Bitcoin and Cryptocurrencies: Halal, Haram or What?

Although it is not my favorite financial topic or financial product, it seems to be significant to the Medium community, so in order to get some readers (and sell-out a bit), I will discuss the Islamic perspective relating to the permissability of trading and owning cryptocurrencies according to the senior scholars who have issued opinions at the time of this articles publication.

But first, a quick look at the primary source of the Sunnah. These sources form the basis of a legitimate scholarly opinion.

Currency Trading and Risk in the Books of Sunnah.

The rules of trading according to the narrations of the Messenger (ﷺ) and his Companions are rather straight forward. Transactions must be done (i)“hand to hand” and, (ii) in “equal amounts.” Anything other than that is generally considered riba, and thus impermissible.

Narrated Ibn `Umar: The Prophet (ﷺ) said, “The selling of wheat for wheat is Riba (usury) except if it is handed from hand to hand and equal in amount. Similarly the selling of barley for barley, is Riba except if it is from hand to hand and equal in amount, and dates for dates is usury except if it is from hand to hand and equal in amount.” Sahih al-Bukhari 2170

Narrated Abu Bakra: Allah’s Messenger (ﷺ) said, “Don’t sell gold for gold unless equal in weight, nor silver for silver unless equal in weight, but you could sell gold for silver or silver for gold as you like.” Sahih al-Bukhari 2175

It was narrated from Umar bin Muhammad bin ‘Ali bin abi Talib, from his father, that his grandfather said: ‘The Messenger of Allah (ﷺ) said: ‘Dinar for Dinar, Dirham for Dirham, with no increase between them. Whoever has need of silver, let him trade gold for it, and whoever has need of gold, let him trade silver for it, and let the transaction be done on the spot.”’ Sunan Ibn Majah, English reference : Vol. 3, Book 12, Hadith 2261 (graded weak by Darul Salam)

With respect to risk, the general Islamic principle is that transactions should not be left to chance. While reasonable amounts of uncertainty are permitted, unreasonable uncertainty in a transaction is considered gambling and thus is impermissible.

A simple narration sums it up as follows: Narrated Abu Hurairah: the Prophet (ﷺ) forbade the type of sale which involves risk (or uncertainty) and a transaction determined by throwing stones. Sunan Abi Dawud 3376 (Graded Sahih by Al Albaani).

A more specific example in Imam Malik’s brilliant treatise Al Muwatta: “Yahya related to me from Malik from Ibn Shihab from Said ibn al- Musayyab that the Messenger of Allah, may Allah bless him and grant him peace, forbade muzabana and muhaqala. Muzabana was selling fresh dates for dried dates. Muhaqala was buying unharvested wheat in exchange for threshed wheat and renting land in exchange for wheat. [Imam] Malik said, “The Messenger of Allah, may Allah bless him and grant him peace, forbade muzabana. The explanation of muzabana is that it is buying something whose number, weight and measure is not known with something whose number, weight or measure is known,… and does not know its measure or weight or number and then a buyer approaches him and proposes that he weigh or measure or count the goods, but, before he does, he specifies a certain weight, or measure, or number and guarantees to pay the price for that amount, agreeing that whatever falls short of that amount is a loss against him and whatever is in excess of that amount is a gain for him. That is not a sale. It is taking risks and it is an uncertain transaction. It falls into the category of gambling because he is not buying something from him for something definite which he pays. Everything which resembles this is also forbidden.” Book 31, Hadith 75.

The Opinions of the Scholars Thus Far.

In an official fatwa (while BTC was hovering around $15K), Egypt’s Grand Mufti Shawki Allam declared that trading such a “virtual currency” is haram, as it is not considered by legitimate bodies (i.e. state treasury departments) as an “acceptable interface of exchange.” He focused on public policy in making his decision and stressed that both the “currency’s risk as well as its high profit potential undermines Egypt’s ability to maintain and stabilize its own currency.” The Mufti was also concerned that cryptocurrencies had a “negative effect on its dealers’ legal safety, possibly due to failure to publicly disclose such operations,” which could lead to an “ease in money laundering and contrabands trade.” He affirmed that the use of such currencies “impinges on the state’s authority in preserving currency exchange, as well as its necessary supervising measures on domestic and foreign financial activities.” The Mufti also argued that trading crypto currencies amounted to “gambling,” which is also haram.

Similarly, Turkey’s Directorate of Religious Affairs, or the “Diyanet,” voiced like concerns and stated “The purchase and selling of digital currencies is not appropriate according to religion at this point due to the fact that they are open to speculation in terms of value and they can easily be used mostly in illegal deeds such as money laundering. They are also far from state auditing and supervision,” (Hurriyet Daily News.)

Mufti Amjad Mohammed states in a published fatwa, “Due to the very nature of cryptocurrency, the fundamental fact that it has to be decentralised will mean that its current method of validating transactions which are based on gambling and chance will mean it is contrary to Islamic principles of business and hence not permitted to Muslims who choose to avoid transactions which go against their beliefs and practices.”

In another published fatwa, Muftis Shafique Jakhura and MD Mangera wrote: “Currency trading in itself is not against the principles of Islamic Economics. However, the Sharia has laid down certain guidelines and regulations when trading in currencies. It is necessary to uphold and maintain these regulations when trading in currencies. The most important of these regulations is that currencies of different countries can be traded in exchange of each other provided that the transaction is completed on spot (i.e. both counter-values should be exchanged at the same time), irrespective of whether the contract is concluded at above or below the spot rate. In other words both the counter-values are exchanged at one and the same time.”

Maybe the most highly regarded scholar of Islamic finance, Mufti Taqi Usmani, of Pakistan, stated: “… in addition to the fact that the currencies are originally a medium of exchange and should only be exchanged for personal use in different countries. To make them a tradable commodity only for earning a profit is also against the basic philosophy of Islamic economics.”

The well regarded Shaykh Sulayman ar Ruhayli, perhaps had the most stinging criticism. He stated “It [Bitcoin] has no value in and of itself. It has no economic strength that gives it value, nor an origin of some sort that it returns (like gold or silver). Rather, its value is based on the fluctuation of the market.” He also made similar arguments regarding the fact it has not been adopted by any legitimate government entity. After concluding it was not permissible, he went further stating, “investing money in it is a waste of wealth. It is like a bubble…it may burst at anytime, and of a surety it will burst.”

Even the well known TV and YouTube personality, Shaykh Assim al-Hakeem ruled that cryptocurrencies are prohibited because they are “ambiguous” and facilitate criminal behavior. Shaykh al-Hakeem stated, “We know that bitcoins remain anonymous when you deal with it… which means that it’s an open gate for money laundering, drug money and haram (forbidden) money,” Hakeem also said, “There is a lot of ambiguity, if I have dollars and you have euros and we want to exchange this is permissible in Islam with the condition that it is hand-to-hand… in virtual currencies you don’t have this,” he added.

The news isn’t all negative, apparently The HelloGold Foundation, received a Shariah compliant stamp of approval on their gold backed coin, however I have not seen or read the applicable fatwa. Further, even in the fatawa that deemed cryptocurrencies impermissable to trade or otherwise own, most left the door open to reverse their decisions in the future after significant government regulation and adoption takes place, as well as stability in the price of individual cryptocurrencies. As such the needed ijma (consensus of the Scholars) is likely to occur further into the future, if Allah wills.

No Legal or Financial Advice Intended: This article is for informational purposes only may not reflect the most current legal or financial developments. This informational material are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances or financial advice. You should contact an attorney for advice on specific legal problems or a certified financial advisor regarding such products before investing.