Cryptocurrency: An Islamic Law Perspective

Islam is the second-largest religion in the world at present. By 2020 numbers  in, Islam makes up 24.7% of the world population, comprising 1.9 billion followers. The question remains whether the digital currencies are halal or not under its law. Further more, what principle of Islamic law abides by this ruling. This debate is highly influential in the success of cryptocurrencies. It offers a direction to many Muslims, on investing or not. This article sees the digital currencies from the lens of Shariah (Islamic law), determining the Halal cryptocurrency. 

The Key Principles of Islamic Finance

Islamic Law (Shariah) comprises certain principles that need to be abiding. These are as follows: 

  • Interests payments are prohibited as they, in turn, are exploitative. As per the Shariah law, interest payments are an unfair means of gain. They highly favour the lender while exploiting the borrower. 

  • The Shariah law forbids investment in Haram activities. These are eating pork, the consumption of alcohol and gambling. Similarly, any investment in these activities is labelled Haram (Impermissible). 

  • Speculation and gambling are strictly prohibited. These are highly discouraged in Islam, leading to heavy losses, termed Maisir. It is forbidden for the adherents of Islam to be part of contracts where the transactions are reliant on the uncertainty of the income. 

  • Islam bans participation in risky investments. The term Gharar refers to all uncertainty, hazards, or risks. Hence, derivative contracts and short-selling fall under the Gharar term.

     

Related Content: 2nd International Conference on Ijarah and Takaful 

Shades of Grey in Islamic Law

Things are not always black or white . At times, some healthy principles may lead to unhealthy consequences. Thus, the decision of any object labelled as Haram or halal has far-leading consequences. To gain the perfect interpretation of Islamic law, the decision rests upon the Islamic jurists. One of the common examples is selling and consuming grapes that are halal. Yet, the same grapes make wine and its consumption deem as Haram. Likewise, drinking coffee from the earthenware cup is permissible. Contrarily, Islam forbids drinking wine from an same cup. Thus, the cup is halal, but usage makes it Haram. Hence the action can be impermissible, while the object would be Halal. The renowned Islamic scholar Mufti Muhammad Abu-Bakr states that generally, the use of something lawful in the Islamic context for an unlawful purpose does not make the thing unlawful. The same principle applies to cryptocurrencies. 

Halal Cryptocurrency – Shariah Verdict

Except for a few, the majority of  renowned Islamic scholars have deemed cryptocurrency to be Halal (Permissible). Various elements have determined Halal cryptocurrency.  Mufti Muhammad Abu Bakr, who serves a Shariah scholar at Silk Bank Limited,  has commended on the cryptocurrency. As an Islamic jurist, he has a phenomenal record of implementing Islamic finance complying with Shariah law in daily situations. As per his statement, the cryptocurrency is Halal, as it has a store of value accepted by the people. The cryptocurrencies are available on exchanges and serve as the transactional medium on individual and corporate terms. In addition, Islam recognizes the currency legally accepted in the country. He does warn that the infant industry possesses volatility, but argues that all currencies have an element of speculation, not making it Haram. 

Another Islamic scholar, Dr Ziyaad Mahomed, serving as a Shariah Committee Chairman of HSBC, states that the Shariah law does not demand that any currency needs to have an  intrinsic value. If this is the case, the fiat currencies might not replace the dirhams and dinars that used to be in gold and silver. The social consensus determines the value and usage of currency as a transactional medium. Dr Ziyaad Mahomed validates the former scholar by warning of the extreme volatility of the digital currencies in the current era. Moreover, the rapid fluctuations are unreasonable and a sign of worry. 

Further, the prominent Islamic scholars at Islamqa.org, Maulana Jamal Ahmed, and Mufti Faraz Adam — claim that cryptocurrencies are not the true elements of any economy. They don’t add any value or promote labor. Nor have they assisted in producing goods and services, unlike traditional currencies. Therefore, it deems cryptocurrencies as Halal. The rationale is that these are the assets and they have a value attached to them, falling under the label of Maal. It is the Arabic term for something that can be hoarded and secured at the time of need, along with legal validation. Thus, any asset that falls under Maal is Halal.  

You can also read: Fintech in Islamic Finance 2021 

Final Verdict in the Debate

Islamic scholars are divided over the credibility of cryptocurrencies. Although most label it as Halal and permissible, there are some scholars highlighting the speculation and uncertainty. They consider cryptocurrencies under the category of Haram or forbidden. Despite this, many Muslims purchase cryptocurrencies and use them as a medium of currency. 

There are arguments stating cryptocurrencies ares risky, uncertain, and untraceable. However, traceability is a vital factor in cryptocurrencies, storing them in the blockchain network. It makes it one of the most attractive factors for people to invest in cryptocurrencies. Hence, these transactions are unassailable and transparent. However, the transactions are, indeed pseudonymously written under a false name. The data only reveals wallet addresses rather than personal identity. It can contribute to enabling fraudulent activities. However, steps are taken to mitigate the risks and combat the idea of speculation by introducing a Shariah-compliant coin.

The ultimate solution- Caizcoin 

Caizcoin is the next big thing in the cryptocurrency industry. It is the blend of digital technologies along with Islamic finance principles. The introduction of the Islamic law-compliant coin is the solution to the principles that defy the concept of Haram and Halal cryptocurrencies. It establishes a unique, distinguished, and moral financial concept. The Caizcoin promotes the notion of peace and equality. Hence, it serves the interests of the investors and customers. The Islamic cryptocurrency ensures zero rates of interest on transactions. As blockchain technology is decentralized, therefore, no centralized authority exists to artificially influence the behavior of the currency. 

Frequently Asked Question

Bitcoin mining is permissible under Islamic law, as it abstains from Haram activities. Blockchain technology covers all the Shariah requirements of halal transactions. It includes a record of all data and the availability of witnesses to claim as just, open and transparent.

In 2018, the reputed scholars from the Shariah Review Bureau of Bahrain claimed investments in cryptocurrency and coins such as Ethereum and Bitcoin are permissible under Islamic Shariah law.

Bitcoin is the cryptocurrency that has the most holders. It is no surprise that after almost a decade, Bitcoin still reigns as the most popular currency as the market cap stands at nearly $1.1 billion. 

Share on facebook
Share on twitter
Share on linkedin

Leave a comment

Your email address will not be published.

Latest Post

Hot Topic

Translate »