Cryptocurrency in the Scales of Shariah: An Islamic Perspective on Digital Assets ⚖️

The rapid ascent of cryptocurrencies like Bitcoin and Ethereum has presented a profound challenge to the global financial system. For Muslims, this financial revolution brings a more pressing question: Is cryptocurrency Halal (permissible) or Haram (forbidden)? The answer is far from simple, with esteemed scholars and reputable Islamic bodies arriving at different conclusions based on their interpretation of Shariah principles.

This article explores the primary arguments for and against the permissibility of cryptocurrency, providing a balanced overview for academic consideration. The analysis is rooted in the foundational financial principles derived from the Qur'an and the Sunnah of Prophet Muhammad (peace be upon him).

To assess cryptocurrency, we must first understand the core tenets of Islamic finance that serve as the evaluation criteria. Any financial asset or transaction must be free from the following prohibited elements:

Riba (Interest/Usury): The Qur'an unequivocally forbids transactions based on interest. Any contract that guarantees a lender a return over and above the principal amount is considered Riba and is strictly prohibited.

Gharar (Excessive Uncertainty or Ambiguity): This refers to transactions where key details, such as the price, subject matter, or outcome, are excessively uncertain or unknown. The Prophet (peace be upon him) forbade "sales of uncertainty" to prevent disputes and exploitation.

Maysir (Gambling or Speculation): This involves acquiring wealth by chance or pure speculation, without any productive effort. It is forbidden because it creates wealth from the losses of others and encourages a desire for baseless gains.

Asset-Backing and Intrinsic Value (Mal Mutaqawwam): Islamic jurisprudence traditionally favours currencies and assets that have intrinsic value (like gold and silver) or are issued by a legitimate central authority that guarantees their value (like fiat currency). The asset itself must also be used for Halal purposes.

A number of scholars and organisations argue that cryptocurrencies can be permissible, provided certain conditions are met. Their reasoning is based on the following points.

1. A Form of Digital Asset or Wealth (Mal): Proponents argue that anything that people accept as having value and use as a medium of exchange can be considered Mal (wealth). In the digital age, if a community mutually agrees to recognise a digital token like Bitcoin as a store of value and medium of exchange, it achieves the status of Mal. They argue that currency has evolved from barter to precious metals to fiat paper, and digital assets are simply the next logical step.

Mufti Muhammad Abu-Baqar, a Shariah scholar and expert in Islamic finance, has argued that cryptocurrencies have the properties of Mal and can be used in transactions, comparing them to other digital rights and assets that are accepted today.

2. Decentralisation is Not Inherently Prohibited: The argument that cryptocurrency is impermissible because it lacks a central governing authority is countered by the view that decentralisation can be a strength. It prevents control and manipulation by a single entity, which aligns with the Islamic principle of preventing economic injustice. The value is determined by a transparent system of supply and demand, which is a permissible market force.

3. The Underlying Technology is Permissible: Blockchain technology itself is a neutral tool. It is a decentralised, transparent, and secure ledger. The technology can be used for a vast number of Halal applications, such as creating transparent supply chains, secure voting systems, and Shariah-compliant financial contracts. The permissibility, therefore, depends on the use of the technology, not the technology itself.

4. Can Function as a Currency: In many parts of the world, cryptocurrency is already being used to buy goods and services. As its acceptance grows, its function as a medium of exchange becomes stronger, fulfilling a key role of a currency. If it is used to transact for Halal goods and services, the transaction itself is valid.

Conversely, a significant number of prominent scholars and institutions have declared dealing in most cryptocurrencies as impermissible. Their fatwas (religious edicts) are based on the following major concerns.

1. Extreme Volatility and Excessive Uncertainty (Gharar): This is perhaps the most cited reason for prohibition. The price of cryptocurrencies like Bitcoin can fluctuate dramatically in a very short period. This extreme volatility is seen as a form of excessive uncertainty (Gharar). A buyer is not certain of the stable value of what they are purchasing, making it a highly risky and ambiguous transaction, which is contrary to the stability and clarity required in Islamic contracts.

Egypt's Dar al-Ifta, one of the leading Islamic scholarly bodies, issued a fatwa in 2018 prohibiting Bitcoin, stating it is "used for fraudulent activities, and it entails a high level of risk and ambiguity."

2. Akin to Gambling (Maysir): Due to the extreme volatility and the fact that many "investors" buy cryptocurrencies with little understanding of the technology, hoping for a quick and massive profit, many scholars view this as a form of gambling (Maysir). People are often not investing in a productive asset but are betting on price movements, which is a zero-sum game characteristic of gambling.

Sheikh Haitham al-Haddad, a prominent UK-based scholar, argues that the dominant feature of the cryptocurrency market is speculation resembling gambling, rather than legitimate trade.

3. Lack of Intrinsic Value and Central Authority: Traditional Islamic jurisprudence values currencies backed by tangible assets (like gold) or issued and guaranteed by a central state authority. Most cryptocurrencies have neither. They are not backed by any physical asset, and their value is purely derived from speculation and consensus. This lack of a guarantor or intrinsic anchor makes them fundamentally weak from a Shariah perspective. The Turkish Directorate of Religious Affairs has also cited this lack of central authority and oversight as a primary reason for its prohibition.

4. Potential for Illicit Use: The anonymity and decentralised nature of cryptocurrencies have made them a tool for money laundering, funding terrorism, and purchasing illegal goods on the dark web. Engaging with an asset class that facilitates such a high degree of Haram activity is considered problematic, as Muslims are instructed to avoid that which facilitates sin.

As the market matures, a third, more nuanced view is emerging. This perspective argues that a blanket ruling on all "cryptocurrency" is not appropriate. Instead, each digital asset should be evaluated on its own merits.

There is currently no universal consensus (ijma) on the status of cryptocurrency in Islam. The debate highlights a core tension in Islamic jurisprudence: applying timeless principles to novel, rapidly evolving technologies.

For a Muslim navigating this space, the recommended approach is one of prudence and education. The individual's intention (niyyah) is critical: are they seeking to gamble and get rich quickly, or are they using a digital asset as a legitimate tool for exchange or long-term, value-based investment?

Ultimately, individuals should conduct thorough research, understand the immense risks involved, and consult with a qualified scholar they trust to guide their financial decisions in a way that is pleasing to Allah. The field is continuously evolving, and so too will the jurisprudential discourse surrounding it.