Cryptocurrency: An Islamic Law Perspective

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By Keulere Nabil Olarewaju

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INTRODUCTION

image

Whether or not Bitcoin and other cryptocurrencies is halal
(permissible) or haraam (not permissible) has been a point of
contention for many Muslims, as well as several Islamic banks and
financial authorities in recent years.

This has left many Muslims worried about investing in
cryptocurrencies—particularly during times of extreme growth—since
they couldn’t be sure whether the appreciation of their investment
would be considered haram (forbidden) or halal (permissible) under
Islamic law.

With around 1.9 billion Muslims in the world, equivalent to
almost a quarter of the world’s population, a clear consensus on
the Islamic view of Bitcoin could be a major boon for adoption.

DEFINITION OF TERMS

The word “crypto” refers to the encryption or cryptography that
the instrument is built on and then added to a blockchain database.
The “currency” here refers to the recognition as medium of exchange
amongst its users.

The European Central Bank explains virtual currency in its
published document as “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
by natural or legal persons as a means of payment and can be
transferred, stored or traded electronically”. Examples of virtual
currencies include cryptocurrencies such as Bitcoin, Litecoin,
Stellar and so on, but also include non-cryptocurrencies like
in-game credits for in massive multiplayer games such as World of
Warcraft; advertiser issued credits; and various other digital
stored value systems.

The idea of digital monetary systems dates back to the early
1990s when several companies and programmers tried their hand at
creating money meant to be exchanged virtually. Many of these early
currencies struggled to find their footing due to prohibitive
regulation, insufficient technology, poor security features, lack
of adoption,and a slew of other issues. The cryptocurrency segment
of the digital currency universe was created in 2009 with the
invention of Bitcoin.

Generally,  cryptocurrency is a digital or virtual
currency that is secured by cryptography, which makes it
nearly impossible to counterfeit or double-spend. Many
cryptocurrencies are decentralized networks based
on blockchain technology—a distributed ledger enforced by
a disparate network of computers. A defining feature of
cryptocurrencies is that they are generally not issued by any
central authority, rendering them theoretically immune to
government interference or manipulation.

On the other hand, Islamic law can be defined as law of Almighty
Allah (God) which was revealed to the Holy Prophet Muhammad through
Angel Jibril. It’s inimitable, unchangeable, sacrosanct, indelible
and constant. Its fixed by Almighty Allah for all time and must be
obeyed by the people.

PROPERTIES OF CRYPTOCURRENCY

According to Jan Lansky, a cryptocurrency is a system that meets
six conditions:

  1. The system does not require a central authority; its state is
    maintained through distributed consensus.
  2. The system keeps an overview of cryptocurrency units and their
    ownership.
  3. The system defines whether new cryptocurrency units can be
    created. If new cryptocurrency units can be created, the system
    defines the circumstances of their origin and how to determine the
    ownership of these new units.
  4. Ownership of cryptocurrency units can be proved exclusively
    cryptographically.
  5. The system allows transactions to be performed in which
    ownership of the cryptographic units is changed. A transaction
    statement can only be issued by an entity proving the current
    ownership of these units.
  6. If two different instructions for changing the ownership of the
    same cryptographic units are simultaneously entered, the system
    performs at most one of them.

Generally, bitcoins and all other cryptocurrencies are referred
to as money since it can be used for transaction. It’s therefore
essential to know the Islamic perspective on money. It has been
defined by lots of economic experts and bodies, some definition
given are:

Money refers to everything which is widely acceptable as a
medium of exchange and store of value, it does not matter what is
the nature and form of that thing. (Turki,1988).

Money can be everything which is used as a medium of exchange –
whether it is gold, silver, flower petals, skin, paper, etc. – if
it is generally accepted among the people (Al-Mausuah, Al-Fiqhiyah,
Al-Kuwaitiyah).

