The future of cryptocurrency is highly dependent on how different communities take it. As per 2020’s world population report, there are 1.9 billion Muslims in the world. But the Muslim community was invented over 1,400 years ago, when bitcoin was not a thing. Therefore, whether or not bitcoin is halal depends entirely on Muslim society. The community obeys Sharia laws as stated by Islamic scholars, where it is stated that they can use digital currencies like bitcoin. This article will show you the thoughts of Islamic scholars from all over the world to determine if the community can participate in bitcoin trading, mining, lending, etc.
What does Islam consider as Money?
According to Sharia law, anything that has value in it is considered money. Sharia law also states that the value of currencies should be the same as the value of the items you are trading. The Byzantine dinar and dirham are the most popular currencies in the Islamic countries and refer to a gold coin and a Persian silver coin, respectively. The metal that the currencies are made of determines their worth. Still, the values of both these currencies were altered many times depending on the variations in their supplies and the demand for silver and gold. Nevertheless,
Muslim countries use the dinar and dirham by taking the anti-interest policy into consideration. Later, the Muslims learnt how to use fiat currencies even though they didn’t have any apparent value. When the community fully accepted the fiat currency, the Islamic scholars made them valid, and they became popular in Muslim countries.
Do Muslims consider Cryptocurrencies as money?
Cryptocurrencies are also money, except they are used and created digitally. Cryptocurrencies such as bitcoins are built on blockchain ledgers where the transaction records are kept to prevent double-spending. Therefore, bitcoins should be accepted by the Islamic community, but the difference is that they do not have any physical existence. But Imam Ibn Taymiyyah thinks that when money and currencies are inter-traded for investment and return purposes, it alters the purposes that money holds. That’s why Muslims don’t follow interest policies like the rest of us, where you can earn your money just by lending funds to someone else. This is why many people believe that bitcoin is not accepted by Islamic law.
We all know that cryptocurrencies are the most volatile form of finance among all currencies, and that’s why they bring both profits and losses for investors. In the present scenario, Bitcoin is more of an investment tool than a currency. To understand the theory of Islamic finance and the connection between bitcoin and IF, you will have to consider Sharia law.
What is Sharia Law?
Sharia law is Islamic law itself that complies with a set of financial activities considered to be legal in the Islamic community. In Sharia law, banking, transactions, lending and borrowing, investment, loss and profit-sharing, business arrangements, etc., are considered legal. There are some principles in Sharia law that you will have to follow as a part of the Muslim community.
Taking an interest is a crime.
As per Islamic law, taking an interest in an individual is an injustice because they are only helping the lenders and exploiting the borrower.
Investment in halal movements is restricted.
Sharia has forbidden some financial activities such as eating pork, gambling, drinking alcohol, etc. Therefore, investing in these businesses is forbidden in Islam.
Speculation on events is forbidden.
Speculation on events is forbidden in the Islamic religion since it might lead to loss. Muslims know this method as “mouris,” where Muslims are forbidden to be a part of contracts where the transactions are dependent on a doubtful result.
Participation in Dangerous Assets is Restricted.
Gharar means uncertainty in English, and in the Islamic region, it is halal to participate in risky contracts. Contracts that are derivative and short-selling fall under this principle.
So, do any of these principles state that trading or lending bitcoin is halal?
Is Bitcoin Halal?
As we saw, there are numerous rules in Islamic law that the Muslim community must obey to make sure that their finances are not halal. According to their law, bribery, extortion, profiteering, etc., are halal. Therefore, whether or not using bitcoin is halal is arguable. Henceforth, it is not clear if the Muslim community should or should not invest in bitcoin and other cryptocurrencies.
Only the legislators who hold religious views are able to answer this question, but that has yet to happen. Still, there are various Islamic scholars who have expressed their views on the Islamic Canonical Law and how it affects cryptocurrencies. Shariah Advisor, Mufti Muhammad Abu-Bakar, Blossom Finance, and many others have pointed out that Sharia law was created 1400 years ago, during which time bitcoin didn’t exist. And now that it is a modern world, thinking about Sharia law is unnecessary.
As Mufti Muhammad Abu-Bakar reported in December 2019, since fiat currencies, gold, silver, etc., are permitted by Sharia, bitcoin should be as well. Mufti Muhammad Abu-Bakar also urged that being used in illegal activities doesn’t make bitcoin illegal per se. In a 2019 Radio Finance International podcast, Mufti Faraz Adam, an Islamic finance consultant, pointed out that bitcoin would be fair to use because it is translucent, atomized, and not dominated. If Sharia law hadn’t been created 1400 years ago, perhaps it would have permitted the use of bitcoin and other cryptocurrencies. But there are some uses of bitcoin that are considered halal in Islam.
Is Bitcoin usage Prohibited In the Islamic Community?
As we saw, the use cases of bitcoin are arguable as to whether or not they are halal, but there are some uses of cryptos that are nearly halal. Gambling, for example, is halal, so if you gamble with bitcoin, you can get arrested. Likewise, trading with cryptos can be halal because using your bitcoin to increase money in the market is one type of gambling. Other than that, using bitcoins for decentralized finance (DeFi) lending or margin trading is haram because you are getting interest from the loans. Getting interest or paying interest for loans is called riba in the Islamic community; riba means injustice. Therefore, if you are in the Muslim community, you cannot charge interest on a bitcoin loan you are lending or receive a loan where you will have to pay interest. Therefore, it probably means that using bitcoin on decentralized programmes is halal. Shaykh Haitham al-Haddad wrote an Islamic paper with insights into Islamic scholars. He tried to speculate on the reasons why bitcoins and other cryptocurrencies might be considered halal in Sharia law.
Shaykh argues in the paper that since bitcoin is not supported by the government authorities, it is not a legal currency. But he also stated that gold-backed cryptos are permissible because gold is legal in the Islamic Scholars. But since there is speculation that bitcoin can be halal, you could be certain of it in some other scenarios.
What can make Bitcoin completely legal In the Islamic Community?
While the Islamic scholars are still not sure if using bitcoin is halal, there are conditions that can make the speculation go away and make it certain that bitcoin is not prohibited. Here are the conditions that cryptocurrencies need to meet to attract more Muslim users in the future:
- The cryptocurrency must be supported by the government, and the value of the coin should depend on the economy of the nation. If not, it should be reinforced by a metal or physical investment such as gold or silver.
- The transactions of cryptocurrencies should be recorded by the central authorities; otherwise, there would be illegal activities with the asset, such as money laundering, terrorism trafficking, etc.
- Accepting gambling behaviors with cryptocurrencies should be alleviated. In short, the market volatility of bitcoin and cryptos should be controlled.
When it comes to trading with bitcoin, it comes with the same rules as gambling, which we see in poker or wagering on horses to make a living. Trading works kind of in the same way where you, as a trader, will have to analyze the market first and predict how much the price of bitcoin will be. And staking with bitcoin is also halal because it is related to riba.
While some believe bitcoin’s legal status is unknown, others have already declared it halal. However, many Muslims are still interested in bitcoins; they buy, sell, and invest in them as a form of money. Despite the fact that bitcoin is untraceable, its transaction records are still kept in the ledger. And it’s possible that’s why it targets so many Muslim buyers. However, bitcoin transactions are pseudonymous because they do not reveal the users’ wallet addresses. However, if you try to change the nature of bitcoins or other cryptos, they may lose their future potential and purpose for being in the market. Still, there is enough room to eliminate the risks associated with bitcoins.