Is Bitcoin Halal?

Is Bitcoin Halal?

Islamic law is strict about certain aspects of life. Certain foods, such as pork are banned, for example. Things that are permitted under Islamic law are known as ‘Halal’, while those that are prohibited are called ‘Haram’. The rules of Islam extend to finance and banking too, which is why the question arises as to whether Bitcoin and other cryptocurrencies are halal or haram.

Among the things that are prohibited are charging or paying interest, gambling or speculation, and investing in businesses that are involved in prohibited activities, such as selling pork. Questions of whether certain practices are halal can become quite complicated because of the complex nature of modern finance. Things like derivatives trading, margin trading and short selling have all been deemed haram by some scholars.

How does this affect Bitcoin and other cryptocurrencies? The answer is that like many other aspects of the technology, opinions are still being formed.

Halal or haram?
There are several questions. In the first place, given the highly volatile nature of Bitcoin, does investing in it count as gambling or speculation? If so, then it would be haram.

Second, another principle calls for any financial deals to be underpinned by a “real” economic transaction. This has, in the past, been used to deem derivatives haram and, given the uncertain value of cryptocurrency, it could be argued to apply here too.

Third, currencies that are not regulated by the central bank are typically deemed ‘Gharar’, which roughly translates as ‘uncertainty’, and are considered haram. Obviously, the entire point of cryptocurrencies is the lack of central regulation, so this would again appear to be a point against them.

Fourth, there is the use to which the currency is put. In January, Egypt’s Grand Mufti issued a fatwa ruling against Bitcoin, arguing that it could be used for tax evasion, fraud and other corrupt activities. He said: “It has no set rules, which is considered as a contract annulment in Islam. That is why it is forbidden.”

Differing interpretations
However, rulings in issues like this are based on interpretations and it’s frequently possible to find someone else with an alternative interpretation. In the case of the above criteria, for example, the extent to which cryptocurrencies violate them is as important as whether they violate them.

A study by Blossom Finance in Indonesia in April 2018, argued that rulings from Muslim scholars had been “incomplete or contradictory” up to that point, and attempted to weigh-up all the evidence.

The report’s author, Muhammad Abu-Bakar, found evidence suggesting that Bitcoin is halal because it “is treated as valuable by market price on global exchanges and is accepted for payment at a wide variety of merchants.”

There can be no definitive ruling on a question like this one, only opposing arguments by various scholars. As with regulation in this area, opinions are still forming about how Bitcoin and other cryptocurrencies should be treated.

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This post is provided for informational purposes only. None of the information presented here should be considered investment advice. Everyone should always do their own research and due diligence before sending funds to any third party.