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Cryptocurrencies and digital assets are rapidly gaining momentum globally, with some nations even embracing them as legal tender. For Muslims around the world, this rapid rise begs the question: Is crypto halal in Islam?
What is certain, digital currencies challenge conventional financial norms with their decentralized nature and the absence of traditional financial intermediaries. This complexity raises further questions about their alignment with Islamic principles.
In this article, we delve into the numerous aspects of the issue, exploring the religious, ethical, and practical considerations that determine whether crypto is halal or haram.
Key Takeaways
- Is cryptocurrency halal in Islam? It remains highly debated, with no clear consensus among scholars.
- Some scholars consider cryptocurrencies haram due to their speculative nature and lack of government backing, although this perspective is evolving as more countries adopt them as legal tender.
- Proponents argue that each cryptocurrency should be evaluated individually, considering its utility and adherence to Islamic principles.
- While short-term trading is generally seen as misaligned with Islamic finance, long-term investment in compliant crypto assets is considered permissible.
- The stance on specific activities like staking and mining varies, with their permissibility hinging on the purpose of the crypto and other factors.
Is Cryptocurrency Halal or Haram?
The short answer is that there isn’t a decisive answer. The permissibility of cryptocurrency remains a subject of intense debate among Islamic scholars.
The rapidly evolving nature of the cryptocurrency industry adds further complexity to the debate on whether crypto is halal or haram.
For instance, many scholars cite the fact that crypto is not considered legal tender and lacks government backing as a key reason for deeming it haram. However, this perspective is shifting as countries like El Salvador and the Central African Republic (CAR) have adopted Bitcoin, a cryptocurrency, as legal tender.
Other scholars who believe cryptocurrencies are not permissible in Islam claim they have no monetary value.
Mufti Muhammad Taqi Usmani, generally known as one of the leading Shariah scholars active in the field of Islamic finance, said:
“Currencies are originally a medium of exchange, and making them a tradable commodity for profit earning is against the philosophy of Islamic economics. It is just an imaginary number, which is generated through a complex mathematical process. It is purchased for Gharar or Speculations and used in illegal or unlawful transactions.”
Quick Fact:
The word Gharar means uncertainty and is associated with deception involving uncertainty and risk. Gharar can include gambling, contracts not drawn out in clear terms, derivative transactions (such as forwards, futures, options, and forms of speculation such as short selling), and more.
A longer opinion of Mufti Muhammad Taqi Usmani was offered by a student on Twitter.
Shaykh Mufti Muhammad Taqi Usmani’s latest position on Crypto Currency. Please share. pic.twitter.com/lIW6zYfdLs
— Darul Iftaa UK (@DarulIftaa) May 13, 2021
However, not all scholars believe that a blanket ban on all cryptocurrencies is the right answer.
Rakaan Kayali, the founder of Practical Islamic Finance, argues that cryptocurrencies should not be deemed haram just because they aren’t government-backed or due to their perceived speculative nature.
He emphasizes that risk and volatility don’t inherently make an investment akin to gambling, which is prohibited in Islam. He suggests that each cryptocurrency should be evaluated individually.
The Case For: Why Crypto is Halal
A lot of scholars and experts believe that the permissibility of each crypto project should be evaluated separately.
In this matter, a key issue discussed is whether cryptocurrencies can be considered “Māl” (wealth) according to Islamic law.
Māl refers to something that can be possessed, stored, and is desired, such as a car or property. The debate centers around whether cryptocurrencies meet these criteria.
Mufti Faraz Adam, a UK-based expert in Islamic Finance and Fintech, said in a research paper that “cryptocurrencies are merely verified entries on a blockchain which are tradeable and usable.”
He said that cryptocurrencies are strands of numbers and entries stored in a digital wallet, which hold value in themselves. “Thus, these digits themselves become Māl and assets which are being purchased, held and exchanged,” he said.
“Financial engineering and technological advance has resulted in a paradigm shift of how value is stored and represented. Thus, in cryptocurrencies, the notion of value has evolved into being represented by cryptic entries.”
Likewise, the Fiqh Council of North America has stated that “the base ruling in Islam is that all matters pertaining to human relations (muʿāmalāt) are permissible unless proven others.”
The council said that objections such as anonymity, uncertainty, and the absence of an issuing authority or government regulation are not strong enough to warrant a verdict of impermissibility for cryptocurrencies.
