By Keulere Nabil Olarewaju

INTRODUCTION

Whether or not Bitcoin and other cryptocurrencies is halal (permissible) or haraam (not permissible) has been a point of contention for many Muslims, as well as several Islamic banks and financial authorities in recent years.

This has left many Muslims worried about investing in cryptocurrencies—particularly during times of extreme growth—since they couldn’t be sure whether the appreciation of their investment would be considered haram (forbidden) or halal (permissible) under Islamic law.

With around 1.9 billion Muslims in the world, equivalent to almost a quarter of the world’s population, a clear consensus on the Islamic view of Bitcoin could be a major boon for adoption.

DEFINITION OF TERMS

The word “crypto” refers to the encryption or cryptography that the instrument is built on and then added to a blockchain database. The “currency” here refers to the recognition as medium of exchange amongst its users.

The European Central Bank explains virtual currency in its published document as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat money or currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically”. Examples of virtual currencies include cryptocurrencies such as Bitcoin, Litecoin, Stellar and so on, but also include non-cryptocurrencies like in-game credits for in massive multiplayer games such as World of Warcraft; advertiser issued credits; and various other digital stored value systems.

The idea of digital monetary systems dates back to the early 1990s when several companies and programmers tried their hand at creating money meant to be exchanged virtually. Many of these early currencies struggled to find their footing due to prohibitive regulation, insufficient technology, poor security features, lack of adoption,and a slew of other issues. The cryptocurrency segment of the digital currency universe was created in 2009 with the invention of Bitcoin.

Generally,  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.

On the other hand, Islamic law can be defined as law of Almighty Allah (God) which was revealed to the Holy Prophet Muhammad through Angel Jibril. It’s inimitable, unchangeable, sacrosanct, indelible and constant. Its fixed by Almighty Allah for all time and must be obeyed by the people.

PROPERTIES OF CRYPTOCURRENCY

According to Jan Lansky, a cryptocurrency is a system that meets six conditions:

  1. The system does not require a central authority; its state is maintained through distributed consensus.
  2. The system keeps an overview of cryptocurrency units and their ownership.
  3. The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units.
  4. Ownership of cryptocurrency units can be proved exclusively cryptographically.
  5. The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
  6. If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them.

Generally, bitcoins and all other cryptocurrencies are referred to as money since it can be used for transaction. It’s therefore essential to know the Islamic perspective on money. It has been defined by lots of economic experts and bodies, some definition given are:

Money refers to everything which is widely acceptable as a medium of exchange and store of value, it does not matter what is the nature and form of that thing. (Turki,1988).

Money can be everything which is used as a medium of exchange – whether it is gold, silver, flower petals, skin, paper, etc. – if it is generally accepted among the people (Al-Mausuah, Al-Fiqhiyah, Al-Kuwaitiyah).

Shaykh Usmani says that money refers to something which has following three attributes and can be used as a:

(a) medium of exchange

(b) unit of account and

(c) store of value.

These definitions of scholars are very similar to what modern economists says with regard to the definition of money.

For instance, Merriam-webster dictionary defines money as “something generally accepted as a medium of exchange, a measure of value, or a means of payment”.

Based on these definitions, an expanded definition of money includes all thefollowing attributes:

1) medium of exchange

2) widely accepted as a means of payment

3) measure of value

4) unit of account

After looking at the definition, its essential to understand that the monies that are considered in the Islamic legislation are of two types: The first type is that it has intrinsic value (value in and of itself) and the people recognize it in transactions. This is known, according to the Jurists as commodities [AlNuqud As-Sila’iya]. It is a commodity, such as gold. Gold, has value in itself, as well as silver and copper,and other than that which has intrinsic value.This also includes the paper monies when its’ value is returned to and backed by gold and silver. In the past, the Dinar was underpinned by gold and silver. The Saudi riyal was underpinned by silver. So these paper monies represent something that has value, which is gold or silver. The aforementioned here are all commodities [An-Nuqud As-Sila’iya].

