Cryptocurrencies and digital assets are quickly gaining popularity worldwide, with several countries adopting them as legal cash. The swift ascent of cryptocurrency prompts a critical inquiry for Muslims globally: Is crypto Halal?
Digital currencies undoubtedly disrupt established financial rules due to their decentralized structure and the lack of traditional financial agents. This complexity prompts additional inquiries on their conformity with Islamic precepts.
This article examines the various facets of the topic, analyzing the religious, ethical, and practical factors that ascertain whether cryptocurrency is halal or haram.
Is cryptocurrency Halal or Haram?
The short answer is that there is no definitive solution. The acceptability of Bitcoin continues to be an issue of dispute among Islamic scholars.
The quickly shifting trends of the cryptocurrency sector complicate the discourse on the permissibility of crypto as halal or haram.
Many scholars mention the absence of legal tender status and government sponsorship for cryptocurrency as a principal argument for classifying it as haram. Nonetheless, this viewpoint is evolving as nations such as El Salvador and the Central African Republic (CAR) have recognized Bitcoin, a cryptocurrency, as legal cash.
Some scholars who claim that cryptocurrencies are impermissible in Islam contend that they lack intrinsic monetary worth.
Mufti Muhammad Taqi Usmani, widely recognized as a renowned Shariah scholar in Islamic finance, stated:
“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.”
Note: The term Gharar indicates uncertainty and is linked to deception that involves ambiguity and risk. Gharar encompasses gambling, ambiguously defined contracts, derivative transactions (including forwards, futures, and options), and speculating practices such as short selling, among others.
A student provided an extensive view on Mufti Muhammad Taqi Usmani via Twitter.
Nonetheless, not all scholars agree that a comprehensive prohibition on all cryptocurrencies is the appropriate solution.
Rakaan Kayali, the originator of Practical Islamic Finance, contends that cryptocurrencies should not be classified as haram only owing to their lack of government backing or their apparent speculative characteristics.
He emphasizes that risk and volatility do not intrinsically render an investment comparable to gambling, which is forbidden in Islam. He proposes that each coin be assessed independently.
Related: Cryptocurrency in Pakistan in 2023: A Comprehensive Guide
The 1st Scenario: Why Crypto is Halal
Many researchers and experts contend that the permissibility of each cryptocurrency initiative should be assessed individually.
A fundamental problem in this case is whether cryptocurrencies qualify as “Māl” (wealth) under Islamic law.
Māl denotes an entity that can be owned, retained, and sought after, such as an automobile or real estate. The discussion focuses on whether cryptocurrencies fulfill these criteria.
Mufti Faraz Adam, a UK-based authority in Islamic Finance and Fintech, stated in a research study that “cryptocurrencies are simply validated entries on a blockchain that are tradable and functional.”
He stated that cryptocurrencies are numerical sequences and records maintained in a digital wallet, possessing intrinsic worth. “Consequently, these digits themselves transform into Māl and assets that are acquired, retained, and traded,” he stated.
“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.”
The Fiqh Council of North America has said that “the fundamental principle in Islam is that all matters concerning human relations (muʿāmalāt) are permissible unless otherwise demonstrated.”
The council stated that arguments like anonymity, uncertainty, and the lack of an issuing body or governmental regulation are insufficient to justify a ruling of impermissibility for cryptocurrencies.
The 2nd Scenario: Why Crypto is Haram
Some experts oppose a universal prohibition on cryptocurrencies or recommend individual assessments of each digital currency, while others contend that all digital assets are haram.
“In my view, engaging in cryptocurrency trading is haram,” stated Mufti Shawki Allam, the 19th Grand Mufti of Egypt.
“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, this justification may no longer hold, as nations such as El Salvador and the Central African Republic (CAR) have recognized Bitcoin, a cryptocurrency, as legal cash.
In 2021, Indonesia’s council of religious leaders (Majlis Ulama Indonesia) classified cryptocurrency as haram due to the accompanying gharar and darar (harm).
Kayali stated that while acquiring cryptocurrencies, the purchaser is fully aware of the specific asset being acquired, the quantity of coins received, and the type of coin, so eliminating gharar or doubt.
He stated that the ambiguity regarding the advantages or results of the purchase is not exclusive to bitcoin and does not automatically render it haram.
Kayali contended that the harm linked to cryptocurrency is insufficient to deem the entire technology haram.
He emphasized the necessity of a cost-benefit analysis and indicated that the negative consequences of any technology, such as the internet, do not render it intrinsically haram.
Is crypto trading halal?
Mohammed AlKaff AlHashmi, co-founder of HAQQ Network, informed Techopedia that “a short-term trading strategy is fundamentally speculative, conflicting with Islamic finance principles that prohibit 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.”
In a seperate video, Kayali claimed that there is no designated duration for possessing an asset prior to its sale. He asserted that the primary consideration is the completion of the trade transaction.
“Subsequent to settlement, the buyer is entitled to utilize the asset, while the seller may allocate their payment at their discretion.”
Is Crypto Spot Trading Halal?
In Islamic finance, spot trading, which includes the instantaneous exchange of currencies, is typically deemed lawful provided it complies with the rules of avoiding interest (riba) and guarantees immediate settlement. This is also applicable to cryptocurrency spot trading.
