Are Bitcoin & Cryptocurrencies Halal? | Islamic Finance Guru

IFG have been getting a confuse of cryptocurrency queries from our readership over this past year, increasingly more and more panicked as they watch the bitcoin price hurl into the stratosphere and want to get Shariah sign-off. There is lots to be said about the whole sphere of cryptocurrency and the blockchain engineering by and large. We propose to discuss diverse aspects in a series of articles to help break things down .
This article will focus on cryptocurrencies, such as Bitcoin, and whether or not they are shariah compliant. As ever, this is not a authoritative fatwa on the topic and should not be relied on as such ; it is designed to discuss the area from a intelligent position following across-the-board inquiry of the actual technology and the Islamic position, and we hope to contribute to the argument through this .
This article is going to be based on Mufti Faraz ’ s excellent inquiry piece on cryptocurrency ( see here ), – it provides a big platform for discussion and I agree with large parts of the analysis. In future articles we will be looking to build upon his analysis to answer related questions ( see the conclusions section below for these ) that are still outstanding .
I will not be going through in exhaustive detail what precisely a cryptocurrency or Bitcoin is, because there is an incredible align of free resources that answer that motion for you online. In particular I found the succeed presentation helpful. My main focus will be the fiqhi ( Islamic legal ) discussion.

Having said that, a brief drumhead is necessary for the purposes of this article then that we can understand the Islamic position at which we arrive .

What is cryptocurrency?
A simple explanation:
Cryptocurrency relies on the blockchain engineering. A discussion of the blockchain technology is reserved for another article .
With regard to cryptocurrency itself, one analogy that I found very utilitarian was between a cryptocurrency and a casino chip, or cryptocurrency and the keepsake one bribe at root parks for habit on rides. These credit card tokens are intrinsically worthless, however they are worth a certain sum of money within a certain context. In Alton Towers, or in the casino where they are used, they are worth reasonably much the lapp as currency. But outside of Alton Towers and the casino, their measure depends on how easily convertible they are in other locations, whether the person you are offering them to regularly goes to Alton Towers/the casino, and whether adequate people know about Alton Towers/the casino for them to value the tokens anyhow .
The respect of cryptocurrencies is linked to the network within which they operate. The more people join the network, the more acceptance it has as a tradeable assest, the more the value the coin has. recently though, people have noted that the similarities between this and your classical ponzi scheme/scam. so now the most reputable newly crypto offerings seek to create a network where they are actually trying to do something valuable in the real world, and where the coins that they will accept in their net gain respect to the extent people join the network to benefit from whatever matter that network is known for .
For model, certain cryptocurrencies are linked to education, where students pay and are rewarded in the token of the network, and where hirers can come and buy the best students judging from their results, using the network ’ sulfur tokens. here, one can see that if such a network become massive, those tokens will have value even where they are not being immediately used on the network itself to buy and sell department of education .
Three main views
One of the core tenets of Islamic contractual law is that a transaction must have something called “ Māl ” as consideration. An take definition of a transaction amongst Islamic eruditeness is an switch over of Māl in consideration of Māl ’ ( al-Marghinani ). If the circumstance is not Māl, then the sign is rendered nothingness .
Māl literally means something that can be possessed or acquired and it can be bodily ( e.g. a cable car ) or usufruct ( e.g. the right to entirely occupy a property, or a occupancy as we normally call it ). According to a outstanding educate of Islamic jurisprudence ( the Hanafi school ), Māl is “ what is normally desired and can be stored up for the time of indigence ”. Desirability and storability are consequently key considerations for something to be deemed Māl. Thus, birds in the sky, or a perfume, or a passing intend in one ’ mho mind, are variously not Māl as they are either ( one ) not in anyone ’ sulfur possession, or ( i ) besides temporal role for there to be effective memory .
The key initial debate is therefore whether cryptocurrencies/blockchain tokens constitute Māl.

There are three independent fiqhi positions that scholars have adopted on cryptocurrencies :

  1. Cryptocurrency is not “mal” (wealth) and is purely speculative and is not a Shariah-compliant investment;
  2. Cryptocurrency is a digital asset but not currency;
  3. Cryptocurrency (of certain kinds) are currency.

I would suggest that ( 1 ) is incorrect as cryptocurrencies are deserving at least something. It is distinctly worth something to all those people bequeath to pay a draw of money for it, and it is distinctly worth something to all those businesses who are volition to accept it as a think of of payment. It is dependable that when it is all stripped away, a “ bitcoin ” is basically an entrance on a daybook that is not intrinsically identical valuable. however, the thump coins and notes in our pockets are identical exchangeable in this regard, and even we hush uncontroversially understand them as mal. ultimately value derives from the mean we imbue into things, and if many people do in fact value Bitcoin, then, well, it ’ s valuable !
I would suggest that ( 2 ) is probably about correctly at this moment in time. This is incidentally Mufti Faraz ’ south view in his article angstrom well ( though I understand he now holds that placement 3 can be justified ) .
I would suggest that ( 3 ) is credibly a bit punchy given the current state of meet in the cryptocurrency diligence. It is very obvious that a currentness that is prone to crashes, on-line heists of millions, huge fluctuations in price, is one that is not an effective means of requital. In particular, at times of gamey transaction bulk, the transaction cost of each transaction can go up enormously, and one can end up having to either wait a long meter for one ’ south transaction to be processed, or one pays through the scent for it to be processed. That is not what we look for in a currency as we want instantaneous execution – not senior high school and unpredictable transaction costs .
however, if a cryptocurrency emerges out of this confront phase which gains credenza and acceptance because it is secure, promptly, low in transaction monetary value, etc, and it subsequently becomes a very readily accept currency, then I see no rationality why it can not sit aboard decree money and it category 3 .
The early degree to note here is that the eminence between ( 2 ) and ( 3 ) may not appear wholly all-important, and most of the time it isn ’ metric ton – particularly where parties contract privately to designate X a currency for the purposes of their contract ( even where others do no accept it as such so far ). however, there are differences which are relevant, particularly in the ICO context. But we can reserve that discussion for another article a well .
first, as a broad concept, I don ’ thymine find that there is anything debatable from an Islamic position about blockchain engineering, and cryptocurrency which is a manipulation of blockchain, and seeking to profit from it. The technique of account has been around for centuries, and all we ’ ve done nowadays is put it in a twenty-first hundred format which seeks to make things cheaper and more effective .
People are by and large seeking to profit from cryptocurrencies in two ways : 1 ) buying and holding, selling at a late date ; or 2 ) buy for short-run trades ( e.g. minutes, hours, a day ) .
The impression on this is the same as doing the like with any halal assets such as shares – 1 ) is permissible, 2 ) is more arguable and there are differing opinions on short-run trading. ( see this article for more analysis. )
however, there are a number of further issues inactive to discuss when we start looking at specific crypto offerings.

first, a authentication of cryptocurrencies is the anonymity and tracelessness they are renowned for – this needs to be analysed from a fiqhi position. second, as mentioned briefly above, cryptocurrencies seek to create value from the network or environment they operate in – but what are the fiqhi do ’ south and don ’ t ’ second for these networks/environments ? And is it satisfactory to hold such currencies if the basal activities of the network/environment are haram ? third, what precisely are initial mint offerings, and does the Shariah have any guidance on them ? fourthly, what are the other uses of blockchain engineering – and what does the Shariah have to say on that ?
We will be picking up on these themes and others in arrive articles .
In the interim, please do let us know your thoughts/questions/comments – they are very welcome as ever .

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