Shaykh Usmani says that money refers to something which has
following three attributes and can be used as a:

(a) medium of exchange

(b) unit of account and

(c) store of value.

These definitions of scholars are very similar to what modern
economists says with regard to the definition of money.

For instance, Merriam-webster dictionary defines money as
“something generally accepted as a medium of exchange, a measure of
value, or a means of payment”.

Based on these definitions, an expanded definition of money
includes all thefollowing attributes:

1) medium of exchange

2) widely accepted as a means of payment

3) measure of value

4) unit of account

After looking at the definition, its essential to understand
that the monies that are considered in the Islamic legislation are
of two types: The first type is that it has intrinsic value (value
in and of itself) and the people recognize it in transactions. This
is known, according to the Jurists as commodities [AlNuqud
As-Sila’iya]. It is a commodity, such as gold. Gold, has value in
itself, as well as silver and copper,and other than that which has
intrinsic value.This also includes the paper monies when its’ value
is returned to and backed by gold and silver. In the past, the
Dinar was underpinned by gold and silver. The Saudi riyal was
underpinned by silver. So these paper monies represent something
that has value, which is gold or silver. The aforementioned here
are all commodities [An-Nuqud As-Sila’iya].

The second type is the form of money that does not have value
within itself but rather its value is based on the strength of the
economy of a country and the governments’ responsibility as a
guarantor for this money, such as the paper money today. In your
pockets are all papers, a paper worth a Dinar and another valued
[for example] at ten Dinars. Is the value in the paper itself? It
actually doesn’t possess any value. Does another body cover its
value? Where does it gain its value? It is in fact gained from the
strength of the economy of Kuwait. As long as the economy is strong
and stable, the currency is also strong but if any instability
occurs in the economy, what will consequently happen to the value
of the currency? It will depreciate. So this does not have any
value in and of itself, rather its value stems from the strength of
the official economy of the country and from the guarantee afforded
to the currency by the government and thus this is recorded on it.
This is called An-NuqudAl-‘Itimaniya (fiatmoney).

The first type is called commodities [An- Nuqud As-Sila’iya]
because it has intrinsic value, where as this one is An-Nuqud
Al-‘Itimaniya (fiatmoney). They are both monies that are legally
binding in the legislation.

SHARIAH ISSUES IN CRYPTOCURRENCIES

There are three major areas:

1- Trading and investment

2- Mining

3- Means of payment (Payment System)

RULINGS OF SCHOLARS ON CRYPTOCURRENCY: Trading and
Investment

Given the above mentioned rules and discussion, it becomes
possible to evaluate cryptocurrency and discuss whether it fulfills
the conditions of mal and currency.

The most famous type of cryptocurrency is Bitcoin. Therefore,
the existing literature of articles and especially fatawa (experts’
legal opinions) are generally concerned with bitcoin. However, the
principles and arguments to determine any type of cryptocurrency
are same. Therefore, the existing literature pertaining to Bitcoin
specifically has benefits broadly with regard to
cryptocurrency.

Scholars around the globe have been debating over the
permissibility or otherwise of bitcoin and all other
cryptocurrencies. Generally, there are two opinions, that is the
permissibility view and the non permissible view. Although, some
are still silent in given their opinion. Nevertheless, the opinion
of the two sides that have argued for or against it shall be
explored and criticized.

The view on its permissibility was given mainly from individual
respected jurists, people like, Prof. Ali El Gari (Saudi Arabia),
Dr. Daud Bakar (Malaysia), Dr. AbdulBari Mishal, IEF (USA) and
Mufti Abu Bakr (South Africa).

The ruling of its impermissibility was given mainly by official
iftaa bodies, such as Egypt, Turkey and Palestine, and some notable
individuals.

IIFA has postponed issuance of resolution on this so far, but
organized seminars.

VIEWS ON PERMISSIBILITY (HALAL)

Scholars are of the view that bitcoin is permissible in
principal. This view can be analysed in light of our previous
discussion with regard to both the criteria and definition of
property (mal) and money.

