السماء لا تمطر ذهباً ولا فضة One Gram

Personal preference: AA would remove the "l" above.  3:160

No, AA hasn’t branched out into pharmaceuticals. 

An article in Gulf News caught my eye “Buy Property in Dubai with Crypto-currency.” 

“OneGram will go live in June next. Investors in MAG properties will purchase OneGram to the value of the property and receive a 5 per cent discount on the property price as a result. The OneGram will then remit to MAG according to the payment plan, which is 35 per cent over six to nine months and 65 per cent on completion at the end of 2019”

At first blush this sounds like a great deal.

Assume you want to buy that corner unit in برج أوهام for AED 3 million.  Right off the bat you’ve saved AED 150,000.

But a closer look indicates that the deal may not be as sweet as the result of patience. 

Let’s look at the Shari’ah whitepaper prepared by OG’s advisor, AlMaali Training and Consultancy, specifically at the fee discussion on pages 16-17.

First, there is a 10% purchase fee equal to the amount of OG one wants to buy.  That’s 10% of AED 2,850,000 (95% of AED 3 million).  Or AED 285,000.   Oops, we now appear to be AED 135,000 in the red.  (AED 150,000 less AED 285,000)

But as they say “wait there’s more”.  There’s also a 1% transaction fee for another AED 28,500 for a grand total of AED 163,500. 

Thus, we’ll pay AED 3,163,500 for our AED 3,000,000 apartment. 

And as per the above quote, we’re required to pay 100% of the price to OG up front who will then carefully safeguard 65% of our funds until 2019 (roughly two years) when MAG is owed the money.  No interest paid I suppose since this is an “Islamic” financial instrument.  No need for any present value calculations even if based on "profit rates" as opposed to interest rates.

Despite all this, we can take comfort from using an innovative new Islamic financing tool and helping a deserving firm make a nice profit.  Can’t we? 

If you’re wondering, the 10% entry fee is used for the following purposes:

1. 5% (or 50% of the total fee) for long term business development. 
2. 1.5% (or 15% of the total fee) for marketing costs. 
3. 1.5% (or 15% of the total fee) for operations –gold transport, fee for offering spot price, storage, insurance. 
4. 2% (or 20% of the total fee) for salaries.

The 1% transaction fee is allocated as follows: 

1. 70% to buy additional gold to back each OG token.  What this means is that over time more than one gram of gold will back each token.  Of course, if you sell your OG, you don’t share in this benefit. The chap who buys from you does unless some how you can work that future benefit into the selling price you receive. On that basis, the business logic of this mechanism escapes AA.   If one uses OG as a medium of exchange, the benefit of this feature would appear to be small.  If one were getting OG tokens for free as a “miner” or perhaps in some other way (founder), this could be quite attractive. Having said that another Dubai-linked gold cryptocurrency Currensee has a similar mechanism, though 80% of the their 1% transaction fee will purchase additional gold.  Interestingly their maximum transaction fee appears capped at USD 10.  Currensee whitepaper page 9. 
2. 10% for operations and development.  The whitepaper has an error here and in the next two categories.  It states 2.5%, though from the numbers provided example it’s clearly 10%. 
3. 10% for charitable contributions. 
4. 10% for the “miner” reward with the caveat that under Shari’ah there can be no guaranteed returns.  It’s unclear what this is all about on two fronts.  First, the whitepaper describes the “miner” as the “investor”.    Second, if this is truly a transaction fee, it would seem that it would be perfectly halal.

There’s a different version on the allocation of the 1% transaction fee in the English “whitepaper” written by I.M. Khan in categories 2 to 4 above.  On page 6 the operations and development fee is 25% (Currensee takes 20%) and the charitable deduction and mining fee (here clarified as a fee for blockchain processing) are each 2.5%.  In IMK’s estimation the transaction fee is “minimal” compared to “traditional banking” (page 2). 

Analyst disclosure:  In all AA’s personal traditional banking relationships I pay no more than a flat USD 45 fee for a payment.  This is with both OECD and non OECD banks. The firm I work for has an even smaller cost. 

All OG’s fees—set on transaction amounts--look like a sweet deal for someone but perhaps not necessarily investors in OG.

By comparison Bitcoin’s transaction fees are a flat per transaction fee not a percentage of the amount.  Recently, there was a bit of a hue and cry over a temporary spike in Bitcoin’s transaction fee to USD 26.  At OG, you could move USD 2,600 equivalent for that fee!  If you wanted to move more, the OG fee would be higher.  

Bitcoin transaction fees vary by demands on the capacity of the (Bitcoin) Blockchain, resulting from what appears to be a rather small maximum size per “block”.  If one is not in a hurry to complete a transaction, one can simply offer a lower fee and wait until the higher fee offering transactions have cleared. As might be expected “miners” prioritize transactions based on the block processing fee they will earn.  

As to entry prices, Bitcoin has a typical trading bid/ask spread which fluctuates with market conditions and is not a fixed percentage cost. 

Second analyst disclosure, AA is not recommending Bitcoin as a superior investment but merely pointing out the difference in fee structure.

It should be noted that OG has ongoing operating costs regarding the storage, insurance, etc. of the physical gold that Bitcoin which is backed by air does not.  Whether its other costs are justified or not, الله أعلم 

OG’s fees may appear higher than market, but surely one can’t put a price on adherence to one’s faith.

Interestingly, OG also offers a Russian language copy of the whitepaper, but no Arabic version.  Apparently OG sees an opportunity to market to the legions of Muslim investors in the RF.