Is cryptocurrency haram in Islam?

You might be surprised to know that there is no ruling yet from jurists or faith leaders in Islam on whether it is halal to invest in cryptocurrencies. Being new, there are many questions about the legitimacy of this type of investment.

Many Muslim scholars are against cryptocurrencies because they compare these with gambling and the trading of goods, which is known to be haram.

In this blog post, we will explore the question of whether cryptocurrency is permissible under Islamic law.

Shades of Grey

Life is not always black and white. There are times where something good can lead to a bad outcome.

Deciding if an object or action is halal or haram has far-reaching consequences. To ensure the best interpretation is achieved, these decisions are usually left to Islamic jurists and Inman.

For example, the sale and consumption of grapes are halal. It is permitted in Islamic law. Yet, using grapes to make wine and drinking wine is haram.

You can drink coffee from an earthenware cup and that is allowed. But to drink wine from the same cup is prohibited. It is haram. The cup is halal, but in some cases the use of the cup is haram.

And this is the difficulty. The action can be haram, while the object is halal. Mufti Muhammad Aku-Bakar said, “In general terms, the use of something lawful for an unlawful purpose does not make the thing itself unlawful.”

When we look at cryptocurrency, the debate is still ongoing.

Is Cryptocurrency Haram in Islam?

Professor Alaro considers that the first view is that investment in cryptocurrency is haram and that this view comes from the state authorities in the Middle East. He also recognises that there is mixed opinion on this subject.

The Grand Mufti of Egypt – Shaykh Shawki Allam agree that cryptocurrency is haram. As does Shaykh Haitham al-Haddad and the Turkish Government’s Religious wing.

Other Islamic jurists take the opposite view that cryptocurrency is halal. These include Mufti Faraz Adam, Ziyaad Mahomed, Shariah Committee Chairman of HSBC Amanah Malaysia Bhd., and Mufti Muhammad Abu-Bakar.

It is still open for discussion among Islamic scholars whether buying cryptocurrency is permissible under Sharia law.

The Evolution of Currency

When communities started trading goods, they developed a barter system where two people do a direct swap of goods.

If one person did not want what the other person offered, then they could say no. But if they said yes, then they would have to find someone else who had what they wanted and wanted what they had.

The Birth of Money

Barter was restrictive and as trade grew, a token system evolved. People would use tokens (coins) to buy goods. The person selling those goods could take those coins to another trader and buy what they wanted. This made commerce easier to do. These coins tended to be made from gold or silver and had a real-world value.

As economies evolved, the government authorities swapped gold coins for base metal coins and held gold reserves. They used this gold to back the low-cost base metal coin. This was known as the gold standard. A similar standard was set in place with silver.

Commerce grew faster than the ability to mine new gold and silver which meant governments couldn’t print enough money to sustain commerce. So both the gold and silver standards were starting in 1913 for silver.

This now meant governments could print the money they needed to back their economic growth. Instead of trust in the currency, people had to put trust in the issuing authority, the government.

Our Money Today

The money we use today has no real-world value. It only holds value because we have agreed that it does. This allows the currency to be a medium of exchange, and that is good because it provides the energy that drives production, jobs and our futures.

Unfortunately, this lack of reliance on the backing of gold and silver allows unhindered growth in the amount of new money and creates volatility in the value of money. And that is the fundamental requirement to make money from investing in money. The different arms being charging interest or speculation in the currency.

Money in Islam

While money as a medium of exchange is halal, using money as a commodity to made money is prohibited under Islamic law.

You are permitted to use your money to buy assets that may over time grow in value and then give you a profit when you sell.

Currency is an example of an object that is halal but has uses that are haram.

Is Our Currency Going Digital?

We treat currency as an asset. We assign a value to it. We can open our wallets and count our money. But for how long.

Many of our day to day transactions are done digitally using EFTPOS cards, debit cards and credit cards. Most people don’t use too much cash these days. Your pay usually gets into your bank account by an electronic transfer.

Our currency is going digital. Most economies are phasing out cheques and reducing the use of cash. So yes, most of our financial transactions will be digital. And we trust the process.

A few pixels on a screen is the new wallet. But we consider those pixels to represent an asset. It is our money.

We trust a computer somewhere to keep an accurate record of what we have. And for the most part, we are comfortable with that.

Currency is evolving into a digital currency that has no intrinsic value and is issued or withdrawn by the authority of the Central Bank in a country. The central bank in many modern economies is independent of the government and the issuing authority becomes the bank.

What Is Cryptocurrency?

A cryptocurrency is a type of digital currency that uses cryptography to create secure transactions. It’s based on decentralized, or “independent,” control- one where there can’t be any singular authority making decisions about the money supply!

Cryptocurrency is protected by blockchain technology.

Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. It’s essentially an electronic ledger where transactions are recorded and duplicated across independent networks on multiple computer systems so cheating becomes virtually impossible!

New coins are created by a process called mining. It is where computer systems called miners are in a race to solve a complex mathematical algorithm. The first miner to do so earning one crypto coin.

