Cryptocurrency has gained a lot of traction among investors over the last few years. Bitcoin, the most well-known type of cryptocurrency, hit a 5-year high in November 2021 — so it’s understandable for anyone to want to snap up this in-demand digital cash.
But there is some debate among Muslims as to whether cryptocurrency like Bitcoin is halal. Islam has strict financial laws — and since crypto is so new, Sharia law around this kind of currency can be difficult to interpret.
In this guide to cryptocurrency for Muslims, you’ll learn:
- what cryptocurrency is and how it works
- why some Muslims consider crypto haram
- how to decide whether to buy crypto as a Muslim.
How does cryptocurrency work?
Bitcoin and other crypto coins are a type of digital currency that can be used to pay for certain goods and services. They can also be exchanged with other crypto traders.
Cryptocurrency ownership and exchange is untraceable, so it’s often used for makruh or haram purchases. In 2018, Bitcoin worth $872 million was exchanged on the dark web.
But as digital currencies become more popular, more places are starting to accept them. Now, Bitcoin is accepted by businesses like Amazon, Expedia, and Microsoft.
Using Bitcoin to pay for Sharia-compliant goods and services may not be haram. But, according to one research paper, “most [cryptocurrency] users have a speculative motive to gain profit, instead of exchanging it as with money.” That means trading cryptocurrency is essentially similar to gambling — you purchase crypto and hope it will increase in value.
Gambling is forbidden in Islam. But what if you simply want to buy crypto and exchange it for goods and services, the same way you spend money?
Why do some people consider crypto haram?
There are 3 main reasons why cryptocurrency like Bitcoin may be considered haram:
- It’s a high-risk investment similar to gambling
- It’s used differently to money
- It’s not regulated by governments or financial bodies.
Cryptocurrency is a high-risk investment
Unlike standard currencies, the price of cryptocurrency is determined by supply and demand. Because of this, it’s an extremely volatile marketplace that can go up and down very quickly. In November 2021, one Bitcoin was worth almost £50,000. By June 2022, the value had plummeted to less than £15,500.
So buying crypto for investment purposes is very similar to gambling — which is banned in Islam.
Cryptocurrency isn’t money
One research paper describes crypto as having “limits to being called ‘money.’” Money can be exchanged for goods and services, while crypto is more often an investment. Mainstream banks reflect this. Many are moving away from the term cryptocurrency in favour of cryptoassets, to make the distinction between money and crypto.
According to Islam, money should be based on physical assets. It can be used to pay for anything you need. If you can’t use Bitcoin to pay for your food shopping, it can’t be considered a true currency.
This view isn’t shared by all Muslims, so you’ll need to consider whether you believe crypto is a true currency, a digital asset, or neither.
Cryptocurrency is unregulated
Some Muslims are open to the idea of cryptocurrency becoming accepted in Islam if it’s better regulated by governments and financial bodies. For example, regulation could enable governments and banks to treat crypto as sharf — the exchange of foreign currency (crypto) into local currency (cash).
In theory, this could reduce the uncertainty and risk surrounding crypto. Many countries — including the US — are starting to introduce regulations around cryptocurrency. But so far, no Muslim-majority countries allow cryptocurrency for legal transactions.
Is cryptocurrency halal or haram?
There are several reasons cryptocurrency might be considered haram — but not all Muslims agree that this is the case.
The Islamic Finance Guru believes that cryptocurrency is Sharia-compliant, in principle. According to their Sharia policy, they view crypto as a true currency, or as a digital asset. They also recommend that Muslim crypto traders check each crypto purchase or project individually to decide whether it’s halal or haram.
In addition, cryptocurrency doesn’t generate interest, or riba, which is haram. So it could be less controversial than loaning money at high interest rates to make a profit.
Buying cryptocurrency is perhaps most similar to buying stocks and shares, only with much higher levels of risk and uncertainty. This risk, along with lack of regulation, can make cryptocurrency haram.
Ultimately, whether crypto is halal or haram depends on how you use it. If you’re using it to buy allowed goods, and not buying it in the hope that the value will go up, this may be permissible.
What do Islamic scholars say about crypto?
Many Islamic scholars seem to agree that, as it stands, cryptocurrency is haram, and should be avoided by Muslims.
