CRYPTOCURRENCY IN
ISLAM
By Nawazish Ali, Sumera and Niha
JANUARY 27, 2022
SIR DR.ABIDULAH
BBA VI (Finance)
Table of Contents
Abstract........................................................................................................................................................ 2
Introduction: ............................................................................................................................................... 2
Literature ..................................................................................................................................................... 3
Different Interpretation.............................................................................................................................. 4
According to the Mufti Taqi Usmani ........................................................................................................ 4
Mufti Shawki Allama Prospective ............................................................................................................ 4
The Directorate of Religious Affairs of Turkey........................................................................................ 5
Shaykh Assim al-Hakeem ......................................................................................................................... 5
The Background of Cryptocurrency ......................................................................................................... 5
The Definition of Cryptocurrency............................................................................................................. 5
Bitcoin ....................................................................................................................................................... 6
Shariaah Scholars Prospective................................................................................................................... 6
Cryptocurrency as Haram ......................................................................................................................... 7
Scholars of Egypt ...................................................................................................................................... 7
Turkey Government Prospective .............................................................................................................. 7
Fatwa Center of Palestine ......................................................................................................................... 7
UK Islamic scholars .................................................................................................................................. 8
Indonesian Prospective ............................................................................................................................. 8
Cryptocurrency is Permissible in Principal.......................................................................................... 8
Analysis of Bitcoins as (Haram) ................................................................................................................. 9
Lack of Authority/ Central Issuer ............................................................................................................. 9
Legal Tender ............................................................................................................................................. 9
On Volatility and Price Stability ............................................................................................................. 10
On Illicit or Illegal Use ........................................................................................................................... 10
Conclusion: ................................................................................................................................................ 10
Abstract
Money is an essential aspect of human life that ensures his survival, no matter where he lives.
The development of Crypto currencies, on the other hand, has sparked global interest in the area
of digital money. Crypto currency is available to Muslim users like sharf, which is the Islamic
term for purchasing and selling foreign currency, but for the authenticity of it still raises doubts
about whether it is in conformity with the terms and conditions and Its acceptance as a medium
of exchange (money) is questioned due to its adherence to sharia law. And sharf conditions are
governed by Islamic Banking Law. The study is based on explaining the previously acquired
facts, knowledge, and information through a description or explanation that is evaluated by
expert opinions, laws, and the researcher's own arguments. By analyzing its nature and
characteristics in respect of crypto currency rules, there exist the three school of thoughts of
jurisdictions. The first school of thought of shariah is in which the use of crypto currencies is
explicitly prohibited, second regulators in jurisdictions that cryptocurrencies have been
acknowledged as a capital asset or an alternate solution for currency and allow it as a medium of
exchange. The third jurisdiction is silent about cryptocurrency and its validity.
Introduction:
The digital world is currently evolving at a breakneck pace, and the worldwide community is
taking notice. The phenomenon of information technology development brings benefits and
certainly affects the dynamics of social life in society, such as in getting information and
interacting. Economic activities, such as online transactions, buying and selling activities, and
leasing products or services through the internet, are also becoming more dynamic. The
transaction tools utilized underwent dynamic changes as well. The usage of the medium of
exchange began with a barter system, in which people exchanged commodity products with one
another, but this barter system's flaw was the difficulty in estimating the price of goods The use
of precious metals as a means of exchange in transactions, such as gold and silver, two precious
metals are also used as religious measuring tools in Islam such as the nishab of zakat and kafarat,
the next change is that people are starting to recognize money that is still used today, namely the
types of currency and demand deposits, and in line with technological developments, people are
using digital technology to make money. A system of computerized means of exchange, or
electronic money as it is today known (e-money). Money must meet the following criteria in
order to be accepted as a tool in transactions: It must function as a medium of trade, a store of
value and a unit of account among other things.(Abd. Majid et al. 2021). Way of holding value
(money). People began to identify money that is still used today, such as different types of
currency and demand deposits. As technology advances, people are using digital technology to
establish a digital exchange system, or what became known as digital money (e-money). Some
people believe that the fiat money system as a medium of exchange in transactions is still limited
by a country's regulatory rules and privacy limitations, the imposition of transaction fees, being
affected by inflation, and other limitations, despite the increasing use of the benefits of digital
technology as a transaction tool. People interpret restrictions as worry, which leads to the
creation of a new currency in the hopes of addressing challenges of the monetary system so that
individuals can deal without third-party intervention in their security, until cryptographic-based
currencies arise. Cryptography is an area of mixed science based on mathematical computations.
