In the last ten years, the use of cryptocurrencies for value trading and storage has grown significantly, drawing interest from investors all over the world, particularly those in countries with a large Muslim population. With the greatest ownership rate as of 2024 among these countries, the United Arab Emirates (UAE) has emerged as a leader in the adoption of cryptocurrencies. Closely trailing behind are Turkey, which holds the third position in terms of cryptocurrency ownership, and Singapore, which has a sizable Muslim population. Additionally, the UAE and Singapore have established themselves as important centres for blockchain technology and cryptocurrencies.
There are still concerns over cryptocurrencies’ halal status, despite the Islamic community’s rising interest in them. Muslims tend to be cautious investors since Shariah law affects their choices. Although several countries, like Saudi Arabia and the United Arab Emirates, have cautioned about the compatibility of cryptocurrencies with Shariah law, no government has explicitly prohibited them for these reasons.
There is a wide range of opinions among Islamic scholars regarding the legitimacy of cryptocurrency. While some academics have ruled them haram (forbidden), others have supported cryptocurrencies like Bitcoin (BTC). Many Muslim investors are unsure about whether cryptocurrencies can be regarded as halal (permissible) due to the absence of a clear, cohesive regulation.
This post will examine the current discussion on whether cryptocurrencies are halal and offer important information to support Muslim investors in making defensible choices.
Important lessons learnt:
Cryptocurrencies provide interest-free digital asset storage and transfer, as well as decentralised networks (blockchains).
Different Islamic scholars disagree over whether cryptocurrencies are haram or halal based on the nature of the asset and how it works.
Muslim investors must to carefully consider if every cryptocurrency and trading instrument complies with the tenets of Islamic finance, especially with regard to interest, speculation, and uncertainty.
Recognising Cryptocurrencies
Digital assets known as cryptocurrencies run on decentralised networks called blockchains, which are protected by encryption. Through decentralised consensus, autonomous user nodes in these networks uphold the security and functionality of the network. Because of their decentralised design, cryptocurrencies have the potential to displace established banking institutions.
Launched in 2009, Bitcoin is the original cryptocurrency and currently holds the top spot in terms of market capitalisation. As a result of the introduction of a novel method of transaction, hundreds of cryptocurrencies currently constitute a sizeable portion of the world’s financial ecosystem.
Cryptocurrencies perform a number of tasks in a transparent and decentralised environment, such as value transmission, storage, and network security. The utilisation of cryptocurrencies as trading and profit-generating assets has been aided by their integration into both centralised (CEXs) and decentralised (DEXs) exchanges.
Islamic Finance and Shariah Law
Understanding the fundamentals of Shariah law is necessary to assess whether cryptocurrencies are halal, especially in the context of Islamic banking. Shariah law emphasises justice, fairness, and transparency in all interactions and comprises moral, legal, and financial rules that Muslims must abide by.
Interest-related activities (riba), undue uncertainty (gharar), and speculating (maysir) are expressly forbidden in Islamic finance. Moreover, every economic activity must be grounded in material assets and advance societal welfare, according to the tenets of Islamic finance.
Numerous aspects of cryptocurrencies are consistent with these ideas. For example, most cryptocurrency transactions are interest-free, and because they are decentralised, they promote openness and morality. But there are still worries about cryptocurrency market volatility and speculation, which may go against the precepts of Islamic financing.
Perspectives of Islamic Scholars on Cryptocurrency
Regarding the permissibility or impermissibility of cryptocurrency, Islamic scholars are at odds. For instance, the Directorate of Religious Affairs (Diyanet) of Turkey declared in 2017 that because cryptocurrencies are speculative in nature, they are prohibited. In a similar vein, Dr. Shawki Allam, the former Grand Mufti of Egypt, voiced worries regarding the unregulated nature of cryptocurrency and its possible application in illegal activities.
On the other hand, other academics have adopted a more sophisticated strategy. For instance, the Shariyah Review Bureau evaluates every cryptocurrency according to its unique functions and use cases. It broadly endorses Bitcoin and other cryptocurrencies as halal, but considers lending and borrowing decentralised finance (DeFi) initiatives and meme coins as haram.
Notable academics such as Mufti Abdul Qadir Barkatullah and Mufti Muhammad Abu Bakar have also endorsed cryptocurrencies; Barkatullah has confirmed that commonly used mediums of exchange, such as Bitcoin, are halal.
Is cryptocurrency considered haram or halal?
Considering the varying perspectives on cryptocurrency, it is recommended that Muslim investors use caution. Certain cryptocurrencies are more likely to be regarded as haram, particularly those that are utilised for activities that yield interest. To be sure, Bitcoin and other cryptocurrencies might be regarded as halal if they are utilised for things like safe value transfers and storage that don’t include interest or speculation, which are in line with Islamic beliefs.
Is there halal bitcoin?
The biggest cryptocurrency in the world, Bitcoin, possesses a number of characteristics that are consistent with Islamic finance ideas. It has the potential to be a halal asset because to its deflationary structure, peer-to-peer trading capabilities, and reduced volatility than other cryptocurrencies. Bitcoin has been categorised as halal by the Shariyah Review Bureau and other organisations, unless it is utilised in speculative or interest-bearing products.
Other Prominent Cryptocurrencies That Comply with Shariah
Ethereum (ETH): Ethereum is utilised for network security and value transactions, much like Bitcoin. With the exception of interest-generating products, ETH might be regarded as halal.
Tether (USDT): Because it is a stablecoin linked to the US dollar, USDT is frequently used in crypto-to-fiat transactions and is probably halal.
Solana (SOL): Similar to Ethereum, Solana’s native coin SOL has the potential to be halal since it enables decentralised transactions and network security.
XRP (XRP):
Because XRP offers genuine utility and facilitates business-to-business payments and settlements, it might qualify as a kosher asset.
Polygon (POL):
Polygon offers affordable cryptocurrency operations, and its native token POL—which is utilised for value transfers—is comparable to SOL and ETH.
Issues and Disputations
Because of their anonymity and volatility, cryptocurrencies have sparked questions about whether or not they fit into Islamic finance. Excessive risk-taking and speculating might be against Shariah laws, and the digital aspect of cryptocurrencies might make it more difficult for economic operations to require physical assets.
Last Words
Due to the lack of a single body to definitively rule on the halal status of cryptocurrencies, Muslim investors need to assess each asset with great caution. A cryptocurrency may be compliant with Islamic principles if it has no interest, has no undue risk, and isn’t based on speculation. To guarantee adherence to Islamic finance, investors can also look into specially created cryptocurrency assets that comply with Shariah.
Notice:
There is no fatwa in this article. Muslim investors are urged to carry out independent study and consult with knowledgeable academics.