The second type is the form of money that does not have value within itself but rather its value is based on the strength of the economy of a country and the governments’ responsibility as a guarantor for this money, such as the paper money today. In your pockets are all papers, a paper worth a Dinar and another valued [for example] at ten Dinars. Is the value in the paper itself? It actually doesn’t possess any value. Does another body cover its value? Where does it gain its value? It is in fact gained from the strength of the economy of Kuwait. As long as the economy is strong and stable, the currency is also strong but if any instability occurs in the economy, what will consequently happen to the value of the currency? It will depreciate. So this does not have any value in and of itself, rather its value stems from the strength of the official economy of the country and from the guarantee afforded to the currency by the government and thus this is recorded on it. This is called An-NuqudAl-‘Itimaniya (fiatmoney).

The first type is called commodities [An- Nuqud As-Sila’iya] because it has intrinsic value, where as this one is An-Nuqud Al-‘Itimaniya (fiatmoney). They are both monies that are legally binding in the legislation.

SHARIAH ISSUES IN CRYPTOCURRENCIES

There are three major areas:

1- Trading and investment

2- Mining

3- Means of payment (Payment System)

RULINGS OF SCHOLARS ON CRYPTOCURRENCY: Trading and Investment

Given the above mentioned rules and discussion, it becomes possible to evaluate cryptocurrency and discuss whether it fulfills the conditions of mal and currency.

The most famous type of cryptocurrency is Bitcoin. Therefore, the existing literature of articles and especially fatawa (experts’ legal opinions) are generally concerned with bitcoin. However, the principles and arguments to determine any type of cryptocurrency are same. Therefore, the existing literature pertaining to Bitcoin specifically has benefits broadly with regard to cryptocurrency.

Scholars around the globe have been debating over the permissibility or otherwise of bitcoin and all other cryptocurrencies. Generally, there are two opinions, that is the permissibility view and the non permissible view. Although, some are still silent in given their opinion. Nevertheless, the opinion of the two sides that have argued for or against it shall be explored and criticized.

The view on its permissibility was given mainly from individual respected jurists, people like, Prof. Ali El Gari (Saudi Arabia), Dr. Daud Bakar (Malaysia), Dr. AbdulBari Mishal, IEF (USA) and Mufti Abu Bakr (South Africa).

The ruling of its impermissibility was given mainly by official iftaa bodies, such as Egypt, Turkey and Palestine, and some notable individuals.

IIFA has postponed issuance of resolution on this so far, but organized seminars.

VIEWS ON PERMISSIBILITY (HALAL)

Scholars are of the view that bitcoin is permissible in principal. This view can be analysed in light of our previous discussion with regard to both the criteria and definition of property (mal) and money.

There is a famous Islamic legal maxim explained by jurists: “الاباحة المعاملات في الاصل”. (Al-aslu fil- mu’āmalah, al- ibaahah) This means that original rule is permissibility in financial and business transactions. In other words, everything is permissible unless we found it clearly contradictory to Shariah principles.

According to this principle, cryptocurrency is permissible principally. Likewise, anything can be considered as money if it has these attributes:

  1. treated as valuable thing among the people,
  2. accepted as medium of exchange by all or substantial group of people,
  3. it is a measure of value,
  4. and it serves as unit of accounts

Therefore, any cryptocurrency which fulfills these conditions (such as Bitcoin) is acceptable 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. However, they note that to be qualified as currency, it should be approved by relevant government authorities.

In a 2019 podcast with Radio Finance International, UK-based Islamic finance and fintech consultant Mufti Faraz Adam was enthusiastic about Bitcoin’s potential to create a system that “works in favour of the people.” He added: “It’s fair, it’s just, it’s transparent, it’s atomized, it’s not monopolized. Then, I don’t see why Shari’a would prohibit this system.”

Mufti Muhammad Abu-Bakar – Mufti Muhammad undertook a detailed analysis of this topic here. His personal conclusions were that Bitcoin is permissible as it is seen as something valuable and available on currency exchanges and is a medium of payment accepted by a number of shops and platforms today. He also makes a more prudential note that this is a nascent industry, prices are volatile, and there is a risk of loss.

Ziyaad Mahomed, Shariah Committee Chairman of HSBC Amanah Malaysia Bhd – He argues that while gold and silver are unambiguously permissible as currencies in Islam, the sharia doesn’t require that a currency have intrinsic value. All that is important is that there is social acceptance among people that such currency has value and it is capable of being used in transactions.However Shaykh Ziyaad also points out that where cryptocurrencies like bitcoin become excessively volatile with retail investors driving irrational increases in price, the trading in bitcoin could be seen as more questionable.Overall, the Shaykh concludes on a cautiously optimistic note regarding the potential of cryptocurrency.