There is a famous Islamic legal maxim explained by jurists:
“الاباحة المعاملات في الاصل”. (Al-aslu fil- mu’āmalah, al- ibaahah)
This means that original rule is permissibility in financial and
business transactions. In other words, everything is permissible
unless we found it clearly contradictory to Shariah principles.

According to this principle, cryptocurrency is permissible
principally. Likewise, anything can be considered as money if it
has these attributes:

  1. treated as valuable thing among the people,
  2. accepted as medium of exchange by all or substantial group of
    people,
  3. it is a measure of value,
  4. and it serves as unit of accounts

Therefore, any cryptocurrency which fulfills these conditions
(such as Bitcoin) is acceptable as money.

The fatwa center of South African Islamic seminary, Darul Uloom
Zakariyya, has taken the position that Bitcoin fulfills the
conditions of mal and therefore it is permissible for trade.
However, they note that to be qualified as currency, it should be
approved by relevant government authorities.

In a 2019 podcast with Radio Finance International, UK-based
Islamic finance and fintech consultant Mufti Faraz Adam was
enthusiastic about Bitcoin’s potential to create a system that
“works in favour of the people.” He added: “It’s fair, it’s just,
it’s transparent, it’s atomized, it’s not monopolized. Then, I
don’t see why Shari’a would prohibit this system.”

Mufti Muhammad Abu-Bakar – Mufti Muhammad undertook a detailed
analysis of this topic here. His personal conclusions were that
Bitcoin is permissible as it is seen as something valuable and
available on currency exchanges and is a medium of payment accepted
by a number of shops and platforms today. He also makes a more
prudential note that this is a nascent industry, prices are
volatile, and there is a risk of loss.

Ziyaad Mahomed, Shariah Committee Chairman of HSBC Amanah
Malaysia Bhd – He argues that while gold and silver are
unambiguously permissible as currencies in Islam, the sharia
doesn’t require that a currency have intrinsic value. All that is
important is that there is social acceptance among people that such
currency has value and it is capable of being used in
transactions.However Shaykh Ziyaad also points out that where
cryptocurrencies like bitcoin become excessively volatile with
retail investors driving irrational increases in price, the trading
in bitcoin could be seen as more questionable.Overall, the Shaykh
concludes on a cautiously optimistic note regarding the potential
of cryptocurrency.

Oziev and Yandiev (2018) have identified the conformity of
Bitcoin to Islamic teaching and found that it has no emitter,
monetary control, or transparency. Some Islamic scholars also have
different opinions on this issue. The Shariah Review Bereau (2018)
identifies that cryptocurrency and tokens are permissible as money
as they meet habits of exchange transactions besides other
requirements such as maal (property), manfa’ah (usufruct), haqq
(right), and dayn (liability). Furthermore, there are some
differences between coins and tokens. Tokens are also varied but
the function as a medium of exchange is similar. Amalin (2018)
opined that cryptocurrency fulfilled for money exchange it is
transparent and clear regulation for trading. It does not contain
usury (riba), which is banned in Islamic teaching. Similar reasons
proposed by Zain (2018), he also stated that Bitcoin can be used
for illegal transactions due to unregulated by central bank.

CRITICAL ANALYSIS OF THE OPINION

Scholars that argued for its permissibility base there argument
on “it’s transaction and trade” and  it’s generally agreed
upon that trade is permissible. Allah says: “whereas Allah has
permitted trading and forbade riba (interest) [2:275]“.

However, it has concurrently been stipulated that there must not
be any prohibitions of the Islamic legislation included in the
business transaction. If a preventative cause from the legislation
exists in the transaction, the it becomes unlawful (haram). For
example, if someone exits the mosque and he finds a man at the door
of the mosque selling bottles of alcohol, if asked, “what are you
doing?” He will say: “selling”.  He will say: “It’s
unlawful(haram)”, and he would respond: “The origin in business
transactions and trade is permissibility and Allah says: “whereas
Allah has permitted trading [2:275]“. Would a sane person say this
is valid? No. It contains a Legislated preventative. And we have
clarified the preventatives in the legislation such as obscurity in
transaction, unknown trade, and the wasting of wealth pertaining to
these currencies.