The algorithm ensures scarcity of new coins is maintained. This means demand for coins is greater than supply and that pushes the value of each coin up.

Cryptocurrency is 100% digital, but it uses real-world supplies to create them, including electricity, cost of computer systems, rent of facilities. Mining is viable provided the coins are worth more than the cost to create them.

Just like domain names, websites and apps, cryptocurrency is considered a digital asset by many people. It also has the foundation principles of currency. It can be used as a medium of exchange and can be held as an investment

The Cryptocurrency Debate Halal or Haram?

Is cryptocurrency halal?

Cryptocurrencies are a hot topic. They can be traded, bought and sold like any other asset on the stock market. It’s not hard to find people who believe cryptocurrency is halal to invest in but others say it’s haram to buy into because cryptocurrencies have been linked with money laundering and terrorist financing.

The fast rate of growth of cryptocurrencies has made it difficult to assess their Shariah compliance. One of the pillars of Islam is that you should not exploit somebody to make an excessive profit.

In general, Islam prohibits earning money through interest and other forms of unearned income (known as riba). This means that the interpretation of cryptocurrency’s status is heavily dependent on whether it is seen as a digital asset or a complex and secretive medium of exchange.

The Main Cryptocurrencies

Since bitcoin first arrived in 2009, many other cryptocurrencies have been launched. These have been designed to meet different needs or to complement other cryptocurrencies.

Some of these newer cryptocurrencies have been established to provide particular outcomes. If these outcomes are seen to be haram, then that may taint that crypto. After all, how can a mechanism designed to do harm be seen to be halal?

Bitcoin

Bitcoin was launched in January 2009. It has had volatile growth over the past 3 years. In 2018 it lost 72.6% of its value. It bounced back in 2019 growing by 87.2% and had a surge in its value of 302.8% in 2020.

Etherium

Etherium was launched in July 2015. It has experienced extremely volatile swings in the last 4 years. In 2017 it grew by 9159.4%, dropped by 82.7% in 2018, and lost another 8.0% in 2019 before growing by 464.1% in 2020.

Litecoin

Litecoin was launched in October 2011. In 2017 litecoin grew by 12366.7%, losing 93.3% in 2018, and doubled in 2019. There was a 2.0% growth in 2020.

XRP

XRP was first launched in September 2012. In 2017 it grew by 308.9%, dropped 117.7% in 2018, and lost another 55.0% in 2019 before making a small gain of 13.6% in 2020.

Each of these cryptocurrencies is considered halal.

They are seen as digital assets rather than as currencies. Because the market has established a willing price point for these coins, and changes in value are through trading demand, much like share trading, many Islamic jurists see this as halal. There is some dissent from this view.

Is Cryptocurrency Haram in Islam?

Investing in cryptocurrency in Islam is not a straightforward thing to do. While Islamic principles are based on the idea of “doing good, seeking knowledge and giving charity” (Quran 90:17), there is considerable debate among Muslim scholars about whether it is permissible or even advisable to invest in cryptocurrency.

The various views a scholar takes on cryptocurrency impacts whether he sees cryptocurrency as halal or haram. For example, cryptocurrency can be seen as:

  • Having no value, therefore speculative and is most likely haram
  • Being a digital asset and should be  halal
  • Being a currency and may be halal or haram

If you are not sure if investing in cryptocurrency is halal or haram then you are not alone. Each crypto uses a different blockchain, and the risks associated with an investment in one crypto can be different from that of another.

In addition, there are no clear-cut answers to what is halal and haram when it comes to cryptocurrency because several scholars have differing points of view on this issue.

Is Crypto a Currency?

There is an ongoing discussion about whether cryptocurrency should be considered a currency as well as other forms of investment such as stocks or property.

Questions have been raised about the use of cryptocurrency for financing terrorism and crime. Do people use cryptocurrency to anonymously hold wealth?

If crypto is a currency, then shouldn’t it be treated like other currencies? Then if crypto is halal, there are some transactions done using cryptocurrency for reasons that are not halal.

Or is investing in crypto problematic because it has the potential to produce profits that are regarded as excessive under Shariah law?

Cryptocurrency can be a medium of exchange. For example, you can use cryptocurrency to purchase goods or services. This is what you would expect from a currency.

But currencies are traditionally defined as being controlled by a state issuing authority. Cryptocurrency is “issued” by solving complicated math on specialist computer systems networked across borders and having no central point of control.

Without Certainty What Should You Do?

Does crypto in Islam meet the rules to be used in halal super funds?

Is cryptocurrency haram in Islam? There is a school of thought that some cryptos are halal to invest in but others may not meet the standards to be halal. Because opinion is not unanimous one way or the other, it falls upon you to investigate further.

Your voice needs to part of this discussion. What do you think? Is investing in crypto halal? Or should you be looking at less controversial halal investments

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Chief Investment Officer

Strategic leader with 19 years of industry experience and over 7 years in executive and senior management positions leading small to medium sized multi-functional operations in the funds management and superannuation industry. A record of delivering outstanding investment outcomes for members and a proven track record in driving member engagement through investment education and insights.

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