Computer scientists and mathematicians find cryptography's potential and use it to social
economic activities, particularly buying and selling transactions and as a crypto currency-based
digital money. Crypto currency is electronic cash that is developed with the security of
cryptosystem technology, making it difficult to counterfeit and providing complete privacy. Its
use system does not require a mediator as a third party from the organization or institution,
allowing the owner to manage and handle it independently, as well as transactions that can be
carried out instantly and across borders. In Indonesia, crypto currencies do not yet have
government-issued legality, thus there is a dynamic of benefits and drawbacks. Because
cryptocurrency has not met the criteria and various components as currency, especially on
Islamic economic principles, the dynamics of pros and negatives also exist in views among
economists and scholars in adopting bitcoin as a method of business transactions. The goal of
this article is to see how crypto currency technology is described as digital money, as well as to
describe the legislation on the usage of crypto currencies as currency from an ushul fiqh
perspective. According to the findings of this study, the usage of cryptocurrencies is prohibited
under Islamic law by some jurisdictions since it does more harm than good (NORDIN 2017)
where as some jurisdictions allow it because In Islam, buying and selling is suitable and satisfies
the requirements of the contract. If there are regulations that can restrict cryptocurrency
transaction, it can be classified as a sharf. The aspect of gharar (uncertainty) can be eliminated by
having clear regulations. As a result, the government's and the national shariah board's
pronouncements and laws are critical in providing legal clarity, particularly for Muslims. The
creation of laws is critical because without them, cryptocurrency users will be unable to protect
themselves and avoid losses (GAZI AMALIN 2018). And some of the jurisdictions are still
could not approach to a result. The originality and distinction of this research from prior research
is that the discussion on the object of research focuses more on cryptocurrency or Bitcoin
technology and its viewpoints from the perspective of Islamic sharia.
Literature
Cryptocurrency users are now using it more for speculating and trading tools in connection with
their use of cryptocurrencies. Its goal is to earn from speculative investment and trading
operations. Gharar, maysir, and usury are all parts of this in Islam. Surah al-Maidah (verse 50) of
Quran explains ribawi transactions, maysir (gambling components), gharar, and other topics. The
contract is damaged and invalid as a result of the batil. Cryptocurrency users are now using it
more for speculating and trading tools in connection with their use of cryptocurrencies. Its goal is
to earn from speculative investment and trading operations. Gharar, maysir, and usury are all
parts of this in Islam.
Surah al-Maidah (verse 50) of the Quran explains ribawi transactions, maysir (gambling
components), gharar, and other topics. The contract is damaged and invalid as a result of the batil
itself. Cryptocurrency users are now using it more for speculating and trading tools in connection
with the usage of cryptocurrencies. Its goal is to earn from speculative investment and trading
operations. Gharar, maysir, and usury are all parts of this in Islam. Surah al-Maidah (verse 50) of
the Quran is interpreted. Its goal is to earn from speculative investment and trading operations.
Gharar, maysir, and usury are all parts of this in Islam. Surah al-Maidah (verse 50) of the Quran
is interpreted. Its goal is to earn from speculative investment and trading operations.
In fiqh, this currency exchange is known as sharf. Cryptocurrencies may be traded for other
currencies like as dollars and rupiah. Money, according to Imam Ibn Taymiyah in Majmu'
Fatawa, is an object that users have decided to use as a means of trade, regardless of whether it is
made of stone or wood. While the usage of cryptocurrencies has been lawful up to this point,
Imam AlGazali needs the use of money that has been produced and disseminated by government
authorities and has been recognized as a legal and legitimate medium of financial transactions.
Different Interpretation
Different scholars and advisor of Islamic Shariaah have explained cryptocurrency.
According to the Mufti Taqi Usmani
Currencies were created as a means of trade, and turning them into a marketable commodity for
profit is contrary to Islamic economic theory. There is no legal basis under Shariah to accept the
Bitcoinor other Cryptocurrencies as a form of payment. It's merely an imaginary number
produced by a complicated mathematical procedure. It's bought for gambling or speculation, and
it's utilized in illicit or criminal transactions."