As for their argument that some countries have approved this
currency, like Germany, and some other European countries and some
South American countries, then we respond; none of the countries
have issued this currency or adopted it in their economics or back
it financially. What actually occurred is that some of these
countries approved these currencies for accountability purposes in
the attempt that the country ensures its share from the tax. When
these countries noticed the financial activity involved and the
substantial amounts of money, they decided that if they do not take
action, the country would lose its gains from the taxes.

However, they deemed that if they validate it, we are the able
to commit our citizen stop a taxes from these transactions.
Therefore, they do not approve of them from an economical
perspective, not do they issue them, nor does the government of the
country ensure a guarantee for it in the case of its collapse,
rather, it is to guarantee its right to the taxes. If a person
experiences any complexities with the currency, they do not have
any warranty for their loss, yet, they are obliged to pay a tax
return related to these currencies. This is what occurred. It is
also mandatory to differentiate between approving a currency for
accounting benefits and approving a currency by issuing it and
giving a warranty for it. The point that must be adhered to is that
a country approves these currencies by either issuing them and
making them legal tender or giving warranty, and all this is not
present with in these currencies.

VIEWS ON IMPERMISSIBILITY (HARAM)

The Grand Mufti of Egypt – Shaykh Shawki Allam – The Mufti
argues that there is a high degree of uncertainty, risk,
fraudulence, He also noted that there is no deep or systemic
control or rule mechanism around the issuance of these coins and
that this currency is not linked to any established marketplace or
economy.The Shaykh also noted the instability and price
fluctuations that bitcoin is prone to and the risks that brings to
market participants. He also noted that in order to effectively
store bitcoin you need to keep the unique private key for your
bitcoins safe through heavy encryption in order to ward of theft,
virus attacks and loss. This high level of sophistication needed
means that bitcoin is a far remove from normal currencies and the
stability and relative ease of storage for them.

If there has been a loss or a theft there is almost nothing that
can be done to recover the amount – which is very different to if
your normal currency was misplaced by a bank for example.

The mufti also noted that bitcoin is often used by criminal and
nefarious elements to fund their work too due to the untraceable
nature of the cryptocurrency.

The Turkish Government’s Religious wing – They issued a similar
edict declaring bitcoin haram based on excessive uncertainty and
the potential to be abused by criminal elements.

Shaykh Haitham al-Haddad – he wrote a detailed paper in Arabic
on this topic. He argues that bitcoin is not permissible as it is a
currency that is not based on any real value. He also considers
mainstream fiat currencies to not be based on any real value since
the 1971 Bretton-Woods agreement to unpeg the dollar from
gold.However, unlike fiat currencies, there is no authority to back
up cryptocurrencies and they are not particularly stable. Also,
unlike the use of fiat currency, there is no necessity to use
bitcoin.Shaykh Haitham leaves open the potential for a directly
gold-backed cryptocurrency and for it to be seen as halal.

The Shaykh also concludes that by implication bitcoin mining is
also impermissible as it is creating money from nothing.

Shaykh Assim al-Hakeem an eminent scholar of the century stated
“Bitcoins remain anonymous when you deal with it. Cryptocurrencies
facilitate money laundering, drug money and haram (forbidden)
money. Hand to hand exchange of currencies are permissible in
Islam, however, in virtual currencies you don’t have this”.

The Directorate of Religious Affairs, Turkey, issued out that
“Since crypto currencies are open to speculations, mostly used for
illegal deads, and far from state auditing and supervision; their
trading is not appropriate at this point, in the light of
Shariah”.