Oziev and Yandiev (2018) have identified the conformity of Bitcoin to Islamic teaching and found that it has no emitter, monetary control, or transparency. Some Islamic scholars also have different opinions on this issue. The Shariah Review Bereau (2018) identifies that cryptocurrency and tokens are permissible as money as they meet habits of exchange transactions besides other requirements such as maal (property), manfa’ah (usufruct), haqq (right), and dayn (liability). Furthermore, there are some differences between coins and tokens. Tokens are also varied but the function as a medium of exchange is similar. Amalin (2018) opined that cryptocurrency fulfilled for money exchange it is transparent and clear regulation for trading. It does not contain usury (riba), which is banned in Islamic teaching. Similar reasons proposed by Zain (2018), he also stated that Bitcoin can be used for illegal transactions due to unregulated by central bank.

CRITICAL ANALYSIS OF THE OPINION

Scholars that argued for its permissibility base there argument on “it’s transaction and trade” and  it’s generally agreed upon that trade is permissible. Allah says: “whereas Allah has permitted trading and forbade riba (interest) [2:275]“.

However, it has concurrently been stipulated that there must not be any prohibitions of the Islamic legislation included in the business transaction. If a preventative cause from the legislation exists in the transaction, the it becomes unlawful (haram). For example, if someone exits the mosque and he finds a man at the door of the mosque selling bottles of alcohol, if asked, “what are you doing?” He will say: “selling”.  He will say: “It’s unlawful(haram)”, and he would respond: “The origin in business transactions and trade is permissibility and Allah says: “whereas Allah has permitted trading [2:275]“. Would a sane person say this is valid? No. It contains a Legislated preventative. And we have clarified the preventatives in the legislation such as obscurity in transaction, unknown trade, and the wasting of wealth pertaining to these currencies.

As for their argument that some countries have approved this currency, like Germany, and some other European countries and some South American countries, then we respond; none of the countries have issued this currency or adopted it in their economics or back it financially. What actually occurred is that some of these countries approved these currencies for accountability purposes in the attempt that the country ensures its share from the tax. When these countries noticed the financial activity involved and the substantial amounts of money, they decided that if they do not take action, the country would lose its gains from the taxes.

However, they deemed that if they validate it, we are the able to commit our citizen stop a taxes from these transactions. Therefore, they do not approve of them from an economical perspective, not do they issue them, nor does the government of the country ensure a guarantee for it in the case of its collapse, rather, it is to guarantee its right to the taxes. If a person experiences any complexities with the currency, they do not have any warranty for their loss, yet, they are obliged to pay a tax return related to these currencies. This is what occurred. It is also mandatory to differentiate between approving a currency for accounting benefits and approving a currency by issuing it and giving a warranty for it. The point that must be adhered to is that a country approves these currencies by either issuing them and making them legal tender or giving warranty, and all this is not present with in these currencies.

VIEWS ON IMPERMISSIBILITY (HARAM)

The Grand Mufti of Egypt – Shaykh Shawki Allam – The Mufti argues that there is a high degree of uncertainty, risk, fraudulence, He also noted that there is no deep or systemic control or rule mechanism around the issuance of these coins and that this currency is not linked to any established marketplace or economy.The Shaykh also noted the instability and price fluctuations that bitcoin is prone to and the risks that brings to market participants. He also noted that in order to effectively store bitcoin you need to keep the unique private key for your bitcoins safe through heavy encryption in order to ward of theft, virus attacks and loss. This high level of sophistication needed means that bitcoin is a far remove from normal currencies and the stability and relative ease of storage for them.

If there has been a loss or a theft there is almost nothing that can be done to recover the amount – which is very different to if your normal currency was misplaced by a bank for example.

The mufti also noted that bitcoin is often used by criminal and nefarious elements to fund their work too due to the untraceable nature of the cryptocurrency.

The Turkish Government’s Religious wing – They issued a similar edict declaring bitcoin haram based on excessive uncertainty and the potential to be abused by criminal elements.

