Question:
Is investing and trading in Bitcoin and similar crypto currencies permissible according to the laws of Sahari’ah?
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, there are thousands of alternate cryptocurrencies with various functions and specifications.
Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, they also have been praised for their portability, divisibility, inflation resistance, and transparency.[1]
With regards to the ruling of using bitcoin, such cryptocurrencies needs to be analyzed in the light of the laws of Shari’ah. From the main objectives of the Shari‘ah (Maqasid ush-Shari‘ah), one is commanded in dealings to ensure the well-being and welfare of other parties, along with implementing the laws of Allah and abstaining from all unlawful elements.
Firstly, from a Shari’i perspective, the use of cryptocurrency or similar modern mediums for economic activity should be in a legitimate manner under the light of Islamic laws and principles. It is necessary that any permissible financial technology should be beneficial in actual economic activities. Islam promotes asset-backed transactions and investments in the real economy. Wealth and economic activity should increase the actual growth of real assets, products and services.
Bitcoin and similar cryptocurrencies are neither fiat money nor real money. They possess no intrinsic value and unlike fiat currency, it lacks any regulation or supervision by the central banks, which may result in exploitation, dispute, use for illegal activities, fraud etc.
Secondly, any financial dealings must be free from all Haraam elements including interest, ambiguity (gharar), speculation/chancing (qimar).
Allah Ta’ala states in the Holy Quran, “They ask you about wine and gambling. Say, in both there is great sin, and some benefits for people. And their sin is greater than their benefit.” (2:219)
Rasulullah ﷺ prohibited from dealing in a future uncertain event. (Muslim)
The very technology of “mining” Bitcoins is based on chance and uncertainty, similar to gambling, both of which are strictly prohibited in Shari’ah.
Crypto critics point to the wild volatility in the values of Bitcoin, Ether and others, which makes it difficult for businesses to accept them for the payment of goods and services.[2]
Due to cryptocurrencies nature of high risk, instability, speculation, no transparency, and lacking the objectives of the Shari‘ah, many contemporary Fuqahaa (scholars) have advised to avoid investing and transacting with such currencies[3].
Mufti Muhammad Taqi Usmani (DB), a senior most scholar in Islamic Finance mentions due to the various issues with Crypto Currencies “We cannot encourage it and as per Fiqh, there’s no sound ground devised till yet to grant it’s permissibility” (10-05-2021)
We however conclude that due to cryptocurrency gradually being accepted as a valid currency by many mainstream markets and financial organisations (VISA, Paypal etc.) such Shari’ah rulings may be adjusted accordingly to permissibility, especially if the future technologies of cryptocurrencies have safeguards in place in mining and to counter against price fluctuations and illegal activities etc.
As the technology progresses and the Fuqaha (scholars) look further into it, as of now one should exercise caution, and refrain. Nevertheless, any returns on Bitcoin investments would be lawful.
And Allah Ta’āla Knows Best
Mufti Arshad Ali
Darul Iftaa, Jaamia Madinatul Uloom (Trinidad)
www.fatwa-tt.com /www.jaamia.net
[1] https://www.investopedia.com/terms/c/cryptocurrency.asp
[2] https://www.dw.com/en/cryptocurrencies-and-fiat-money-whats-the-difference/a-57749545
http://www.askimam.org/public/question_detail/38905 Wifaqul Ulamaa (Britain) Bitcoin