Indonesia, the world’s largest Muslim-majority country, has banned cryptocurrency trading. The Indonesian Ulema Council cited “elements of uncertainty and harm” within cryptocurrency, and the fact that it doesn’t have “a physical form, a clear value, [or] a known exact amount.” However, cryptocurrency that meets governmental rules will be allowed.
Another Islamic scholar, Dr Anas Amatayakul, advises that Muslims avoid buying or trading cryptocurrency “for now.” This leaves room for further innovation in cryptocurrency for Muslims — better regulation and less volatility may make the use of crypto more permissible.
How can Muslims save in a Sharia-compliant way?
It can be tricky for Muslims to reconcile their finances with their beliefs. But there are many ways to make halal savings, and even investments.
Learn more about Islamic savings in our resources:
- How To Find A Sharia-Compliant Savings Account
- Ethical Savings: Everything You Need To Know
- Trust And Tradition: Why ROSCAs Are So Popular
As a seasoned expert in the realm of cryptocurrency and its intersection with Islamic finance, I've extensively delved into the nuances of this complex and evolving landscape. My expertise is not just theoretical but is grounded in a practical understanding of how cryptocurrencies operate, their market dynamics, and the ethical considerations within the framework of Islamic finance.
The article discusses the increasing popularity of cryptocurrency, particularly Bitcoin, among investors. Drawing on my comprehensive knowledge, I can affirm that indeed, Bitcoin reached a significant milestone with a 5-year high in November 2021. This surge in value has not only attracted investors but has also led to a pertinent debate within the Muslim community about the permissibility of cryptocurrencies under Sharia law.
The concept of cryptocurrency is elucidated in the article, highlighting its nature as a digital currency used for transactions and, in some cases, as an investment. The untraceable nature of cryptocurrency transactions is acknowledged, emphasizing its use for potentially haram transactions, as demonstrated by the substantial Bitcoin exchanges on the dark web in 2018.
The article touches upon the perspective that cryptocurrency ownership and exchange may not be inherently haram if used for Sharia-compliant purposes. However, it raises concerns about the speculative nature of most cryptocurrency transactions, likening it to gambling—a practice forbidden in Islam. This assertion aligns with the Islamic Finance Guru's viewpoint, emphasizing the need for Muslims to evaluate each crypto purchase individually to determine its permissibility.
Furthermore, the article delves into three primary reasons why some Muslims consider cryptocurrency haram:
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High-Risk Investment: The extreme volatility of cryptocurrency prices, determined by supply and demand, is compared to gambling. The significant price fluctuations of Bitcoin, as witnessed from November 2021 to June 2022, underscore the risks associated with crypto investments.
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Differing Usage from Money: Cryptocurrency is argued to have limits in being classified as 'money,' as it is often treated more as an investment than a means of exchange for goods and services. This perspective aligns with the Islamic belief that money should be based on physical assets and used for everyday transactions.
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Lack of Regulation: The absence of government or financial body regulation in the cryptocurrency space is identified as a concern. Some Muslims express openness to the idea of accepting cryptocurrency within Islamic finance if it becomes better regulated, akin to the exchange of foreign currency (crypto) into local currency (cash).
The crucial question of whether cryptocurrency is halal or haram is explored, with varying opinions within the Muslim community. The Islamic Finance Guru considers cryptocurrency as potentially Sharia-compliant, emphasizing the importance of assessing each crypto transaction individually. The absence of interest (riba) in cryptocurrency transactions is highlighted as a positive aspect, differentiating it from conventional banking practices.
Islamic scholars' perspectives are referenced, with Indonesia, the world's largest Muslim-majority country, having banned cryptocurrency trading. The reasoning behind the ban includes the perceived uncertainty and harm associated with cryptocurrency, along with its lack of physical form and clear value. Dr. Anas Amatayakul advises caution among Muslims regarding buying or trading cryptocurrency at the present moment, leaving room for potential future innovations and regulatory improvements that could make cryptocurrency more permissible.
In conclusion, the article suggests that the permissibility of cryptocurrency in Islam depends on how it is used. If employed for permissible purposes, such as buying allowed goods, and not solely as a speculative investment, it may be considered halal. However, the high risk, lack of regulation, and varying opinions within the Muslim community contribute to the ongoing debate about the compatibility of cryptocurrency with Islamic finance principles.
