Are cryptocurrencies Halal? This is what Islam says
Islam is the world’s second most popular religion. As a result, the Islamic perspective on cryptocurrencies could have a significant impact on their future and popularity. Is bitcoin therefore halal or haram? Is there halal crypto, and if so, where can I find it?
Islam, which was written over 1400 years ago, does not explicitly specify whether Bitcoin is halal or haram. As a result, it is now up to Islamic scholars to interpret Sharia laws on banking and money in order to determine if Muslims can utilize this new currency.
We shall look at the perspectives of several scholars and experts from around the world in this post. We’ll also see if cryptocurrency is halal, and if Muslims are permitted to engage in crypto trading, borrowing, yield farming, and other related activities.
In Islam, what is money?
Money is defined as anything of value in early Islamic law. This value should, in theory, not fluctuate too much. Indeed, according to Sharia, exchanging currency entails exchanging similar-valued things. The dinar and dirham were the most common currencies in Islamic-dominated territories several centuries ago. The Byzantine dinar is a gold coin weighing roughly 5 grams, while the dirham is a silver-based Persian money. The worth of a currency was determined by its metal content. The value of the dinar and the dirham was, of course, affected by changes in the supply and demand of silver and gold.
Despite this, Islamic countries have continued to utilize these currencies while adhering to anti-usury and anti-interest legislation. Muslims must have started utilizing fiat currencies a few years later, even if they were merely paper with no intrinsic value. Despite the efforts of certain Islamic authorities to prohibit fiat currencies, they have become ubiquitous in Islamic countries.
What about cryptocurrencies?
Cryptocurrencies are simply digital currencies. Built on blockchains, they encrypt data to facilitate transactions of value while eliminating the risk of counterfeiting and double-spending. All this is in line with the Islamic view of currencies in general. Except that for cryptocurrencies, it is a decentralized digital ledger that stores data instead of a banknote. However, there is only one drawback:
According to Imam Ibn Taymiyyah; “When currencies or money are exchanged with the intention of investing and generating gains, it opposes the very purposes of money and Niyyah (concept of intention in Islam).“
It is for this reason that interest is forbidden in Islam. This is also why many people believe Bitcoin is incompatible with Islamic finance rules. Bitcoin, like most cryptocurrencies, is notoriously volatile. It has the potential to make big riches while potentially causing massive losses for its owners. This digital asset currently functions as an investment instrument rather than a currency, which is another justification used by those opposed to its acceptance.
Let’s take a closer look at Islamic finance and see if Bitcoin works with it.
Is Bitcoin halal? Viewpoint of Sharia and Islamic finance
Islamic finance, as the name implies, refers to financial activities that are Sharia-compliant. Banking operations, current transactions, loans and borrowings, investment activities, commercial agreements, and profit and loss sharing are all covered. Since the beginning of Islam, the foundations of Islamic finance have been built. It was not formalized until the twentieth century, though. The principles of Islamic finance are followed by several countries that implement Shariah. Despite the restriction of some traditional financial methods, the Islamic finance sector is growing at a rate of 15 to 25% per year.
What are the key principles of Islamic finance?
1- Usury is forbidden: interest, according to Sharia, is an unjust and harmful gain that benefits the lender while harming the borrower.
2- Haram investments are prohibited: Sharia has clearly specified which activities are haram. For example, eating pork, drinking alcohol, or gambling are all bad ideas. As a result, investing in these activities is likewise prohibited.
3- Speculation and gambling are forbidden: Islam forbids speculating on events since it can result in massive losses. This is known as “Maisir.” Muslims are prohibited from engaging in financial transactions with uncertain outcomes.
4- Risky investments are prohibited: Gharar literally means uncertainty, danger, chance or risk. Islam prohibits highly uncertain financial transactions. Derivatives and short selling are part of these transactions.
Bitcoin: Is it Haram or Halal?
Those who support – Mufti Mohammed Abu-Bakr
Mufti Mohammed Abou-Bakr worked for SilkBank Limited as a Sharia scholar. He has a background in Islamic finance and the application of Sharia law in everyday situations. Bitcoin, he claims, is halal since it is a widely accepted store of wealth. It is traded in exchanges and is used as a medium of exchange between individuals and businesses. He claims that as long as a currency is legal in a country, Islam recognizes it. He does believe, however, that the crypto business has not yet matured, that prices are still extremely volatile, and that the risks are considerable. Crypto isn’t the only currency with a speculative element; all currencies do.
Dr Ziyaad Mohammed, Chairman of the Shariah Committee at HSBC Amanah in Malaysia
Currency does not have to have intrinsic worth in Sharia law. If it were the case, gold and silver dirhams and dinars would not have been supplanted by paper fiat currencies. The only stipulation is that there must be widespread agreement that money has value and can be used for transactions. This argument supports Mufti Mohammed Abou-point Bakr’s of view.
Dr. Ziyaad, on the other hand, advises against the current situation’s excessive cryptocurrency volatility, calling the rapid price change unreasonable and alarming. Furthermore, he is hesitant to trade Bitcoin since he believes it is just speculative.
Maulana Jamal Ahmed and Mufti Faraz Adam, researchers at Islamqa.org
Cryptocurrencies, according to Maulana Jamal Ahmed, are not considered part of the actual economy. This is because, unlike actual currencies, they do not provide value to society and do not support labor and the development of goods and services. In addition, he feels that wealth concentration in digital assets will be detrimental to society. For his part, Mufti Faraz Adam argues that despite all the concerns, crypto remains halal. These are assets to which a value is attached and which meet the definition of “Maal” (something that can be hoarded or secured for use at the time of need) as long as they have legal validity. Although crypto investments are undesirable, they are not haram.
Bitcoin: Halal or Haram? The ulama who are against
The Grand Mufti of Egypt – Sheikh Shawki Allam
Bitcoin, according to the mufti, is far from being a currency because of its complexity, volatility, and hazards. It also has no ties to traditional economies or markets, according to him. There isn’t much you can do if your currency is stolen, which is a flaw of decentralized currencies. Cryptocurrencies can be used to finance criminal operations due to their untraceable nature.
The Turkish government’s religious wing
They consider Bitcoin to be haram because of its unpredictability and anonymity.
Haitham al-Haddad, Sheikh
Sheikh Haitham argues that Bitcoin cannot be considered a money because it has no fundamental value. He also believes that fiat currencies are not genuine because of the 1971 Bretton Woods Accord, which separated gold from fiat currencies. Finally, he considers Bitcoin mining to be haram since it permits him to make money out of thin air.
Different Islamic scholars hold opposing viewpoints on the legitimacy of Bitcoin and other cryptocurrencies.
While the majority believe it is permissible and halal, others consider it is a risky and uncertain investment. Despite this, Muslims purchase and use cryptocurrency as a form of payment and investment.
Those who are against the adoption of this asset by Muslims put forward arguments such as its uncertainty, its untraceability and the risks associated with it. However, Bitcoin transactions are traceable. It is even one of the key factors that attract people to cryptocurrencies in general. Indeed, transactions are immutable and transparent. Nevertheless, since the data only reveals the address of the wallet rather than the identity of the person making the transaction, we can say that the transactions are anonymous. While many see this as a positive, others believe it enables fraudulent activity. However, it is entirely possible to limit risk and fraud with carefully crafted regulations.