Cryptocurrency is now a part of the modern investing landscape and it\u2019s not going anywhere. It has joined the other major asset classes as a fundamental part of millions of portfolios across the globe.<\/p>\n
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This raises a basic question in every Muslim\u2019s mind: is it halal?<\/p>\n
Let’s first set out what exactly a cryptocurrency is, and then we’ll outline in detail a number of prominent scholarly views both for and against cryptocurrency.<\/p>\n
Cryptocurrency is essentially a type of virtual or digital currency. What puts the \u2018crypto\u2019 in cryptocurrency is that the currency is secured by cryptographic techniques which make it very unlikely to be exposed to fraud and hacking.<\/p>\n
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Another distinguishing feature of cryptocurrencies is that they are not issued by a central authority or state, meaning they are decentralised and theoretically immune to interference by the powers that be.<\/p>\n
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Blockchain is another word you\u2019ve probably heard being thrown about by every crypto enthusiast.<\/p>\n
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The blockchain is simply a way to store data inasmuch a spreadsheet or a graph is. Think of a ledger, it contains different records and information on transactions. The blockchain is simply a way to store chunks of data in (digital) blocks which are distributed between thousands of computers.<\/p>\n
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So, in summary, cryptocurrencies are virtual, decentralised currencies backed by a distributed blockchain network.<\/p>\n
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Even though cryptocurrency is a very new technology, there are many niche use cases already.<\/p>\n
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Different organisations and entities use the underlying technology to issue cryptocurrencies within their platform with a specific use case. These niche cryptocurrencies are called \u2018tokens\u2019.<\/p>\n
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Some types of tokens are:<\/p>\n
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As with many money issues, especially when it\u2019s at the cutting-edge of technology, there will always be disagreements between scholars who view the issue through different lenses.<\/p>\n
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Here is a list of prominent scholars who view cryptocurrency as impermissible:<\/strong><\/p>\n <\/p>\n <\/p>\n Mufti Taqi Usmani, the great Pakistani mufti and Islamic finance expert, is of the view<\/a> that cryptocurrency is not permissible<\/em> to trade in because of how speculative it is.<\/p>\n <\/p>\n He also adds that the push to move away from currencies that are not asset-backed (such as the move away from the gold standard to purely paper currencies) is not a good one.<\/p>\n <\/p>\n He does leave open a door for his view changing in the future, if and when cryptocurrency begins to be used for real trade by real economies. Until then, he cannot see a case for its permissibility based on principle.<\/p>\n <\/p>\n <\/p>\n Dr Haitham al-Haddad wrote a lengthy paper in Arabic elucidating his view on the question, which can be accessed here<\/a>.<\/p>\n <\/p>\n Dr Haitham argues that cryptocurrency is not based on any real value so cannot be considered permissible.<\/p>\n <\/p>\n He likens this to how the Bretton-Woods agreement from 1971 unpegged the dollar from gold, ending the gold standard. In that case, fiat currency was also without real value. But unlike fiat, cryptocurrency isn\u2019t backed by the authorities of the world and consensus.<\/p>\n <\/p>\n He notes that there is no necessity to use Bitcoin so it cannot be permissible for that reason. As a corollary the Shaykh notes that crypto mining is impermissible as it is creating money from nothing.<\/p>\n <\/p>\n <\/p>\n <\/p>\n The Grand Mufti of Egypt, Shaykh Shawki Allam, declared cryptocurrency (and Bitcoin specifically) to be impermissible<\/a>.<\/p>\n <\/p>\n In addition to the standard arguments of risk, uncertainty, and fraudulence levied against innovations in finance, the Shaykh argues<\/a> that the cryptocurrency is fundamentally unlike \u2018currency\u2019 in any sense.<\/p>\n <\/p>\n Firstly, just regarding the storage of these currencies, sophisticated encryption techniques are required to prevent fraud and theft. For the average person, this is very different to the experience an actual currency provides through its ease of use and storage. Hence, in his view, it cannot be called a currency per se.<\/p>\n <\/p>\n He explains that these digital currencies are not set against the backdrop of any established economies or marketplaces and there is no rules-based system around the issuance of these coins.<\/p>\n <\/p>\n This lack of a rules-based systems leaves individuals at a loss were anything to happen to their cryptocurrency, as opposed to actual legal tender and established currencies which are backed by governments, legal systems, and regulated financial institutions.<\/p>\n <\/p>\n In addition to this, he notes that due to the very volatile nature of these coins, especially Bitcoin, it brings deep risk to market participants through price fluctuations.<\/p>\n <\/p>\n As a final point, the Mufti argues that the criminal underbelly of the world uses these coins to avoid authorities. So, a lot of nefarious activities take place through them.<\/p>\n <\/p>\n <\/strong><\/p>\n <\/p>\n Mufti Faraz Adam has been at the forefront of fintech research in recent years.<\/p>\n <\/p>\n His definitive views on cryptocurrency and Bitcoin specifically can be found here<\/a> and here<\/a>.<\/p>\n <\/p>\n The Mufti argues that crypto-assets can indeed be deemed actual digital assets and actual mediums of exchange.