Mufti Shawki Allama Prospective
"Virtual currency trading is prohibited. This is owing to the fact that official institutions such as
state Treasury Departments have not approved it as a valid medium of trade. They're utilized in
the illegal drug trade and money laundering, and they're regarded a kind of gambling.
The Directorate of Religious Affairs of Turkey
"Because cryptocurrencies are subject to speculation, are frequently used for unlawful activities,
and are not subject to governmental monitoring and oversight, their trading is not permissible at
this time, according to Shariah."
Shaykh Assim al-Hakeem
When dealing with bitcoins, you stay anonymous. Money laundering, drug money, and haram
(forbidden) money are all made easier with cryptocurrency. In Islam, hand-to-hand currency
trade is acceptable; however, virtual currencies do not allow for this."
The Background of Cryptocurrency
After the mainstream banking sector embraced the computer system, digital currency and
electronic money payments have grown in popularity. This system, on the other hand, relies on a
payment network, and the infrastructure required to monitor payments and prevent duplicate
spending with the same money has historically been costly and managed through a centralized
banking network. As a result, money is only utilized once, thanks to a central server. People must
transact in this system utilizing controlled and monitored concepts that can be exploited to alter
currency values and individual wealth. Individuals being able to freely trade with one another
over one network to another network would, it is said, permit the public to decide the assessment
of their money. This would need a database capable of recording individual transactions with
degrees of encryption that make them difficult to manipulate, update, or steal. It has spawned
block chain tech, which accomplishes all of these objectives and more by allowing a platform for
the validation and confirmation of the authenticity of a digital medium of exchange or
cryptocurrency.
The Definition of Cryptocurrency
The term "crypto" denotes to the instrument's cryptography or encryption, which is subsequently
added to a block chain database. The term "currency" implies to its acceptance as a medium of
trade among its users.
"A digital representation of value that is neither issued by a central bank or a public authority,
nor necessarily attached to a fiat money or currency, but is accepted as a means of payment by
natural or legal persons and can be transferred, stored, or traded electronically".
Digital monetary systems have been around since the early 1990s, when a number of firms and
programmers attempted to create virtual money. Due to burdensome legislation, lack of
acceptance, poor security features, insufficient technology, and an immeasurable of other
challenges, many of these early currencies failed to establish their foothold.
Bitcoin
Bitcoin is a digital money that does not have a central issuer or a physical form. The Bitcoin, in
particular, is an important type of cryptocurrency which is used in cryptography to manage
encryption processes that verify transaction information and dictate ownership. Satoshi
Nakamoto, a mysterious figure, devised the Bitcoin encryption mechanism (2008) Nakamoto
created the Bitcoin with the intention of eventually creating 21 million Bitcoins as a reward for
solving mathematical formulas through a process known as mining.
Bitcoins purchased and traded on "exchanges," which are independently run and available to a
worldwide clientele 24 hours a day, seven days a week, much like traditional brokerage
platforms and foreign exchange trading.
Bitcoin proponents describe the following properties of the bitcoin:
1. Because bitcoins are decentralized, there is no possibility of ownership and government
control. Furthermore, there is a limited supply of the bitcoin. As a result, no central
institution and regulatory body may control the bitcoin’s value intentionally by increasing
or decreasing money creation, or by other ways.
As a result, the value of the bitcoins mostly determined by normal demand and supply
economics.
2. The bitcoin ecosystem's block chain is a publicly accessible and complete record of all
verified exchanges in the system. The block chain promotes order and transparency while
combating counterfeiting.
3. Digital payments may be made at any time by individuals or corporations, and they are
processed faster and at lower rates. The absence of banks and other middlemen from the
transaction processing loop is largely responsible for this.
4. Despite the fact that all the bitcoin transaction information are made public, the names of
the persons involved are kept relatively hidden. The bitcoin may not give the same
amount of privacy as cash, but it is clearly more private than using debit or credit cards to
make online payments or transactions.
Shariaah Scholars Prospective
Bitcoin is the most well-known cryptocurrency. As a result, the current literature of publications,
particularly fatawa (legal views of experts), is primarily focused a bitcoin. The concepts and
reasoning for determining any sort of cryptocurrency, on the other hand, remain the same. As a
result, existing Bitcoin research, in particular, has major consequences for cryptocurrencies.