Shaykh Haitham al-Haddad – he wrote a detailed paper in Arabic on this topic. He argues that bitcoin is not permissible as it is a currency that is not based on any real value. He also considers mainstream fiat currencies to not be based on any real value since the 1971 Bretton-Woods agreement to unpeg the dollar from gold.However, unlike fiat currencies, there is no authority to back up cryptocurrencies and they are not particularly stable. Also, unlike the use of fiat currency, there is no necessity to use bitcoin.Shaykh Haitham leaves open the potential for a directly gold-backed cryptocurrency and for it to be seen as halal.

The Shaykh also concludes that by implication bitcoin mining is also impermissible as it is creating money from nothing.

Shaykh Assim al-Hakeem an eminent scholar of the century stated “Bitcoins remain anonymous when you deal with it. Cryptocurrencies facilitate money laundering, drug money and haram (forbidden) money. Hand to hand exchange of currencies are permissible in Islam, however, in virtual currencies you don’t have this”.

The Directorate of Religious Affairs, Turkey, issued out that “Since crypto currencies are open to speculations, mostly used for illegal deads, and far from state auditing and supervision; their trading is not appropriate at this point, in the light of Shariah”.

Mufti Shawki Allam, ruled that “Trading in Virtual Currency is haram. This is because it is not approved by legitimate bodies, such as Treasury Departments of States, as an acceptable interact of exchange. Such currencies leads to esae in contrabands trade & money laundering, and they are amounted to Gambling”.

Mufti Taqi Usmani “Currencies are originally a medium of exchange, and making them a tradable commodity for profit earning is against the philosophy of Islamic economics. In Shariah, there is no valid reason to accept Bitcoin or other Cryptocurrencies as a currency. It is just an imaginary number, which is generated through a complex mathematical process. It is purchased for Gambling or Speculations, and used in illegal or unlawful transactions”.

Bakar et al. (2017) found three conditions excluding cryptocurrency from the category of money. It is characterized by

(a) no intrinsic value,

(b) has an anonymous holder, and

(c) it is unstable. A similar issue was proposed by Meera (2018), who suggested that “Islamic” money should be backed by an asset. Therefore, cryptocurrency does not fulfill that requirement. He suggested that to meet the Islamic principles, cryptocurrency should be backed by a real asset.

Nurhisam (2017) stated that Bitcoin is not permissible as money because it is not under government regulation and the risks and weaknesses are greater than the benefits. He was concerned with the legality of money issuance by government and uncontrollable issues.

If we look at the above mentioned fatawa and views of scholars and experts with regard to prohibition of cryptocurrency and bitcoin, we find some common reasons of prohibition:

  1. a) Bitcoin is not a legal tender
  2. b) Bitcoin’s issuer is unknown
  3. c) Bitcoin has no central authority or government backing it
  4. d) Bitcoin is highly speculative and not stable
  5. e) Bitcoin can be easily used for money laundering and illegal purposes

CRITICAL ANALYSIS OF THE OPINION

If one carefully study the opinion of the scholars that ruled otherwise for its permissibility, it will be noted that they mostly concentrated on its use for illegality act, but it should be known that something being use for illegal things doesn’t make that thing haram (illegal).  Mufti Muhammad Abu-Bakar argues that this (illegal use) does not render Bitcoin itself illegal, and posits the following analogy to demonstrate this:

“In general terms, the use of something lawful for an unlawful purpose does not make the thing itself unlawful. Unanimously, the four Sunni schools of thought permit the lawful sale of grapes. Malekis and Hanbalis consider the sale of grapes to a wine merchant invalid, whereas Hanafi’s and Shafe’is merely discourage such sales.”

WRITER’S VIEW

Undoubtedly, the issue of cryptocurrency remains an arguable fact by scholars. When debatable issue arise in contemporary issue in Islam, the opinion of the scholars is that one weighs the opinion of all sides of the debate and uphold the one that seems to be most correct. If one is unable to determine which one seems to be most correct, then some maxims in Islamic jurisprudence can guide.

In Islamic jurisprudence, there’s a rule which is deducted from the hadith of the prophet which states: دع ما يريبك إلى ما لا يريبك”      “Da’ maa yaribuka ila ma la yaribuka” which means: “leave what is doubtful to that which is not doubtful”. It’s clearly known that the issue at hand is doubtful then why not leave it and go for that which is not doubtful?.