Mufti Shawki Allam, ruled that “Trading in Virtual Currency is
haram. This is because it is not approved by legitimate bodies,
such as Treasury Departments of States, as an acceptable interact
of exchange. Such currencies leads to esae in contrabands trade &
money laundering, and they are amounted to Gambling”.

Mufti Taqi Usmani “Currencies are originally a medium of
exchange, and making them a tradable commodity for profit earning
is against the philosophy of Islamic economics. In Shariah, there
is no valid reason to accept Bitcoin or other Cryptocurrencies as a
currency. It is just an imaginary number, which is generated
through a complex mathematical process. It is purchased for
Gambling or Speculations, and used in illegal or unlawful
transactions”.

Bakar et al. (2017) found three conditions excluding
cryptocurrency from the category of money. It is characterized
by

(a) no intrinsic value,

(b) has an anonymous holder, and

(c) it is unstable. A similar issue was proposed by Meera
(2018), who suggested that “Islamic” money should be backed by an
asset. Therefore, cryptocurrency does not fulfill that requirement.
He suggested that to meet the Islamic principles, cryptocurrency
should be backed by a real asset.

Nurhisam (2017) stated that Bitcoin is not permissible as money
because it is not under government regulation and the risks and
weaknesses are greater than the benefits. He was concerned with the
legality of money issuance by government and uncontrollable
issues.

If we look at the above mentioned fatawa and views of scholars
and experts with regard to prohibition of cryptocurrency and
bitcoin, we find some common reasons of prohibition:

  1. a) Bitcoin is not a legal tender
  2. b) Bitcoin’s issuer is unknown
  3. c) Bitcoin has no central authority or government backing
    it
  4. d) Bitcoin is highly speculative and not stable
  5. e) Bitcoin can be easily used for money laundering and illegal
    purposes

CRITICAL ANALYSIS OF THE OPINION

If one carefully study the opinion of the scholars that ruled
otherwise for its permissibility, it will be noted that they mostly
concentrated on its use for illegality act, but it should be known
that something being use for illegal things doesn’t make that thing
haram (illegal).  Mufti Muhammad Abu-Bakar argues that this
(illegal use) does not render Bitcoin itself illegal, and posits
the following analogy to demonstrate this:

“In general terms, the use of something lawful for an unlawful
purpose does not make the thing itself unlawful. Unanimously, the
four Sunni schools of thought permit the lawful sale of grapes.
Malekis and Hanbalis consider the sale of grapes to a wine merchant
invalid, whereas Hanafi’s and Shafe’is merely discourage such
sales.”

WRITER’S VIEW

Undoubtedly, the issue of cryptocurrency remains an arguable
fact by scholars. When debatable issue arise in contemporary issue
in Islam, the opinion of the scholars is that one weighs the
opinion of all sides of the debate and uphold the one that seems to
be most correct. If one is unable to determine which one seems to
be most correct, then some maxims in Islamic jurisprudence can
guide.

In Islamic jurisprudence, there’s a rule which is deducted from
the hadith of the prophet which states: دع ما يريبك إلى ما لا
يريبك”      “Da’ maa yaribuka ila ma la
yaribuka” which means: “leave what is doubtful to that which is not
doubtful”. It’s clearly known that the issue at hand is doubtful
then why not leave it and go for that which is not doubtful?.

Also, anything that can lead to haram must be prevented (Saddu
dhariiha  سد ذريعة). Notable scholars, finance expert, bitcoin
guru have argued that bitcoin can enhance criminal activities,
interests, internet fraud and the likes.

The writer is of the opinion that trading in cryptocurrency
(bitcoin) is a doubtful issue and doubtful issue should be
abstained from.

SHARIAH ISSUES IN CRYPTOS AS MEANS OF
PAYMENT

  • 1- How it is procured – Hacking and other forms of cybercrimes
    are haram
  • 2- For what is the payment being made, for halal transaction or
    for haram transactions.