Is Crypto Futures Trading Halal?
On the other hand, crypto futures, which are contracts establishing an agreement to purchase or sell an item at an agreed-upon future date for a price established today, are not considered halal.
In a standard cryptocurrency futures contract, the parties are required to either purchase or sell the asset to one another, contingent upon market conditions. According to Kayali, selling the contract before to its expiration is the sale of a debt, which entails interest and so violates Islamic precepts.
Moreover, the majority of cryptocurrency futures are settled in cash. This indicates that at the time of contract settlement, there is no physical delivery of the asset.
The parties only transfer funds according to the asset’s price movement, effectively transforming the contract into a wager on price volatility, which is forbidden in Islamic finance due to the absence of an underlying asset.
Is Investing in Crypto Halal?
Like trading, investment seeks to accumulate long-term wealth through asset retention, which AlHashmi deems halal.
“Assume a token exhibits evident utility for a legitimate economic objective and transparently discloses its risks and advantages.” Consequently, it may be classified as Halal according to Shariah, as it avoids excessive speculation,” he stated.
Other experts and scholars who consider cryptocurrency halal permit investment in it, provided that the transactions adhere to Islamic finance principles—specifically, that they exclude interest and other elements that contravene Islamic tenets.
Is Staking Crypto Halal?
Staking crypto involves the commitment of assets to earn interest over a specified duration. Although the staking method is same across projects, the purpose of that staking may differ.
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 of Islamic Finance Guru, stated that the concept of staking is not inherently problematic from an Islamic perspective. “It is merely a rule-based methodology employed by a cryptocurrency initiative to determine who is entitled to contribute to the blockchain,” he stated.
He warned that staking, including associated activities like as DeFi staking, should not be conflated with liquidity mining or yield farming. Although both staking and liquidity mining require investors to purchase and retain cryptocurrencies for profit, liquidity mining yields returns in the form of interest, which is considered haram.
Is Crypto Mining Halal?
Cryptocurrency mining often encompasses two primary functions: serving as an auditor for the blockchain to verify transaction validity and prevent double-spending, and competing to discover the subsequent number necessary for the creation of a new block.
Ibrahim Khan asserts that the auditing function is unequivocally allowed, as it entails delivering an essential service to protect the integrity of the blockchain.
The computational competition to identify the subsequent block is deemed acceptable, notwithstanding the factor of chance involved. This activity is warranted due to its demand for substantial processing power and calculation, rendering it more skill-oriented than mere gambling.
The predictability of mining difficulty and the capacity to evaluate one’s probabilities further differentiate it from games of chance.
Related: Top 5 Great Bitcoin Investing Techniques for 2023
Is Bitcoin Mining Halal?
AlHashmi stated that since Bitcoin is generally regarded as halal, we may consequently classify Bitcoin mining as halal as well.
“Although some may contend that it could promote haram activities, such as utilizing Bitcoin for unlawful purposes, mining Bitcoin to authenticate transactions is regarded as a service that enhances the network.”
Which Crypto is Halal?
The fundamental principle in Islam is that all aspects of human connections are permitted unless demonstrated differently. Many scholars assert that a cryptocurrency initiative according to Islamic finance standards can be considered halal.
“A cryptocurrency is deemed halal if it prohibits interest accumulation and does not endorse gambling,” AlHashmi informed Techopedia.
Certain Islamic finance specialists have commenced the compilation of a halal cryptocurrency list, with one instance available at CoinRankings. The list primarily comprises leading cryptocurrencies such as Bitcoin and Ethereum, while omitting meme coins and others lacking supplementary utility.
Exercise caution while utilizing such lists and conduct additional research if required.
Is Bitcoin Halal?
The Fiqh Council of North America has stated its agreement with the academics and Fatwa committees that assert Bitcoins are fundamentally halal.
The extensive acceptance of Bitcoin as a money bolsters the argument for its adherence to Islamic teachings.
Mufti Adam has stated that Bitcoin qualifies as a currency, asserting that its acquisition is Shariah compatible under specific conditions and in particular transactions only. Bitcoins will function as a currency as long as individuals utilize and trade them.
Is Ethereum Halal?
According to AlHashmi, Ethereum is fundamentally different and significantly more complex than Bitcoin, complicating the determination of its permissibility. He stated:
“Fundamentally, it can be contended that Ethereum is halal when utilized as intended — for facilitating decentralized applications (dApps) or as a medium of exchange, akin to Bitcoin.” Decentralized applications, when developed in accordance with Shariah principles, can be deemed halal as they generate value and offer benefits to their communities.
Kayali also noted that certain dApps developed on Ethereum may be utilized for nefarious reasons. Nonetheless, he stated that because these applications are not intrinsic to Ethereum, they do not render it non-halal.
The Bottom Line
There remains no conclusive determination on the legality of purchasing cryptocurrency as halal or haram. As the adoption of digital assets grows, more scholars are inclined to regard them as permissible.
It is important to observe that advocates refrain from issuing Fatwas concerning the industry as a whole. They contend that each cryptocurrency must be assessed independently, taking into account its utility and compliance with Islamic teachings.