<\/p>\n <\/p>\n He suggests that classical scholars would look at the after-effect of a thing and base its ruling on that. Within their specific systems and networks, cryptocurrencies are actual currencies.<\/p>\n <\/p>\n He bases this on the fact that there is a legal utility to these crypto-assets and there is lawful legal entitlement to something, a legal utility.<\/p>\n <\/p>\n The Mufti explains that while it is premature to consider cryptocurrencies, such as Bitcoin, universal currencies at this moment in time, the Sharia allows for anything to take on the mantle of currency. While they may not satisfy the conditions of universal currency per se at this present moment, they can certainly be considered mediums of exchanges and currencies in their context.<\/p>\n <\/p>\n He leaves the door open for them to be considered a universal currency in the future.<\/p>\n <\/p>\n An important point the Mufti makes is that before investing in a specific cryptocurrency it is vital to screen it for legality and Sharia-compliance (the IFG Halal Crypto list may be of use here as a starting point)<\/a>.<\/p>\n <\/p>\n A corollary of this view is that since Bitcoin can be considered a<\/em> currency, Zakat would be obligatory on any holdings as the Mufti notes.<\/p>\n <\/p>\n <\/p>\n The Shaykh\u2019s thoughts and arguments can be found here<\/a>.<\/p>\n <\/p>\n The Shaykh argues that there is nothing inherent with Bitcoin and cryptocurrencies at large that result in them being impermissible.<\/p>\n <\/p>\n He goes on to note that anything impermissible with cryptocurrencies would come about from how they are used, and so the Islamic principles of currency exchange must be applied to those dealing in these currencies.<\/p>\n <\/p>\n The Shaykh also explains that these currencies, being digital, are not exempt from the rules of Riba.<\/p>\n <\/p>\n As a final note, from a financial perspective, he warns people not to dabble in cryptocurrency if they do not have sufficient knowledge of trading in these assets.<\/p>\n <\/p>\n <\/p>\n Many South African scholars, including Mufti Radha ul-Haqq and Shaykh Taha Karaan, have deemed cryptocurrency permissible<\/a>.<\/p>\n <\/p>\n They argue that irrespective of regulation, these currencies have been accepted through social norms.<\/p>\n <\/p>\n The fatwa-issuing body of the well-known Islamic seminary, Darul Uloom Zakariyya, argues that these cryptocurrencies, and namely Bitcoin, can be considered as maal<\/em> from a Sharia perspective and are hence permissible.<\/p>\n <\/p>\n For what it\u2019s worth, you can find our view here<\/a>. We don\u2019t see anything inherently problematic in cryptocurrencies. Our commercial view is that this is an area that is clearly an important technology for the future and Muslims should be thinking about getting involved both from an investor perspective and an entrepreneurial perspective (i.e. setting up projects).<\/p>\n <\/p>\n <\/p>\n Mining cryptocurrency is the process through which new coins enter the network.<\/p>\n <\/p>\n Coins which are based on a \u2018proof of work\u2019 system, such as Bitcoin, are created through computers solving complex mathematical puzzles, i.e. the \u2018work\u2019 in proof of work.<\/p>\n <\/p>\n As we have detailed previously<\/a>, there is nothing inherently impermissible in using computational power to solve puzzles and mine new cryptocurrency.<\/p>\n <\/p>\n Mining cannot be likened directly to gambling since there is an element of \u2018work\u2019 and computation involved. In addition to the fact that miners provide a useful service: auditing the network no fraud is taking place.<\/p>\n <\/p>\n <\/p>\n \u2018Proof of stake\u2019 cryptocurrencies are considered the future of crypto networks. They are seen as a more efficient and less power-hungry alternative to proof of work based systems.<\/p>\n <\/p>\n Proof of stake works by owners of the currency holding or \u2018locking\u2019 their funds in a wallet. Users who hold their funds are selected at random. The more coins you hold the more likely you are to be selected.<\/p>\n <\/p>\n The user who is then chosen is rewarded with a newly minted coin (by being able to forge the next \u2018block\u2019 in the blockchain).<\/p>\n <\/p>\n We\u2019ve covered staking previously here<\/a> and here<\/a>.<\/p>\n <\/p>\n There is nothing inherently problematic with staking from a Sharia perspective.<\/p>\n <\/p>\n The only thing to watch out for is if the underlying coin you are staking is itself Sharia-compliant and whether the underlying coin is a stablecoin[1]<\/a>. Also, if it\u2019s not straightforward staking but involves other elements, be sure to screen those other elements.<\/p>\n <\/p>\n <\/p>\n For those who trade in cryptocurrencies and follow the views of those scholars that deem it permissible, Zakat is due on crypto holdings as we have previously outlined.<\/a><\/p>\n <\/p>\n The most cautious approach is to fully pay Zakat on all crypto holdings regardless of whether the project is so new and niche as to not be useable as a \u2018currency\u2019.<\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n Check out the following articles:<\/p>\n <\/p>\n <\/p>\n ICOs are like IPOs. Companies use them to raise money by offering a token for sale which allows a stake in the company or access to its service\/product.<\/p>\n <\/p>\n Read more about it here.<\/a><\/p>\n <\/p>\n <\/p>\n You can check out IFG\u2019s very own Halal Cryptocurrency List.<\/a><\/p>\n <\/p>\n1. Mufti Taqi Usmani<\/h2>\n
2. Dr Haitham al-Haddad<\/h2>\n
3. Shaykh Shawki Allam (The Grand Mufti of Egypt)<\/h2>\n
Here is a list of prominent scholars who deem cryptocurrency permissible:<\/strong><\/h2>\n
1. Mufti Faraz Adam<\/h2>\n
2. Shaykh Joe Bradford<\/h2>\n
3. Prominent South African scholars<\/h2>\n
Crypto mining and staking, halal?<\/h2>\n
Crypto mining<\/h2>\n
Crypto staking<\/h2>\n
Zakat on cryptocurrency<\/h2>\n
Zakat on tokens:<\/h2>\n
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FAQ<\/h2>\n
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