To this effect, the prophet said:

On the authority of Abu Barzeh Nadhla bin Ubaid Al-Aslami He
said: The Messenger of God said: A servant’s feet will not go away
on the Day of Resurrection until he asks about his life, what is he
for?  And about his knowledge, what did he do about it? 
And where he acquired his money from?  And on what he
spent?  And about his body, what did he do.

  • And of course such a cryptocurrency much enjoy wide acceptance
    (rawaaj).

SHARIAH ISSUES IN MINING OF CRYPTOS

  • PoW is halal based on the rule of Jaaalah
  • PoS is also halal since the reward is not from the competing
    miners/forgers themselves. Unless if it is certain that interest is
    being paid on what the investors have staked for validation of
    transaction

CONCLUSION

Bitcoin Halal or bitcoin haram is a concept that is not going to
be resolved easily. There are some rules that consider bitcoin
halal while others consider it haram. However, majority of scholars
so far sure that Trading in Bitcoin is not Halal because it has no
value in and of itself. Neither any economic strength gives it
value, nor it returns an origin of some sort. It has not been
adopted by any legitimate government entity and its value is only
based on the fluctuation of the market. Most aspects and features
of bitcoin or other cryptocurrencies are haram, and they are used
for gambling and other such tasks that are considered haram.

Finally, I will like to remind every Muslims that what is lawful
is clear and what is unlawful is clear as well but there is between
the two, doubtful matters. One of the doubtful matters is the issue
of cryptocurrency why not adopt the saying of ibn  Umar
Verily, I place a barrier between the unlawful and me with a
barrier from the lawful. I do not puncture it.

RECOMMENDATION

The author would like torecommend the followings:

  1. The understanding of cryptocurrency, its mining, tradability,
    security and systematic impact is evolving. Therefore, it is
    expected that Shariah opinions must become more informed and
    conclusive as cryptocurrency is better understood.
  2. The blockchain is not only a platform for bitcoin &
    cryptocurrency; it is a decentralized digital ledger technology to
    record anything of value whether it is currency or assets.
    Blockchain may be considered a boon to the Shariah requirements of
    transparency and disclosure. Blockchain can serve to enhance the
    notions of trust in exchange transactions and transfers. It can
    serve to enforce the principle of cash transactions in exchange of
    currency and commodities.
  3. Not all aspect of cryptocurrency is haram so Muslims who think
    they can’t do without cryptocurrency should be fair in their
    dealings and be mindful of their return to their lord since they
    will be asked on how they accumulate their wealth and how they
    spend it.
  4. The IIFA should keep organizing seminars on cryptocurrency and
    at long run issue a fatwa (ruling) on it.

REFERENCE

PROFESSOR ABDULRAZZAQ ABDULMAJEED ALARO; CRYPTOCURRENCY: AN
ISLAMIC LAW PERSPECTIVE, 2021

MUFTI MUHAMMAD ABU-BAKAR; SHARIAH ANALYSIS OF BITCOIN,
CRYPTOCURRENCY AND BLOCKCHAIN, 2017

SHAYKH SULAYMAN SALĪMULLĀH AR-RUHĀYLĪ; CONTEMPORARY FINANCIAL
TRANSACTIONS, 2018 (AUDIO TAPE VIA ARABIC LANGUAGE, TRANSLATED TO
ENGLISH LANGUAGE BY UTHMĀN AS-SUDĀNĪ, 2018)

ALBERTO BRUGNONI ASSAIF; MONEY IN ISLAM.

DR SCOTT MORRISON; THE DEFINING CHARACTERISTICS OF MONEY IN
ISLAMIC LAW, 2019

KEULERE NABIL OLAREWAJU, LLB 1, AHMADU BELLO UNIVERSITY, 0905
868 8488, mbamj1012@gmail.com

https://www.linkedin.com/in/keulere-nabil-olarewaju-b495431a7[1]

By Keulere Nabil Olarewaju

image

INTRODUCTION

image

Whether or not Bitcoin and other cryptocurrencies is halal
(permissible) or haraam (not permissible) has been a point of
contention for many Muslims, as well as several Islamic banks and
financial authorities in recent years.

