Bitcoin in Islam
Bitcoin? Is it Halal or Haram? This is indeed a very relevant question indeed for the modern day Muslims, since the global economics is starting to see a paradigm shift in the favor of virtual decentralized trading.
In order to be able to pass a verdict on the permissibility of the above named technology, it is first important to define the legal islamic limits set for both mal (property) and money:
Accepted Definition of Mal (property):
In the times of the early jurists, only the tangible goods were the ones that could be stored. Hence, one might think that only tangible goods could be considered halal in the light of Shariah as mal. However, contemporary jurists and scholars have agreed to the completion of the following terms in order to deem anything as a halal in terms of mal.
1. It should not be impermissible and unlawful in Shariah (alcohol, for instance).
2. It is capable of being owned and possessed.
3. It has some uses and benefits.
4. If custom determines and treats something as mal, it would automatically be considered as mal
5. Prevalent customs of business also play a pivotal role in determining the benefits and rights (huquq & manafih) as mal.
The above mentioned attributes are supported from the definitions of different scholars.
Accepted Definition of Money:
According to Islam, money can be considered anything that is used as a medium of exchange, for example gold, silver, etc., for as long as it is accepted by the public. According to Shaykh Usmani, an Islamic scholar, for anything to be regarded as money should meet the following standards:
1. Medium of exchange.
2. Unit of account.
3. Store of value.
The definitions presented by Islamic scholars are greatly in resonance with what professional economists have defined money to be.
When it comes to actual bitcoin, there are two schools of thoughts and two subsequent viewpoints:
1) Bitcoin is Halal
2) Bitcoin is Haram
The Halal viewpoint:
Most of the scholars (barring those mentioned in the upcoming section) agree upon bitcoin being halal (permissible) in principle. This viewpoint can be justified in light of Shariah’s take on property (mal) and money. There is a famous legal maxim explained by jurists:
“الاباحة المعاملات في الاصل .“
This means that the original rule is permissible in financial and business transactions, until proven otherwise. To simplify this, we can say that everything and anything is permissible until and unless the islamic jurisprudence (Shariah) proves it to be wrong and condemns it. Considering this very notion, the cryptocurrency is principally permissible. Likewise, anything can be considered as money if it has these attributes:
1) Treated as an object of materialistic value amongst people.
2) Substantial amount of people engage in its trade and exchange.
3) It has some measurable value to it. (For instance equal amount of gold)
4) It serves as a unit of accounts.
Hence, any cryptocurrency which befalls these standards (for instance Bitcoin) shall be deemed acceptable, in the eye of Shariah, as money. The fatwa center of South African Islamic seminary, Darul Uloom Zakariyya, has taken the position that Bitcoin fulfills the conditions of mal and therefore it is permissible for trade. This, however, would only be applicable if the relevant cryptocurrency qualifies and gets approved as a currency by the relevant government authorities.
The Halal viewpoint:
The scholars who deem it haram and their reasoning
There do exist scholars and their fatwas deeming cryptocurrencies haram, i.e. impermissible for a Muslim to engage in it. The following section tends to explore this school of thought:
Grand Mufti of Egypt:
One of the significant scholars who belong to this school of thought is the Grand Mufti of Egypt, Mufti Shaykh Shawki Allam. He cites the following arguments in order to support his claim:
1) Bitcoin can be used for illegal activities for instance fraud, money laundering and other activities which do not fall in the permissible boundaries of Shariah.
2) Bitcoin is not a physical entity and can only be accessed virtually
3) Since Bitcoin is decentralized, it does not have any central authority monitoring and moderating the entire Bitcoin Setup. Hence, what it does is that it destroys the control of central banks and governments, giving the control to unreliable individuals.
Shaykh Haitam (UK based):
Shaykh Haitam, of The United Kingdom, wrote a paper declaring bitcoin and other cryptocurrencies haram and Shariah incompatible. Behind this very judgement of his, lay the following arguments:
1) Backed by nothing, the cryptocurrencies are rather created out of thin air.
2) Cryptocurrency is not a legal tender.
3) It lacks the backing of any government and/or any other regulatory authority (such as banks), hence it could be easily used for activities such as money laundering.
Palestine:
The fatwa center of Palestine issued a fatwa regarding bitcoin and cryptocurrency, declaring bitcoin and cryptocurrency haram and prohibited based on the following reasons:
1) The issuance, creation, management, moderation and all the other entire existence of cryptocurrencies is pivoted around the attempts to escape any central authority, be it a bank or a government. Hence, it cannot be considered a reliable entity.
