Cryptocurrency technology has penetrated the mainstream while creating appeal in various traditional settings, including within Islamic societies. This culture is guided by the Holy Book of the Quran and the corresponding Shariah on what to consider acceptable, or ‘halal’, investments.
There has been a constant debate within Islam coinciding with the increase in the popularity of crypto. The debate as to whether the technology is in line with the faith, or is unacceptable (‘haram’), has not yielded an outright answer. Today Crypto Lists does our very best to try and outline the different sides of the debate.
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- 1 Why Some Circles Consider Crypto Haram
- 2 Stating the Case for Crypto being Halal
- 3 Opinion of Muslim Scholars on Crypto Permissibility
- 4 Considerations as Cryptocurrency Halal Guide
Why Some Circles Consider Crypto Haram
Below we explore some of the reasons given as to why cryptocurrencies might be considered unacceptable under Islamic law. Bear in mind that this isn’t exhaustive and only some of the main reasons we’ve uncovered.
1. Cryptocurrencies earn its users interest and profits
Sharia law has set frameworks describing a currency to facilitate the exchange of goods and services without profit earnings as per Islam laws. Some compare cryptocurrencies to the stock market due to their speculative nature and where some tokens can be loaned out and accrue interest. As per Islamic law, investing to earn interest is haram.
One of the most famous cryptocurrencies is Bitcoin, which is deflationary and can’t earn interest. Many Islamic sources consider this to be one of the more halal (acceptable) forms of crypto. Proof-of-work coins aren’t interest-accumulating, so it’s worth checking them out if this is the metric you’re looking at.
2. Crypto Operations Reap Considerable Gains from Haram Activities
It is perceived as a high-risk investment similar to gambling due to its high volatility. This is against Islamic law that does not permit any form of gambling. In addition, many crypto casinos are opening up to engage the crypto community with the iGaming industry.
Crypto future trading principles are seen as similar to gambling. Users analyze data using various trading tools such as charts and speculate on a token’s price movements to gain and take a position. Correct predictions enable traders to earn while wrong predictions lead to losses hence similarities to gambling and the stock market.
Gambling is Haram in Islam, so Muslims who want to get involved in crypto should consider holding their coins as a long-term investment as opposed to playing the market. However, it must again be reiterated that with many cryptos, the investment isn’t profitable because of interest, but because of percieved value and scarcity. Essentially, like a digital gold. It’s Crypto Lists’ understanding that this may be a halal way of getting involved in the cryptosphere.
Additionally, various crypto platforms, exchanges, and brokers facilitate the staking of crypto tokens. It involves locking up your tokens for a certain period to earn interest. The interest earned depends on the Annual Percentage Yield (APY) the token offers, which is considered haram.
3. Crypto is Decentralised and Largely Unregulated
Cryptocurrencies’ selling point is their decentralization where no central authority or regulation is recording its transactions. This is against Islamic and Shariah law. Crypto has recently been under scrutiny after regulation calls in various jurisdictions. The lack of regulation has exposed the industry to fraudulent activities and illegal transactions. If crypto were to be regulated effectively by governments and financial overseeing bodies, there is a possibility for it to be treated as halal.
It can be treated similarly to foreign currency in exchange for fiat local currency. As several jurisdictions, including the US, introduce regulations for crypto to minimize uncertainty and risk, Islamic countries are yet to allow cryptocurrencies for transactions. Its anonymity has also seen it be utilized for illegal activities such as money laundering and terrorist activities.
4. Its Source of Money Generation is Unknown
Islamic business practices state that any business whose source of wealth creation is vague or unknown is strictly prohibited. This locks in many cryptocurrencies as an asset with a vague source of money generation and hence may be considered haram. Although networks like Ethereum, Cardano, and so on make clear their value generation mechanisms, these often have native tokens attached that are proof-of-stake, and thus interest accumulating.
Stating the Case for Crypto being Halal
Cryptocurrencies differ in many ways and it would be an injustice to generalize them to being haram due to various features associated with particular crypto. There are elements of crypto that can be considered halal.
Most Muslim scholars support well-established cryptocurrencies as halal as they have proved to be an alternative form of payment for goods and services. These include Bitcoin, Ethereum, Litecoin, Binance Coin, Polkadot, Chainlink, and Monero.
Opinion of Muslim Scholars on Crypto Permissibility
Mufti Muhammad Abu-Bakar, a Sharia Advisor and former advisor to Blossom Finance, stated in 2018 that Bitcoin was permissible under Sharia law. This caused a sharp rise in investment in Bitcoin and Ethereum by the Muslim community. He argues that crypto is indeed speculative but so are all other forms of currencies hence does not necessarily categorize crypto as haram.
Other Islamic scholars supporting crypto as Halal include Shariah Committee Chairman of HSBC Amanah Malaysia Bhd, Ziyaad Mahomed, and Mufti Faraz Adam. On the flipside, Shaykh Shawki Allam, Grand Mufti of Egypt, and Shaykh Haitham Al Haddad differ from these scholars as they view crypto as high risk with limited credibility to be considered halal.
Considerations as Cryptocurrency Halal Guide
It is challenging to generalize whether crypto is haram or halal. Muslims who wish to engage in the cryptocurrency industry must research as per Islamic law when evaluating their engagement. They can engage in halal cryptocurrencies and brokers while avoiding staking and futures as the never-ending debate continues. Crypto Lists will try our best to be as informative as possible on this topic, while acknowledging that it’s not our area of expertise!
Disclaimer: Crypto is extremely volatile and not suitable for everyone to invest in. Never speculate with money that you cannot afford to lose. The information on this site is presented for educational purposes only and should not be construed as investment or financial advice. Furthermore, Crypto Lists is not an Islamic educational source and we encourage you to do your own research on Islamic financial guidelines from trusted experts in this field.