“Hence, they remain upon the default, which is permissibility.”
The Case Against: Why Crypto is Haram
While some experts advocate against a blanket ban on cryptocurrencies or suggest each crypto to be evaluated separately, others believe that all digital assets are haram.
“In my opinion, trading in cryptocurrency is haram,” Mufti Shawki Allam, the 19th Grand Mufti of Egypt, said.
“This is because it is not approved by legitimate bodies, such as Treasury Departments of States, as an acceptable medium of exchange. Such currencies lead to ease in contraband trade and money laundering, and they amount to gambling.”
However, as noted, this reasoning might not be valid anymore as countries like El Salvador and the Central African Republic (CAR) have adopted Bitcoin, a cryptocurrency, as legal tender.
In 2021, Indonesia’s council of religious leaders (Majlis Ulama Indonesia) also deemed cryptocurrencies as haram due to the gharar and darar (harm) associated with them.
In response, Kayali said that when buying cryptocurrency, the buyer knows exactly what they are purchasing, how many coins they will receive, and the type of coin, which removes gharar or uncertainty.
He added that the uncertainty associated with the benefit or outcome of the purchase is not unique to cryptocurrency and does not necessarily make it haram.
Kayali also argued against harm associated with cryptocurrencies, claiming that this is not sufficient to declare the entire technology haram.
He noted the need for a cost-benefit analysis and pointed out that the harm from any technology, like the internet, does not make it inherently haram.
Is Crypto Trading Halal?
Mohammed AlKaff AlHashmi, co-founder of HAQQ Network, told Techopedia that “short-term trading approach is inherently speculative, clashing with Islamic finance principles that disallow excessive uncertainty and gambling.”
“Islam advocates for investments that contribute positively to society and involve tangible economic activities — something that speculative strategies do not provide. So, trading activities like scalping and day trading are generally viewed as misaligned with the principles of Islamic finance.”
However, in a separate video, Kayali claimed that there is no specific time requirement for owning an asset before selling. Instead, he claimed the real consideration is whether or not the trade settlement has been completed.
“After settlement, the buyer has the right to use the asset, and the seller has the right to use their payment as they please.”
Is Crypto Spot Trading Halal?
In Islamic finance, spot trading, involving the immediate exchange of currencies, is generally considered permissible as long as it adheres to the principles of avoiding interest (riba) and ensures immediate settlement. This also applies to crypto spot trading.
Is Crypto Futures Trading Halal?
Meanwhile, crypto futures, which are contracts that involve an agreement to buy or sell an asset at a future date for a price set today, are not halal.
In a typical cryptocurrency futures contract, the parties are obliged to either buy or sell the asset to each other, depending on market conditions. If one chooses to sell the contract before its expiration, it means selling a debt, which involves interest, making it non-compliant with Islamic principles, Kayali explained.
Furthermore, most cryptocurrency futures are cash-settled. This means that upon contract settlement, no actual delivery of the asset takes place.
Instead, the parties simply exchange money based on the asset’s price movement, essentially turning the contract into a bet on price fluctuations, which is prohibited in Islamic finance due to the lack of an underlying asset.
Is Investing in Crypto Halal?
In contrast to trading, investing aims to accumulate long-term wealth by holding assets, which is considered halal, according to AlHashmi.
“Suppose a token demonstrates clear utility for a valid economic purpose and is open about its risks and benefits. In that case, it can be deemed Halal under Shariah, as it steers clear of excessive speculation,” he said.
Other experts and scholars who view crypto as halal also allow investing in it as long as the transactions comply with Islamic finance principles — meaning it does not include interest or other functions that go against Islamic principles.
Is Staking Crypto Halal?
Staking crypto is the act of locking up assets to earn interest on them over time. While the process of staking remains the same across projects, the intent of that staking can vary.
AlHashmi told Techopedia:
“A platform using staked assets to generate loans for others would be considered haram, while a platform doing it to increase its security would be regarded as halal.
“The reasoning behind it is straightforward: the former uses assets to generate interest, the latter – for the long-term betterment of the project.”
Ibrahim Khan, Co-founder at Islamic Finance Guru, also claimed that staking as a concept is not Islamically problematic. “It is simply a rule-based approach used by a crypto project to decide who will get the right to add to the blockchain,” he said.