This has left many Muslims worried about investing in
cryptocurrencies—particularly during times of extreme growth—since
they couldn’t be sure whether the appreciation of their investment
would be considered haram (forbidden) or halal (permissible) under
Islamic law.

With around 1.9 billion Muslims in the world, equivalent to
almost a quarter of the world’s population, a clear consensus on
the Islamic view of Bitcoin could be a major boon for adoption.

DEFINITION OF TERMS

The word “crypto” refers to the encryption or cryptography that
the instrument is built on and then added to a blockchain database.
The “currency” here refers to the recognition as medium of exchange
amongst its users.

The European Central Bank explains virtual currency in its
published document as “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
by natural or legal persons as a means of payment and can be
transferred, stored or traded electronically”. Examples of virtual
currencies include cryptocurrencies such as Bitcoin, Litecoin,
Stellar and so on, but also include non-cryptocurrencies like
in-game credits for in massive multiplayer games such as World of
Warcraft; advertiser issued credits; and various other digital
stored value systems.

The idea of digital monetary systems dates back to the early
1990s when several companies and programmers tried their hand at
creating money meant to be exchanged virtually. Many of these early
currencies struggled to find their footing due to prohibitive
regulation, insufficient technology, poor security features, lack
of adoption,and a slew of other issues. The cryptocurrency segment
of the digital currency universe was created in 2009 with the
invention of Bitcoin.

Generally,  cryptocurrency is a digital or virtual
currency that is secured by cryptography, which makes it
nearly impossible to counterfeit or double-spend. Many
cryptocurrencies are decentralized networks based
on blockchain technology—a distributed ledger enforced by
a disparate network of computers. A defining feature of
cryptocurrencies is that they are generally not issued by any
central authority, rendering them theoretically immune to
government interference or manipulation.

On the other hand, Islamic law can be defined as law of Almighty
Allah (God) which was revealed to the Holy Prophet Muhammad through
Angel Jibril. It’s inimitable, unchangeable, sacrosanct, indelible
and constant. Its fixed by Almighty Allah for all time and must be
obeyed by the people.

PROPERTIES OF CRYPTOCURRENCY

According to Jan Lansky, a cryptocurrency is a system that meets
six conditions:

  1. The system does not require a central authority; its state is
    maintained through distributed consensus.
  2. The system keeps an overview of cryptocurrency units and their
    ownership.
  3. The system defines whether new cryptocurrency units can be
    created. If new cryptocurrency units can be created, the system
    defines the circumstances of their origin and how to determine the
    ownership of these new units.
  4. Ownership of cryptocurrency units can be proved exclusively
    cryptographically.
  5. The system allows transactions to be performed in which
    ownership of the cryptographic units is changed. A transaction
    statement can only be issued by an entity proving the current
    ownership of these units.
  6. If two different instructions for changing the ownership of the
    same cryptographic units are simultaneously entered, the system
    performs at most one of them.

Generally, bitcoins and all other cryptocurrencies are referred
to as money since it can be used for transaction. It’s therefore
essential to know the Islamic perspective on money. It has been
defined by lots of economic experts and bodies, some definition
given are:

Money refers to everything which is widely acceptable as a
medium of exchange and store of value, it does not matter what is
the nature and form of that thing. (Turki,1988).

Money can be everything which is used as a medium of exchange –
whether it is gold, silver, flower petals, skin, paper, etc. – if
it is generally accepted among the people (Al-Mausuah, Al-Fiqhiyah,
Al-Kuwaitiyah).

Shaykh Usmani says that money refers to something which has
following three attributes and can be used as a:

(a) medium of exchange

(b) unit of account and

(c) store of value.

