Is Bitcoin Halal or Haram? Here is what Islamic scholars say

Bitcoin and other cryptoassets have Islamic scholars on the brain as they try to figure out how this new technology fits into Islamic finance, a concept that already dates back 1,400 years.

Read on to discover the opinions of various Islamic scholars and an answer to the question: Is Bitcoin halal?

What makes something Halal or Haram in Islamic finance?

Islamic finance encompasses financial activities that comply with Sharia law – guiding principles derived from the Qur’an and the words of the Prophet Muhammad.

Based on these Islamic rules, some economic activities are permitted (halal), while others are prohibited (haram). This means that Islamic finance is not at all like traditional finance, as some practices are prohibited for religious reasons.

For example, charging too high interest rates, ribaon loans is considered an exploitative activity because it favors the lender and takes advantage of the borrower.

Other haram activities include

• Speculative behavior, corn: This practice is generally considered haram. This means that gambling or speculating in gains from uncertain future events is considered a violation of Sharia law. That’s because generating wealth based on chance is considered unproductive. Nevertheless, financial products such as options, futures and other derivatives that require speculation are halal since they are guided by the International Swaps and Derivatives Association (ISDA), an organization that promotes efficient and safe Sharia-compliant derivatives markets.
• Prohibited commercial activity: Businesses that engage in morally prohibited activities such as selling pork, alcohol and tobacco are haram.

On the other hand, halal involves financial practices

• Equity financing (Mudarabah), where customers and banks share profits.
• Leasing (Ijara).
• Profit-and-loss sharing joint ventureswhere two parties provide capital to finance a project and share the profit in agreed proportions.
• Islamic contract submits (Salam and Istisna).

In Islamic finance, money has no intrinsic value – a term that defines some sort of intrinsic or true value of a currency rather than its mere market price.

Muslims are not allowed to earn money from money through activities such as generating interest from lending. In other words, making money for the purpose of making money is haram.

Wealth can only be created via legitimate investment and trade. Therefore, money must be used in a productive way. Additional principles of Islamic finance decree that risk must be shared and investments must benefit the wider community socially and ethically.

Islamic scholars’ interpretation of Bitcoin

The status quo of what is halal and haram, in terms of traditional financial practices, is very clear. However, things are different when it comes to cryptoassets as they are new and complex. Therefore, digital assets have become a bone of contention for Islamic scholars as they attempt to clarify whether they are halal or haram.

Here are various interpretations of Bitcoin (BTC) and cryptocurrencies by Islamic scholars.

Sharia Review Bureau in Bahrain

Researchers from the Sharia Review Bureau in Bahrain so in 2018 that investments in cryptocurrencies such as ether (ETH) and bitcoin are permitted under Sharia law and therefore halal.

Mufti Taqi Usmani

Mufti Taqi Usmani has a different opinion, arguing that Bitcoin and other cryptocurrencies are haram because they are used in speculative investments and illegal transactions.

Besides, he says a currency is generally meant to be a medium of exchange under Sharia law. When it is used to generate profit, it becomes haram. Therefore, in Usmani’s words, Muslims are not allowed to accept crypto as currency.

Shariah Committee Chairman of HSBC Amanah Malaysia Bhd, Dr. Ziyaad Mahomed

According to Dr. Ziyaad Mahomed, Sharia law does not require currencies to have intrinsic value. Instead, society should agree that a currency is valuable and acceptable in daily transactions.

From this view, this could mean that the Islamic community could consider bitcoin halal if there was a social consensus to use it as a currency.

Mufti Muhammad Abu-Bakar

Sharia advisor Mufti Muhammad Abu-Bakar’s crypto interpretation may have triggered a significant increase in BTC and ETH investments in the Muslim community in 2018.

He argued that all currencies have a speculative element, meaning that bitcoin’s speculative nature does not necessarily make it haram, as all other currencies can also be considered speculative. Therefore, in his opinion, bitcoin is halal.

Shaykh Shawki Allam

The Egyptian Grand Mufti Shaykh Shawki Allam believes that digital assets are haram since they have not gained enough credibility as currency. His reasoning is similar to other Sharia scholars in the Middle East, who see crypto as high-risk assets.

“In my opinion, cryptocurrency trading is haram. This is because it has not been approved by legitimate bodies as an acceptable medium of exchange. Such currencies are used in smuggling and money laundering, he says so.

Asrorun Niam Sholeh

Asrorun Niam Sholeh is the head of religious decrees for Indonesia’s Council of Islamic Scholars. In his opinionis crypto trading illegal because digital assets “have elements of uncertainty, effort and harm.”

Anas Amatayakul

Anas Amatayakul, a scholar who has chaired the committee that guides the Islamic Bank of Thailand in Sharia, has an interesting view.

His fatwa (legal ruling) on ​​crypto is that people should avoid it, but only for now. Amatayakul says he is pro-technological change but admits that the crypto space is moving so fast that Muslims should avoid it for now to protect their wealth.

Fiqh Council of North America

The unanimous fatwa from the Fiqh Council of North America is that Bitcoin is halal under Sharia law.

The Sharia Advisory Council branch of the Security Commission of Malaysia

This council’s view is similar to the position taken by the Fiqh Council of North America. The members of this council believe that crypto trading and investment is permitted under Sharia law.

London-based Shacklewell Lane Mosque

Shacklewell Lane Mosque was one of the first mosques in Britain accept crypto donations in 2018, indicating that the leaders view crypto assets as halal.

Turkey’s Directorate of Religious Affairs

The Directorate of Religious Affairs in Turkey considers cryptocurrencies haram because they are speculative assets, they are not monitored by any central authority, they are used in illegal activities, and their trading is “inappropriate.”

So, Is Bitcoin Halal or Haram?

It is clear that Sharia scholars are divided when it comes to Bitcoin’s halal or haram status.

Those who say Bitcoin and other cryptocurrencies are haram mainly cite speculation, the illegal activities sometimes associated with the Bitcoin markets, and the lack of a central authority as factors supporting their positions.

On the other hand, researchers who consider Bitcoin halal look at the following aspects:

• Decentralization: BTC is decentralized, thus preventing exploitation by central authorities.
• Transparency: Bitcoin transactions are visible to everyone.
• Islamic contract rules: Based on these rules, it must be goal to consider bitcoin as halal. Goal alludes to efficient storage and possession. Bitcoin meets these criteria because people can own and store it, and it has commercial value (mutaqawwam).
• Anti-interest: The concept of Bitcoin comes from a need to empower society rather than profit from the founder(s).

This means that Bitcoin can either be halal or haram depending on the factors one considers or where one lives.

For example, Egypt and Turkey seem to take the haram stance, while Malaysia and Bahrain view Bitcoin as halal based on their scientific interpretations above.

Furthermore, the United Arab Emirates and Saudi Arabia, which are the majority of Muslim countries, are planning to create their own digital currencies in the form of central bank digital currencies (CBDC). This shows a positive view of digital assets in general in these jurisdictions.

That said, the Islamic community may have to come to some sort of agreement in the future, as the crypto sector becomes increasingly difficult to ignore as mainstream companies like Google, Visa and Apple get in on the act. There is also an opportunity for the current global financial sector to evolve towards the integration of decentralized finance (DeFi). In that case, Islamic finance does not want to be left behind.