Scholars and Shariah experts generally hold opposing viewpoints. The first school of thought
holds that the bitcoin haram, or outlawed by Shariah. The other camp believes that Bitcoins
halal, or permissible, in principle.
Cryptocurrency as Haram
A number of academics and fatawa agree with this viewpoint. Here's a summary of what's on the
table.
Scholars of Egypt
Egypt's scholars have has proclaimed bitcoin and cryptocurrency as haram. According to theses
scholars:
1) Bitcoins are typically used in unlawful and non-Shariah compliant aims in terms of
avoiding and conceal from governments and relevant authorities due to their ease of
usage.
2) Bitcoins are a type of virtual currency that can only be used online.
3) Bitcoin may be used for money laundering and fraud
4) Bitcoin's system is not regulated by a central authority, putting governments and central
banks in jeopardy of monitoring and managing the monetary system.
Turkey Government Prospective
The religious authorities in Turkey have also considered Bitcoin and all the other
cryptocurrencies to be illegal. Trading and buying virtual currency isn’t stable with Islam at this
time, according to the fatwa. Because their value is susceptible to speculation (high gharar), they
are not audited or supervised by the government, and they could be easily misused in criminal
operations such as money laundering.
Fatwa Center of Palestine
A fatwa on a bitcoin and cryptocurrencies was also issued by the Palestinian Fatwa Center.
According to the fatwa, the bitcoin and cryptocurrencies are haram and forbidden for the
following reasons:
1. The issuer of the Bit currency is unknown, and it is not backed by any government or
central authority. Because the Bit currency was designed with no central body or tracking
systems in view, it is unsafe and inefficient.
2. Bitcoins and other cryptocurrencies are extremely speculative due to the lack of a
framework for speculation management.
UK Islamic scholars
Cryptocurrencies like bitcoin are banned in Shariah, according to UK-based experts. They cites
the following as important reasons:
1) Crypto is created out nothing and has no backing.
2) No legal tender
3) Cryptocurrency is not governed by any government and is not subject to any control
system or central monitoring.
4) There are more chances to use cryptocurrency for illegal activities like money laundering.
Indonesian Prospective
Cryptocurrency's usage in many nations is still up for the question; Indonesia, for example, has
not allowed or even outlawed the use of cryptocurrency as a legal form of financial transactions.
As a result, from a sharia perspective, the use of cryptocurrencies as currency and a method of
payment transactions are prohibited, since Islam prioritizes the following commands or laws
from ulil amri, which is the government. However, because this digital money lacks clarity and
cannot be seen in its physical form, and there is no legal certainty in legality, either in Indonesia
or in international accords, it may still be referred to as grey and gharar.
Cryptocurrency is Permissible in Principal
Jurists suggests that the original norm in financial and corporate operations is permissibility. To
put it another way, anything is acceptable unless it is obviously in violation of Shariah principles.
Cryptocurrency is mostly allowed on this basis. Similarly, anything may be deemed money if it
possesses the following characteristics:
1. It is considered as a valuable asset by the general public.
2. It is recognized as a medium of exchange by considerable number of people,
3. It is a monetary unit, and it is a measure of worth.
As a result, every cryptocurrency that fulfills these criteria can be used as money.
Analysis of Bitcoins as (Haram)
When we examine the above-mentioned fatwa as well as the opinions of academics and
professionals on the restriction of cryptocurrency and Bitcoin, we can see that there are certain
similar causes for prohibition:
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Its issuer is unknown;
It is not a legal tender
It may easily be used illegal purposes like money laundering.
It lacks central authority and not any government support;
Bitcoin is very volatile and extremely speculative
Lack of Authority/ Central Issuer
Considering the assertion that Bitcoin's issuer is anonymous and that no central body is in charge
of monitoring and ensuring its security.
Cryptocurrency and bitcoin and proponents believe that the central framework is a collection of
guidelines and rules agreed by users of currency through voluntary mutual agreement, and that
these rules are disclosed and accessible to anyone to evaluate or suggest revisions.
Because of the cryptographic technology that underpins the bitcoin, it is mathematically difficult
to change the rules and regulations which control the currency's mining and transaction process.
Bitcoins are not backed by a central bank or government, but block chain technology and
underlying encryption are used to generate trust and confidence in the money. Shariah stresses
the preservation and safeguarding of wealth when it comes to money (Maqasid al-Shariah).