However, he warned that staking, or related tasks like DeFi staking, must not be confused with liquidity mining or yield farming. While both staking and liquidity mining involve investors buying and holding cryptocurrencies for a return, in liquidity mining the return comes in the form of interest, which is haram.
Is Crypto Mining Halal?
Crypto mining usually involves two main tasks: acting as an auditor for the blockchain to ensure that transactions are valid and there is no double-spending, as well as participating in a race to find the next number to create a new block.
According to Ibrahim Khan, the auditing role is straightforwardly permissible as it involves providing a necessary service to maintain the integrity of the blockchain.
The computational race to discover the next block is also considered permissible, despite the element of luck involved. This activity is justified by the fact that it requires significant computational power and calculation, making it more skill-based than pure gambling.
The predictability of mining difficulty and the ability to assess one’s chances further distinguish it from games of chance.
Is Bitcoin Mining Halal?
AlHashmi said that because Bitcoin is mostly considered halal, we can safely define mining Bitcoin as halal as well.
“While some might argue that it could encourage haram activities, such as using Bitcoin to conduct illicit activities, mining Bitcoin to validate transactions is considered a service that betters the network.”
Which Crypto is Halal?
The base ruling in Islam is that all matters pertaining to human relations are permissible unless proven otherwise. Many experts believe that a crypto project that does not violate Islamic finance principles can be deemed halal.
“For a cryptocurrency to be considered halal, it must not allow holders to collect interest and must not support gambling,” AlHashmi told Techopedia.
Some Islamic finance experts have already started accumulating a halal crypto list, with one example at CoinRankings. The list mostly includes top cryptocurrencies like Bitcoin and Ethereum while excluding meme coins and those with no additional utility.
Please exercise caution when using such lists and carry on further research if necessary.
Is Bitcoin Halal?
The Fiqh Council of North America has said that it “agrees with the position of those scholars and Fatwa committees that state Bitcoins are essentially halal.”
Furthermore, the widespread acceptance of Bitcoin as a form of currency strengthens the argument for its compliance with Islamic principles.
Mufti Adam has also said that Bitcoin is a currency, concluding that purchasing it is Shariah compliant with certain conditions and in certain trades only. Bitcoins “will be a currency as long as people use and exchange them.”
Is Ethereum Halal?
Ethereum is fundamentally different and much more complex than Bitcoin, which makes a decision regarding its permissibility even harder, according to AlHashmi. He said:
“At its base level, one can argue that Ethereum is halal when used in the way it was meant to be — for powering decentralized apps (dApps), or as a medium of exchange, like Bitcoin. dApps, if built in a Shariah-compliant way, can easily be halal as they create value and provide services for their communities.”
In his take, Kayali also noted that some of the dApps built on Ethereum can be used for bad purposes. However, he said that since these apps are not inherent to Ethereum, they don’t prevent it from being halal.
The Bottom Line
There is still no definitive answer to the question of whether buying crypto is halal or haram. However, as the adoption of digital assets continues to expand, an increasing number of scholars are leaning toward the view that they can be considered permissible.
It is still worth noting that proponents avoid giving Fatwas regarding the industry in general. Instead, they argue that each cryptocurrency should be evaluated individually, considering its utility and adherence to Islamic principles.
References
- Is Crypto Haram or Halal? Top Scholar’s Opinions on Bitcoin (Aims)
- Are Cryptocurrencies Haram? – YouTube (Youtube)
- Is it Permissible to Invest in Cryptocurrencies? – Darul Fiqh (Darulfiqh)
- Regarding the Islamic Ruling on Bitcoins – Fiqh Council of North America (Fiqhcouncil)
- Indonesia’s national religious council says crypto is forbidden | Crypto News | Al Jazeera (Aljazeera)
- Is Crypto Day Trading Halal? – YouTube (Youtube)
- Are crypto futures halal? – YouTube (Youtube)
- Crypto Staking – The Islamic Perspective + Investing options – IslamicFinanceGuru — Islamic Finance Guru (Islamicfinanceguru)
- Halal Coins – Top 50 List | Coinranking (Coinranking)
- Shariah Interpretations of Bitcoin – Darul Fiqh (Darulfiqh)
- Is Ethereum Halal? – YouTube (Youtube)
