Global عربي
KSA عربي
Global عربي
Currency has been used as a medium of exchange for centuries. Individuals and enterprises have bought and sold items with currency and have engaged in economic trade through the medium of currency.
In today's modern world, a new currency has been emerging: virtual currency or cryptocurrency.
Among the many digital currencies, the most popular one is Bitcoin. Bitcoin (BTC) is a crypto currency created by Satoshi Nakamoto and Martti Malmi, who worked together to develop bitcoin.
Bitcoin introduced the idea of a decentralized and cryptographic form of digital money,
there are two key components to Bitcoin.
1- The first is the blockchain: which is a distributed ledger that every computer on the network possesses, which contains a complete history of bitcoin transactions.
2- The second component involves key pairs: which consist of mathematically related large numbers, which are verifiable by both parties enhancing anonymity, all of which is possible due to bitcoin protocol’s encryption and verification.
After its launch in early 2009, bitcoin was relatively underground for the first 5 years. The community grew in 2014, attracting large numbers of developers to the digital currency.
It has slowly become an accepted form of payment for many online and offline stores.
But before we can discuss its uses, we need to clarify the issue of its shariah compliance. There are many opinions among the scholars regarding its permissibility and prohibition.
Due to the nature of Bitcoin, there have been many discussions as to the permissibility of Bitcoin. In general there are 2 camps:
1- Cryptocurrency & Bitcoin are Haram
2- Crypto & Bitcoin are permissible in principle
This first view is held by various scholars, including the Grand Mufti of Egypt, The Turkish Government and The Fatwa Center of Palestine (Dar Al Ifta Al-Falastiniyya).
They are of the opinion that cryptocurrencies like bitcoin and others are highly speculative and volatile, therefore cannot be compatible with the Shariah. (Abu Bakar, 2019)
This view is held by several other Scholars like Mufti Faraz Ahmed, and the Fatwa centre of South African Islamic Seminary, Daruloom Zakariyya. Mufti Faraz says,: “If certain criteria were to be met, then Bitcoin would be considered Mal.”
There are two parts to the disagreement; whether Bitcoin is ‘Mal’ and whether it can be used as a currency of exchange.
Firstly, we shall discuss the ‘Mal’ part. For something to be ‘Mal’ it must conform to 3 main criteria:
1- Desirability
2- Storability
3- Taqawwam
According to the latest charts, Bitcoin has reached a market cap of 2,354,858,335,986.194 USD as per July 20th.And a market price of 117,923.05 USD (blockchain.com).
So, in terms of its desirability, it's relatively popular and shows a supply and demand factor. With respect to storeability, Bitcoins are stored within the blockchain and are entered into a public ledger (Mufti Faraz).
Taqawwum in the Shariah refers to Mal that “possesses legal value”. The foundational rule to items and transactions in Islam is that they are permissible until proven otherwise (Majma ul Anhar, Pg 568).
Considering this, since bitcoin is only numbers & digits, there is nothing that considered them to be unlawful, which would mean they have Taqawwam, making them a digital asset.
This is the opinion of the second group. The first group (Unlawful) claims so on the grounds that Bitcoins are just numbers and digital entities that cannot possess any intrinsic function,
whereas real assets serve a purpose and function. This allows speculative gambling to occur, which prohibits its use.
Read more about: Understanding Qabd: The Concept of Possession in Islamic Jurisprudence
The second issue at hand is whether Bitcoin can be used as money and a currency of exchange.
The opinion of scholars who consider Bitcoin to be impermissible claim that since no central authority monitors the system; it cannot be used as a legal tender (Md Abu-Bakar).
The Religious authority of the Turkish government says,” The trade of virtual currencies is not valid currently.
The valuation is open to speculation (Gharar) and can be used for illegal activities like money laundering.
Read more about: Gharar: What exactly is it and how to avoid it?
Some other reasons include:
- Cryptocurrency is not backed by anything.
- Bitcoin is intangible and can only be used through the internet.
The opposing view (permissible) claims that in order for anything to be money it has to have the following attributes:
-Treated as valuable among the people (substantial amount)
-Accepted as a medium of exchange.
-Serves as unit of account
-Can be a measure of value.
Any crypto which fulfills these criteria will be considered as money.
Those scholars that argue for the prohibition of Bitcoin and cryptocurrency do so for several reasons:
- One of the reasons is that no central system backs it therefore it cannot be safe. The issue with the argument is that it is impossible to manipulate the laws that govern bitcoin mining due to the cryptographic technology that is used.
Another thing that makes it secure is the blockchain technology which is more secure than the centralized system that's used by banks.
- Another reason for opposition is that it is open to speculation and can be used for illegal activities.
Although speculation and illegal activities like money laundering are prevalent issues in the usage of digital assets,
this does not bar an asset from being used as a currency. Just because something is used for Illegal activity does not mean it can no longer be used as a legal tender.
If this is the criteria, then assets like gold and silver would also be removed from the category of money due to the high speculation in its trade. The same goes for money laundering, all cash is used for these activities yet is still used as a currency.
Bitcoin and cryptocurrencies have become highly relevant in the asset world, and it is extremely important to consider the Shariah perspective. The Shariah allows for items to be sold as assets if they fit a certain criterion.
In this article, there was an attempt to underline the argument made by both sides of its permissibility and impermissibility.
The scholars who argue its permissibility do so based on its function as an asset and legal tender. They cite the Shariah criteria of Mal and Taqawwam as a basis for the legality.
On the other hand, you have scholars who oppose the view and argue for a ban. They do so based on the nature of the crypto itself.
Nonetheless, it is important before considering both sides, to look at the moral aspect of Islamic economics.
Values and ethics must be taken into consideration before engaging in any opinion. Islam is cautious when it comes to an economy that is highly engaged in speculation and debt that affect the real economy.
At their core, the financial system needs to serve the real economy. Whether or not crypto serves this purpose is up for debate.
References
Abu-Bakar, M. (2017, April 05). Shariah Analysis of Bitcoin, Cryptocurrency, & Blockchain [PDF]. Blossom Labs, Inc.
Majmaul Anhar Fi Sharah Multaqiyul Abhar
Meunier, S. (2018). Blockchain 101: What is Blockchain and How Does This Revolutionary Technology Work? In: C. Halder (Eds.), Transforming Climate Finance and Green Investment with Blockchains (pp. 23-34). Academic Press, New York, NY, United States. https://doi.org/10.1016/B978-0-12-814447-3.00003-3
Adam, M. F. (2017). Bitcoin: shariah compliant. Amanah Finance Consultancy, 2017, 1-54.
Murty, V. K. (2019). Digital Gold and Cryptocurrency. In: V. Lakshman & B. Gorain (Eds.), Innovations and Breakthroughs in the Gold and Silver Industries (pp. 265–276). Springer, Cham. https://doi.org/10.1007/978-3-030-32549-7_12
Manimuthu, R. A., Sreedharan V., R. G., & Marwaha, D. (2019). A Literature Review on Bitcoin: Transformation of Crypto Currency into a Global Phenomenon. IEEE Engineering Management Review, 47(1), 28-35. https:/doi.org/10.1109/EMR.2019.2901431
Nakamoto, S., & Bitcoin, A. (2008). A peer-to-peer electronic cash system. Bitcoin.–URL: https://bitcoin. org/bitcoin. pdf, 4(2), 15.
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
