TO BITCOIN, OR NOT TO BITCOIN!

With Muslims making up a quarter of the world’s population, a clear consensus on the Islamic view of Bitcoin has global implications.

In brief

• The use of Bitcoin under Islamic law has been a topic of discussion in recent years, as many Muslims worry that Bitcoin investments may be haram.
• According to recent scholarly interpretations, most general uses for Bitcoin are considered to be permitted in Islam.
• However, gambling, lending, and some kinds of trading with cryptocurrency are almost certainly forbidden.

Whether or not Bitcoin is halal 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.

Bitcoin is (mostly) halal, say scholars

According to Islamic Law, there are a number of criteria that individuals must adhere to, in order to ensure their investment or other income is considered halal. For one, income obtained through unethical or exploitative means such as bribery, extortion, and profiteering is considered haram. It would be challenging to argue that simply using Bitcoin as a standard payment method would violate this tenet.

As of yet, there are still no clear official guidelines on whether Muslims should or shouldn’t invest in Bitcoin. This task would fall on the legislators that codified the religious precepts of Islam, but such an undertaking has yet to be “formally” completed. Despite this, a number of Islamic scholars have offered their interpretation of the Islamic Canonical Law and how it applies to Bitcoin.

Here is a detailed lecture on the topic of “Is Bitcoin or Cryptocurrencies Halal or Haram“, I attended of Datuk Dr. Mohd Daud Bakar in 2019. He is currently the Chairman of:

• Shariah Advisory Council of Bank Negara Malaysia
• Shariah Advisory Council of the Securities Commission of Malaysia
• Shariah Supervisory Council of the Labuan Financial Services Authority
• Shariah Supervisory Board of the International Islamic Liquidity Management Corporation (IILM)
• President of International Islamic University, Malaysia

Certain Bitcoin uses are considered haram

Although most uses of Bitcoin can be strongly argued to be halal, there are several popular uses that are almost certainly haram.

One of these is gambling. Since gambling, in general, is forbidden under Sharia law, so too is gambling with Bitcoin. Some also extend this to cryptocurrency trading, since many cryptocurrency traders are effectively guessing their way through the market—which could be considered to be gambling or high-risk speculating.

There are notable Shariah scholars and Mufti’s that have ruled against Bitcoin and cryptocurrencies in general:

1. The Grand Mufti of Egypt – Shaykh Shawki Allam – this is the BBC article announcing the news that the Shaykh views bitcoin as haram and this is the original Arabic source. 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.
2. 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[1].
3. Shaykh Haitham al-Haddad – he wrote a detailed paper in Arabic here 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.

However, in 2020 several prominent Shariah scholars with technology and islamic finance background have researched in detail, the phenomena of Bitcoin and cryptocurrencies. The tide seems to be shifting more towards Bitcoin and cryptocurrencies being halal, and Shariah compliant to utility and security (promissory note) form of currency. Notably some of the scholars supporting the notion are:

1. Mufti Faraz Adam – Mufti Faraz’s views are summarised in this video:
   https://youtu.be/eDof0CggRyg
2. 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.
3. 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.

Finally, I would like to draw your attention to a great forum organised by Securities Commission of Malaysia on 5th of Nov 2020, where three globally renowned Shariah and Islamic Finance scholars give their opinion, that basically crystalizes in my mind that Bitcoin and cryptocurrencies are generally halal. Namely the scholars were (1) Datuk Dr. Daud Bakar; (2) Dr. Ziyaad; (3) Mohamed Elgari, session moderated by Sis Sharifatul Hanizah. Below is the video for you to view, analize, and make-up your own independent mind.