Legal Tender
According to legal tender, it is valid whenever a government declares anything to be legal tender,
it instantly gains acceptance between the people of that jurisdiction. It doesn’t required to have
the status of legal currency to qualify something as money.
In Shariah, the most basic requirement for money is that it is acknowledged by people, whether
by regulation or popular voluntary approval.
On Volatility and Price Stability
Those who argue that bitcoin and cryptocurrencies are haram (illegal) commonly point out that
bitcoin's exchange rate is extremely erratic and unstable. Extrinsic variables such as speculation
are unconcerned with determining what defines genuine money and currency. Like all other
assets, such as silver, fiat currencies, gold and prices are constantly determined by supply and
demand. At the time of writing it's worth noting that, the exchange rate of cryptocurrencies such
as bitcoin is more unstable than that of many fiat systems, at the time of writing, making bitcoin
and cryptocurrency trading riskier.As a result, dealing in cryptocurrencies is not encouraged,
especially for non-professionals who lack professional experience and understanding of the
foreign exchange market.
Bitcoins and cryptocurrencies, on the other hand, cannot be labelled haram (illegal) just because
they are speculative. Indeed, if this idea were true and obeyed, Euros, US dollars, silver and gold
would all be considered unlawful because they are all prone to significant amounts of
speculation. In a single physical quarter, digital gold markets, for example, traded twice as much
gold as is ever mined in the process of human civilization
On Illicit or Illegal Use
According to common opinion, cryptocurrencies like bitcoin is frequently used for illegal
activities such as money laundering. This is an external component that has no direct impact on
the Islamic legal currency requirement.
In general, using something legal for an illegal purpose does not render it criminal in and of
itself. The Prophet (S.A.W) prohibited purchasing grapes to a vintner for manufacturing wine is
haram (illegal), but he did not prohibit grape cultivation or trade for permissible purposes.
Conclusion:
Cryptocurrency, its extraction, security, tradability and systematic impact are all changing. The
world is growing fast and the usage of bitcoin and other cryptocurrency is increasing people
starts to gain knowledge about it more questions are rising about its validity so Shariah rulings
should be ready to tackle these questions and remove all doubts for this they have to more
educated and definitive in this area. The block chain is a decentralized digital ledger system that
offers more than just a platform for bitcoin and other cryptocurrencies and it can be used to
record anything of value, including currency and assets. The Shariah standards of transparency
and disclosure may find block chain to be a godsend. Block chain could be one of the trustable
technologies because it has the potential to increase trust in transfers and exchange transactions.
The principles of commodity exchange and cash transactions can also be used. We agree with the
second point of view of shariah, that cryptocurrency or bitcoin may be permissible under Islamic
principles since it is permitted to be treated as valuable, as evidenced by market prices on
worldwide exchanges, and it is accepted for payment by a diverse range of traders.
Furthermore, some individuals agree to take bitcoin as a form of payment in their personal
dealings. Following are the classification of different school of thoughts of shariah relevant in
the current legal and regulatory environment to determine cryptocuncy's Shariah permissibility
and status that meets the criteria.
There are three thoughts:
a) The first authorities of shariah clearly prohibits the use of cryptocurrencies. According to
these school of thought, It is illegal to deal with cryptocurrencies in such jurisdictions
because it dealings creates uncertainty and includes the element of gambling.
b) The second authorities of shariah officials are mute or have not publicly accepted or
rejected cryptocurrencies as legal tender these regulators often advise the follower to only
exercise caution and be aware of the hazards involved in it.
c) The third sector of shariah of Islam Jurisdictions is in which regulators have recognized
and accepts cryptocurrencies as a medium of exchange or an alternative currency or
financial asset and explicitly implemented legislation allowing all to use it.
Dealing with bitcoin and other qualifying cryptocurrencies is legal under Shariah in the last two
types of jurisdictions. On the other hand, one of the shariah primary responsibility is to preserve
and protect wealth as well as making people aware of hazards associated with usage of money
and other money replaceable items.
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doi: 10.54443/ijebas.v1i2.113.
Abu Bakar, Nashirah, Sofian Rosbi, and Kiyotaka Uzaki. 2017. “Cryptocurrency Framework Diagnostics
from Islamic Finance Perspective: A New Insight of Bitcoin System Transaction.” International
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