Also, anything that can lead to haram must be prevented (Saddu dhariiha  سد ذريعة). Notable scholars, finance expert, bitcoin guru have argued that bitcoin can enhance criminal activities, interests, internet fraud and the likes.

The writer is of the opinion that trading in cryptocurrency (bitcoin) is a doubtful issue and doubtful issue should be abstained from.

SHARIAH ISSUES IN CRYPTOS AS MEANS OF PAYMENT

  • 1- How it is procured – Hacking and other forms of cybercrimes are haram
  • 2- For what is the payment being made, for halal transaction or for haram transactions.

To this effect, the prophet said:

On the authority of Abu Barzeh Nadhla bin Ubaid Al-Aslami He said: The Messenger of God said: A servant’s feet will not go away on the Day of Resurrection until he asks about his life, what is he for?  And about his knowledge, what did he do about it?  And where he acquired his money from?  And on what he spent?  And about his body, what did he do.

  • And of course such a cryptocurrency much enjoy wide acceptance (rawaaj).

SHARIAH ISSUES IN MINING OF CRYPTOS

  • PoW is halal based on the rule of Jaaalah
  • PoS is also halal since the reward is not from the competing miners/forgers themselves. Unless if it is certain that interest is being paid on what the investors have staked for validation of transaction

CONCLUSION

Bitcoin Halal or bitcoin haram is a concept that is not going to be resolved easily. There are some rules that consider bitcoin halal while others consider it haram. However, majority of scholars so far sure that Trading in Bitcoin is not Halal because it has no value in and of itself. Neither any economic strength gives it value, nor it returns an origin of some sort. It has not been adopted by any legitimate government entity and its value is only based on the fluctuation of the market. Most aspects and features of bitcoin or other cryptocurrencies are haram, and they are used for gambling and other such tasks that are considered haram.

Finally, I will like to remind every Muslims that what is lawful is clear and what is unlawful is clear as well but there is between the two, doubtful matters. One of the doubtful matters is the issue of cryptocurrency why not adopt the saying of ibn  Umar Verily, I place a barrier between the unlawful and me with a barrier from the lawful. I do not puncture it.

RECOMMENDATION

The author would like torecommend the followings:

  1. The understanding of cryptocurrency, its mining, tradability, security and systematic impact is evolving. Therefore, it is expected that Shariah opinions must become more informed and conclusive as cryptocurrency is better understood.
  2. The blockchain is not only a platform for bitcoin & cryptocurrency; it is a decentralized digital ledger technology to record anything of value whether it is currency or assets. Blockchain may be considered a boon to the Shariah requirements of transparency and disclosure. Blockchain can serve to enhance the notions of trust in exchange transactions and transfers. It can serve to enforce the principle of cash transactions in exchange of currency and commodities.
  3. Not all aspect of cryptocurrency is haram so Muslims who think they can’t do without cryptocurrency should be fair in their dealings and be mindful of their return to their lord since they will be asked on how they accumulate their wealth and how they spend it.
  4. The IIFA should keep organizing seminars on cryptocurrency and at long run issue a fatwa (ruling) on it.

REFERENCE

PROFESSOR ABDULRAZZAQ ABDULMAJEED ALARO; CRYPTOCURRENCY: AN ISLAMIC LAW PERSPECTIVE, 2021

MUFTI MUHAMMAD ABU-BAKAR; SHARIAH ANALYSIS OF BITCOIN, CRYPTOCURRENCY AND BLOCKCHAIN, 2017

SHAYKH SULAYMAN SALĪMULLĀH AR-RUHĀYLĪ; CONTEMPORARY FINANCIAL TRANSACTIONS, 2018 (AUDIO TAPE VIA ARABIC LANGUAGE, TRANSLATED TO ENGLISH LANGUAGE BY UTHMĀN AS-SUDĀNĪ, 2018)

ALBERTO BRUGNONI ASSAIF; MONEY IN ISLAM.

DR SCOTT MORRISON; THE DEFINING CHARACTERISTICS OF MONEY IN ISLAMIC LAW, 2019

KEULERE NABIL OLAREWAJU, LLB 1, AHMADU BELLO UNIVERSITY, 0905 868 8488, mbamj1012@gmail.com

https://www.linkedin.com/in/keulere-nabil-olarewaju-b495431a7

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