic premises, but with important improvements to blockchain technology, incorporating PoS natively.

Tron (TRX)
Another of the most important cryptocurrencies that incorporate smart contracts and dApps. With Tron, you can also earn staking rewards.

Pros and cons of Proof of Stake

Advantages of Proof of Stake

• Miners don’t need expensive equipment to perform large amounts of complex calculations, which significantly reduces energy, costs, and time in mining.

• In order for an attacker to gain control of the network, he’d need to obtain 51% of all assets on it, for which he’d have to steal from every owner on the network.

• To be part of mining with PoS, you only need an internet connection, a computer, and a stake other than 0 in the cryptocurrency. This allows many more people to participate in the process.

• A blockchain with PoS can process hundreds of thousands of transactions per second, compared to the hundreds of transactions per second that PoW networks can process.

Disadvantages of Proof of Stake

• A rich person could get to centralize the control of a PoS network, since the more assets she can buy, the more control she’ll have over the system. However, this is still up for debate.

Is Proof of Stake halal?

Is Proof of Stake halal? Yes. Proof of Stake is halal. Proof of Stake (PoS) is simply a protocol used to validate transactions and secure a blockchain network by “locking up” or “staking” cryptocurrency on the blockchain for a period of time and then earning cryptocurrency as a reward for staking. This is halal since you are providing a service to secure the blockchain network.

What is Proof of Authority?

Proof of Authority (PoA) is a relatively new consensus protocol used on the blockchain. This protocol is based on the “reputation” factor of the people or entities chosen to participate in a blockchain.

PoA is a practical and efficient solution especially for private blockchains since it makes use of the weight of real identities for the validation of blocks within a blockchain.

In short, here the miners or validators offer their identity and reputation as a guarantee of transparency.

This feature limits the number of validators that can be part of the blockchain, but at the same time, it gives high scalability and speed to the network, not to mention the high level of security.

How does Proof of Authority work?

The first condition in PoA is that validators must be chosen randomly. This is done through a voting system run by other nodes that have prior authorization.

This also serves to prevent the inclusion of malicious nodes that could affect the operation of the system.

Since the identity of a person or institution can be very valuable elements for each entity, each validator must reveal who they are voluntary, in order to establish responsibilities in the operation of the network.

In this way, any attempt to carry out a malicious act against the integrity of the network will fall on that person or institution, something that would undoubtedly damage their reputation and could make them lose a lot of money.

At the same time, and to further increase security and limit the level of damage that a malicious entity can cause, each time a validator has their corresponding turn, they’ll only be able to sign one block at a time of a whole consecutive series.

In addition to this, the system must have the ability to remove from the network any validator that acts dishonestly.

Basically, the PoA consensus renounces the basic premise of decentralization and opts for a model based on trust.

Some Proof of Authority coins

VeChain
VeChain is a blockchain platform that specializes in enterprise supply chain management. VeChain utilizes PoA based on their 101 Authority Master Nodes.

Pros and cons of Proof of Authority

Advantages of Proof of Authority

• It’s a practical and efficient solution for private blockchains

• Allows high scalability and speed of operation on the network

• High level of security through access control

• As it doesn’t require a mining system as in the case of PoW, it’s a model pretty friendly with the environment

Disadvantages of Proof of Authority

• It’s a centralized and distributed model with only a few participants controlling the network

• Validators’ identities are exposed, leaving them vulnerable to malicious third parties

• Facilitates censorship and blocking of any “undesirable” entity

• Any user with malicious intent could be added to the list of signers, compromising the network

Is Proof of Authority halal?

Is Proof of Authority halal? Yes. Proof of Authority is halal. Proof of Authority (PoA) is simply a consensus protocol where the blockchain is secured by the reputation of people or entities who participate on the blockchain. This is halal.

Which is best, Proof of Stake, Proof of Work, or Proof of Authority?

Each consensus mechanism we have mentioned has its advantages and disadvantages, as for which is best, this really depends on factors needed by the organization such as:

1. The level and type of security needed for the network
2. If the network will be public or private
3. The ability to easily scale with the growth of the network
4. The priority and desire of the organization to be more eco-friendly
5. Which model can offer more incentives to users of the platform

Proof of Work presents a high-security protocol for crypto such as Bitcoin, and the best example is that in its more than ten years of existence, the Bitcoin network has never been successfully attacked. However, the protocol has the problems of low scalability and resource consumption.

On the other hand, the Proof of Stake consensus solves several of the problems that PoW presents, especially in terms of scalability and sustainability, but it’s a technology just beginning to be used and could still present flaws.

For its part, the PoA mechanism presents a certain degree of balance between security, scalability, and efficiency, only that it’s a network not suitable to be used in large public environments.

Due to the problem of climate change, many experts assure that PoW will die in a few years and that the future will remain in the hands of PoS, leaving PoA only for use in some networks for private use. This is still up for debate.

Conclusion

The three security mechanisms that we’ve talked about, are the main players in the crypto ecosystem today. While one is committed to power and safety, the other two are committed to efficiency.

However, no technology is perfect. Although today Proof of Work algorithms are winning the race, tomorrow this could change.

Several large PoS-based projects are very close to being ready for use, such is the case of Ethereum 2.0 and Cardano. A great battle between these technologies may start soon, but it’ll be the users who will determine who will win the battle. The future will tell.

And in the end, Allah knows best.|

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