Is Cryptocurrency Halal? Learn all that Muslim scholars say about it in this article.
Cryptocurrencies are innovative, unpredictable investments that could alter business and how we think about money. Despite its growing popularity, cryptocurrency remains shrouded in confusion and controversy – especially among Muslims, who must consider whether these digital assets comply with Sharia Law requirements.
To tackle this complex topic, let’s dive into an exploration of Islam’s views on cryptocurrency by taking a look at what renowned Muslim scholars have said about it.
Due to the non-traceability of cryptocurrency ownership and trading, it is frequently utilized for haram or makruh transactions. In this aspect, Cryptocurrency is indeed Haraam. Also, the intention to earn profits from the rising value of cryptocurrency is similar to gambling which is haram.
How Does Cryptocurrency Work?
Blockchain technology is used by cryptocurrencies to safeguard and verify transactions. It is a sort of digital money that can be used online. It enables people to send and receive money without going via a bank or credit card company.
Cryptocurrency works similarly to other cryptographic protocols but instead of relying on a centralized “bank,” it operates on a decentralized network of computers. Transactions are validated through a consensus algorithm rather than requiring a third party such as a bank to confirm the transfer.
The unique features of cryptocurrency provide users with enhanced security, faster transactions, and lower fees compared to traditional methods of transferring money. However, in the earlier days, cryptocurrency was used for purchasing haram things like gambling, making it haram for Muslims.
Is Cryptocurrency Halal or Haram?
Whether cryptocurrency is halal or haram is a hotly debated topic, as these digital assets often challenge assumptions around existing financial systems and moral frameworks.
Although the general consensus from Islamic scholars seems to be that crypto is suitable for Muslims to use, there are several financial risks and moral concerns associated with digital assets.
One primary concern revolves around implications for riba, or interest-based transactions, but many Muslim countries have created regulations around this particular issue.
According to Dr. Ziyaad Mahomed, the Associate Dean of Executive Education and E-learning at the International Centre for Education in Islamic Finance (INCEIF),
“Scholars’ issue with cryptocurrencies are their excessively speculative nature and security risk. These are strong arguments.”
In order for cryptocurrency to truly be viewed as a halal asset class, greater investments must be made by governments and policymakers in educating people about their rights in relation to crypto assets, and offer further clarification on how individuals can invest responsibly.
Using cryptocurrency for halal purchases may not be considered haram. However, as per a research paper on The requirements of cryptocurrency for money, from an Islamic view,
“most [cryptocurrency] users have a speculative motive to gain profit, instead of exchanging it as with money.”
It means that the main purpose behind using cryptocurrency is to earn profits if the value of crypto increases, making it a type of gambling. And gambling is haram in Islam.
Major Reasons Why Cryptocurrency Is Considered Haram?
Cryptocurrency, such as Bitcoin, is often considered haram by some Islamic scholars due to its potential for high-risk investment. Much like gambling, investing in cryptocurrency can be an extremely high-stakes affair and there are no guarantees when it comes to the potential for success.
Additionally, cryptocurrencies do have some practical uses such as online payments but this usage differs from ordinary money – thus while holding money in it may be permissible in Islam, buying or trading it can be less so.
Furthermore, since it’s not regulated by any governmental bodies or financial institutions it can open itself up to being used more widely for criminal activities on the dark web. Unfortunately because of this lack of oversight cryptocurrency may remain seen as haram by many Islamic institutions.
Read the Research Paper “Is Bitcoin Halal or Haram in the Islamic Banking and Finance? An Overview” for more details.
Views of Islamic Scholars About Cryptocurrency
Islamic scholars have different opinions on the permissibility of using cryptocurrencies in Islamic finance. Some believe that cryptocurrencies, such as Bitcoin, are not permissible because they are not backed by tangible assets and their value is speculative.
Others argue that cryptocurrencies can be considered a form of currency and are therefore permissible in Islamic finance as long as they are used for legitimate and lawful purposes.
Additionally, some scholars have proposed the use of Islamic-compliant cryptocurrencies, which are backed by tangible assets and operate under the principles of Islamic finance.
Some general views of Islamic scholars on cryptocurrencies:
“Islam has no problem with currency per se, but it does have issues with speculative and manipulative practices. Cryptocurrency, by its nature, is highly speculative and highly manipulative, which is why it is haram (forbidden)”– Sheikh Haitham al-Haddad
“The current cryptocurrencies, or at least the vast majority of them, are not based on any tangible assets and therefore are not acceptable in Islamic finance”– Dr. Mohamad Akram Laldin
“Bitcoin is not permissible in Islamic finance because it is not a currency in the traditional sense and is not backed by tangible assets”– Sheikh Dr. Muhammad Taqi Usmani
“It is permissible to deal in these currencies if the exchange is made hand to hand and the deal is settled on the spot”– Mufti Muhammad Abu Bakar
Is Cryptocurrency Halal? So, is cryptocurrency halal? While there is some debate on the matter, it seems that cryptocurrency is halal as long as it is not used for illegal purposes and as long as the investor does not speculate with the intention of making a profit. Of course, investing in cryptocurrencies is a decision that each person must make for themselves.
Some may feel comfortable investing while others may prefer to wait until the Islamic rulings on crypto become more clear. How do you feel? Is cryptocurrency halal or haram? Tell us in the comments section below.