This debate is fresh as it gets. We have not heard a single consistent opinion from subject matter experts, around the world, that whether Bitcoin or any cryptocurrency is Halal or not.

According to a recent research study by an Indonesian Islamic Scholar, Mufti Muhammad Abu Bakar, an Islamic scholar and head of Sharia compliance at Blossom Finance Indonesia, has declared Bitcoin halal and at the same time welcomed an open debate to challenge the study. This is contrary to the statements made by the Ulemas from Egypt and Turkey. His study suggests that Bitcoin qualifies as money. It says,

Bitcoin and similar cryptocurrencies fulfill the economic roles of money – acting as medium of exchange, unit of account, and store of value – and also gain status as Islamic money by being “customary money”. Shariah recognizes customary money as being anything that gains monetary status through wide acceptance in society or by government mandate.

Why Bitcoin is not Haram?

The study argues that, considering Bitcoin as non-permissible due to its potential use in illegal activities or value fluctuation is not a valid enough reason as these are external factors. Bitcoin value is subject to change just like any other commodity or FIAT money when its supply and demand changes.

Government Regulations Trumps Shariah Law

It’s very clearly mentioned that laws of the government holds high, even though Bitcoin is Islamically permissible. Meaning that, Bitcoin may be Halal but it does not allow anyone to use it in payments if Government has not allowed it. According to a recent circular by State Bank of Pakistan, bitcoin or any other cryptocurrency use as a payment method has been declared unauthorized and is not permissible by any financial institution operating in Pakistan.

Common principle behind Blockchain Technology and Shariah

Shariah stresses on the ownership of assets and thats the core principle behind Blockchain technology as well. The payments you send or receive is what you own and there is no ambiguity about it. According to the author of the study,

Blockchain proves ownership of the asset – it proves you actually have the money you’re sending in a transaction. Conventional banking literally loans money into existence, and that is completely incompatible with the Shariah principles of money – Blossom CEO Matthew J. Martin.

Shariah rules require all the money to be exchanged “hand to hand” and never on a fractional reserve basis, as is the norm in the conventional (non-Islamic) global banking system.

Blockchain gives you mathematical proof of ownership and that’s overall much more in line with the spirit of Islamic finance than any digital fiat money.

Are ICOs halal or haram?

There is no clear cut statement on that but an extreme caution is advised especially to Muslim investors, who become a target of financial scams when investing in ICOs. ICOs advertising them with halal investment should be thoroughly vetted.

As a rule of thumb, any cryptocurrency investment opportunity that promises a fixed rate of return is likely a scam, such as ponzi/pyramid scheme which is both illegal and haram.

Opinion from other scholars

One scholar from UK, Shaykh Haitam, declared bitcoin and other cryptocurrencies as haram and not aligning with Shariah. He was of the view that, Cryptocurrency is not backed by anything, is not a legal tender, and it can be used for money laundering and illegal purposes.  Similar opinion was shared by Egyptian Grand Mufti Shawki Allam where he stressed that,

Bitcoin is forbidden in Islamic Sharia as it leads to more corruption, because it is a decentralized and anonymous system and difficult to trace who gave how much to whom.

These are the same views that the above research study has denied.

Another scholar, also from UK, Mufti Faraz Adam, has analysed in good detail the many aspects of Bitcoin’s permissibility in Islam. He is of the opinion that according to shariah, Bitcoin should be subject to these critical questions,

  • Is Bitcoin Maal (wealth) ?
  • Is Bitcoin a currency?

And his remarks include that scholars should avoid giving a quick Fatwa on something, they have not thoroughly taken expert opinion on. In his concluding remarks, he says,

Bitcoins are in the ruling of a currency. They will be a currency as long as people use and exchange them. As a result, Zakat will be compulsory on Bitcoin due to their monetary nature and Thamaniyyah (currency attributes)

Here are some helpful links with more details,

  • Research tudy from Muhammad Abu Bakr, Indoneisa: http://blossomfinance.com/is-bitcoin-halal-shariah-analysis-of-bitcoin-cryptocurrency-and-blockchain
  • Mufti Faraz Adam, UK: http://darulfiqh.com/shariah-interpretations-of-bitcoin/
  • Shaykh Haitam, UK: https://islamicmarkets.com/publications/money-and-bitcoin-according-to-islamic-law-and-economics
  • Shawki Allam, Egypt: https://www.egypttoday.com/Article/2/39058/Bitcoin-leads-to-fraud-in-its-banks-value-Grand-Mufti

Comments are welcome!

Check Also

Jobs Lost To Machines & The Era of Artificial Intelligence

Artificial Intelligence is definitely going to remodel and transform our life styles. Howe…