2) Bitcoin is a form of gambling, as the investors go in without knowing whether their investments would yield any fruit or not. Also, the miners engage in mathematical games and puzzles, whereby their victory shall reward them with some amount of the relevant cryptocurrency, and if they lose, they earn nothing.
3) Bitcoin and other cryptocurrencies have been subjected to high levels of speculation since there is no base for speculation control (again, independent from any regulatory body).
Turkey:
The Turkish government’s religious authority has been seen resonating with the views of Palestine’s Fatwa Centre on this matter, as they have clearly states, in their own words:
“Buying and selling virtual currencies is not compatible with religion at this time. Because of the fact that their valuation is open to speculation (excessive gharar), they can be easily used in illegal activities like money laundering and they are not under the state’s audit and surveillance.”
Analysis of the First View:
Bitcoin would be Haram if we look at the above mentioned fatwahs and views of scholars. However, the above mentioned concerns could be addressed by virtue of some research and eloquent explanation. The following section seeks to to achieve just this:
On Status as Legal Tender
In Islam, a legal tender would be considered one which does not involve the parties indulging in some haram activity (trade of alcohol, for instance) and one which is generally and widely acceptable by people. Since blockchain requires the involvement of multiple parties to actively participate in the contract, hence bitcoin can be considered halal.
The concern regarding lack of Central Issuer/Authority:
Although it is a fact that bitcoin, being a decentralized technology, works in the absence of any governing party and that this might be a cause for concern for Islamic scholars. However, it is equally true that Bitcoin and cryptocurrency are governed by a framework that is a set of rules and regulations adopted by voluntary mutual acceptance by users of the currency, and these regulations are open for discussing and alterations, if the users mutually agree to do so. As for the question of anyone trying to trespass these established legal boundaries, it is practically impossible to manipulate the rules and regulations that govern Bitcoin mining and transaction process, because of the extremely sophisticated cryptographic systems that are developed for the sole purpose of preventing such occurrences. Additionally, Bitcoin makes use of the blockchain technology, rendering it much more secure than any centralized system employed by a government or central bank. This claim could be backed by the fact that in the recent times, the SWIFT system (a technology which modern and centralized banks use),$1 Billion USD was stolen from the Federal Reserve Bank of New York from the account of the central bank of Bangladesh
So, despite the absence of any guarantee/s and backing from any any centralized governing party, the trust and confidence in is Bitcoin could be well achieved by virtue of blockchain technology and the cryptography upon which it is pivoted.
The concern regarding volatility and Price Stability:
Another concern that perturbs some scholars is the volatile nature of bitcoin.
Prices have forever been deemed by the time tested law of supply and demand, in literally every materialistic case (gold, silver, silk, so on and so forth). It, indeed, is an established fact that bitcoin is, as a matter of fact, more volatile than other types of assets and that someone who lacks the knowledge regarding this technology should spend his chunk of time learning about it if he/she wants to invest. However, this cannot be made the basis for declaring bitcoin and the other cryptocurrencies haram. If this argument is made the basis for declaring any particular asset haram, then every volatile asset, be it Dollar, Euro or literally any currency would be deemed haram as well.
The concern regarding illegal use:
Another addressable concern, if some asset of appreciable value can be used for unlawful acts, such as money laundering, which does not necessarily make that very asset something haram. In fact, this matter directly regards the nafas (conscience) of an individual, since almost everything in the world can be manipulated for evil use. An example from the Hadith of the beloved Propher Muhammad (PBUH) can be found in that the Holy Prophet (peace be upon him) forbade the selling of grapes to a wine merchant, since making wine is haram (impermissible), but did not forbid the general production or trading of grapes for lawful purposes. Interesting and very critical to note that literally every currency in this world is used for crimes such as money laundering, fraud, bribing, etc. Interesting to note that the researchers have proven recently that the US $100 bill is the most commonly used currency for laundering the revenue of illicit activities.
Final Verdict:
Islam declares everything and anything halal, for as long as it has been proven otherwise by the use of valid reasoning using the testimonies present in the Islamic sources of guidance for Muslims (The Holy Quran and The Hadith). Hence, In the light of all the viewpoints presented above and the proves used to address all the main concerns presented above, it could be declared that bitcoin is halal.
Disclaimer: This article makes analyses and passes a verdict on the use of bitcoin since it the most researched and well known of all cryptocurrencies. However, the verdict presented herein could be considered valid for all the cryptocurrencies that work on the same principals as bitcoin.
Reference: Shariah Analysis of Bitcoin, Cryptocurrency, and Blockchain by Mufti Muhammad Abu-Bakar.
