Bitcoin and Cryptocurrency in Islamic Law

Whether Muslim investors can purchase a cryptocurrency depends on their intention and a legitimate analysis of why it is a better store of value than their local currency

BY SHAYKH MUSTAFA UMAR

One of the most common economic questions Muslim January 2021, there were 8,257 different cryptocurrencies that scholars get asked is whether Bitcoin is halal. Although it work in a similar, but not identical, way. was introduced in January 2009, most people only heard of There are many benefits to using a cryptocurrency. First, because it in 2017, when the price of one bitcoin went from $1,000 in there is no need for a middleman or a bank, transaction fees are January to $11,000 in December. This jump in value clearly caught reduced. This can help poor people transfer money. Approximately the attention of both investors and gamblers. $400 billion is transferred annually from migrants to friends and

Despite its recent popularity, most people don’t understand families in other countries. The average transaction cost, 9%, is rather what cryptocurrency really is or why it exists. Some are skeptical, hefty. Skipping companies like Western Union and MoneyGram considering it is a fad that will soon disappear. Others think it is means that more money reaches the receiver. the world’s future currency, the one Also, the transfer is instant and that will displace all of the others. requires no currency conversion. Leaving the lovers and haters aside, Moreover, as there is already a a cryptocurrency must be prop- lack of traditional branch banking erly understood before deciding in poverty-stricken areas and half whether using it is halal or haram. the world’s population has no bank

The idea of a digital currency is accounts, a digital currency can pronot new. Paypal, launched in 1998, vide much good in the world. is an extremely popular way to pay Another major benefit is profor things. However, it requires a tecting people from government third party like Visa, MasterCard manipulation and mismanageor Western Union to process trans- ment of currency. Zimbabwe’s actions. Buying Microsoft or Apple 2008 experience with hyperinflapoints in their online store is a type of tion is a perfect example. At its digital currency as well, but only one peak, the inflation was estimated company backs it. Cryptocurrency at 79.6 billion percent month-onis different because it is decentral- month. At the beginning of a year, ized, meaning that there is no third LEAVING THE LOVERS AND HATERS Zimbabwe had printed a 10-dollar party and no one entity that controls it or can shut it down. ASIDE, A CRYPTOCURRENCY MUST bill, and within 12 months it had printed a 100-billion-dollar bill.

The idea of a decentralized cur- BE PROPERLY UNDERSTOOD BEFORE The currency became worthless. A rency has been around for a long DECIDING WHETHER IT IS HARAM OR cryptocurrency would have been an time, but it became much more popular after the 2008 financial HALAL TO USE alternative for people to retain their money’s value when there was no meltdown. The biggest problem in trust in the government currency. establishing it was finding a solution to the “double spending problem.” For example, Paypal is a IS A CRYPTOCURRENCY HALAL? giant company that keeps financial records in the form of a ledger. A general principle in Islamic law states that the default for economic When I send you money, they deduct it from my account, credit it transactions is permissibility. Thus, everything is halal unless clear to your account and verify the transaction. If there is no company evidence indicates that it is haram. The main position according to like Paypal and no national bank, then who will keep a record of the vast majority of scholars (al-rajih ‘inda al-jumhur) is that “the the transactions? default in things is permissibility” (al-aslu fil-ashya’ al-ibaha) until

Satoshi Nakamoto (which may be a fake name) solved this proven haram (Muhammad al-Burnu, Mawsu‘at al-Qawa‘id al-Fiqhiproblem in his “Bitcoin: A Peer-to-Peer Electronic Cash System” yya [Beirut: Mu’assasat al-Risala, 2003], 2:115-116). (https:/bitcoin.org/bitcoin.pdf. 2008) paper. He came up with the Despite that, the Turkish Religious Ministry (Diyanet) in 2017, idea of a blockchain ledger: Instead of keeping the transaction Shawki Ibrahim Abdel-Karim Allam (the Grand Mufti of Egypt) in records with one person or entity, he uses encryption to regulate 2018 and Mufti Faraz Adam (executive director and head, Shariah the generation of a digital currency and thus verify the transfer Advisory, Amana Finance Consultancy in 2017) have declared it of funds without the need for any central bank. Without getting haram. Among their arguments is the high risk of fraud given the too technical, the first bitcoin was created on Jan. 3, 2009. As of lack of any centralized surveillance for the currency, the possibility