These definitions of scholars are very similar to what modern
economists says with regard to the definition of money.

For instance, Merriam-webster dictionary defines money as
“something generally accepted as a medium of exchange, a measure of
value, or a means of payment”.

Based on these definitions, an expanded definition of money
includes all thefollowing attributes:

1) medium of exchange

2) widely accepted as a means of payment

3) measure of value

4) unit of account

After looking at the definition, its essential to understand
that the monies that are considered in the Islamic legislation are
of two types: The first type is that it has intrinsic value (value
in and of itself) and the people recognize it in transactions. This
is known, according to the Jurists as commodities [AlNuqud
As-Sila’iya]. It is a commodity, such as gold. Gold, has value in
itself, as well as silver and copper,and other than that which has
intrinsic value.This also includes the paper monies when its’ value
is returned to and backed by gold and silver. In the past, the
Dinar was underpinned by gold and silver. The Saudi riyal was
underpinned by silver. So these paper monies represent something
that has value, which is gold or silver. The aforementioned here
are all commodities [An-Nuqud As-Sila’iya].

The second type is the form of money that does not have value
within itself but rather its value is based on the strength of the
economy of a country and the governments’ responsibility as a
guarantor for this money, such as the paper money today. In your
pockets are all papers, a paper worth a Dinar and another valued
[for example] at ten Dinars. Is the value in the paper itself? It
actually doesn’t possess any value. Does another body cover its
value? Where does it gain its value? It is in fact gained from the
strength of the economy of Kuwait. As long as the economy is strong
and stable, the currency is also strong but if any instability
occurs in the economy, what will consequently happen to the value
of the currency? It will depreciate. So this does not have any
value in and of itself, rather its value stems from the strength of
the official economy of the country and from the guarantee afforded
to the currency by the government and thus this is recorded on it.
This is called An-NuqudAl-‘Itimaniya (fiatmoney).

The first type is called commodities [An- Nuqud As-Sila’iya]
because it has intrinsic value, where as this one is An-Nuqud
Al-‘Itimaniya (fiatmoney). They are both monies that are legally
binding in the legislation.

SHARIAH ISSUES IN CRYPTOCURRENCIES

There are three major areas:

1- Trading and investment

2- Mining

3- Means of payment (Payment System)

RULINGS OF SCHOLARS ON CRYPTOCURRENCY: Trading and
Investment

Given the above mentioned rules and discussion, it becomes
possible to evaluate cryptocurrency and discuss whether it fulfills
the conditions of mal and currency.

The most famous type of cryptocurrency is Bitcoin. Therefore,
the existing literature of articles and especially fatawa (experts’
legal opinions) are generally concerned with bitcoin. However, the
principles and arguments to determine any type of cryptocurrency
are same. Therefore, the existing literature pertaining to Bitcoin
specifically has benefits broadly with regard to
cryptocurrency.

Scholars around the globe have been debating over the
permissibility or otherwise of bitcoin and all other
cryptocurrencies. Generally, there are two opinions, that is the
permissibility view and the non permissible view. Although, some
are still silent in given their opinion. Nevertheless, the opinion
of the two sides that have argued for or against it shall be
explored and criticized.

The view on its permissibility was given mainly from individual
respected jurists, people like, Prof. Ali El Gari (Saudi Arabia),
Dr. Daud Bakar (Malaysia), Dr. AbdulBari Mishal, IEF (USA) and
Mufti Abu Bakr (South Africa).

The ruling of its impermissibility was given mainly by official
iftaa bodies, such as Egypt, Turkey and Palestine, and some notable
individuals.

IIFA has postponed issuance of resolution on this so far, but
organized seminars.

VIEWS ON PERMISSIBILITY (HALAL)

Scholars are of the view that bitcoin is permissible in
principal. This view can be analysed in light of our previous
discussion with regard to both the criteria and definition of
property (mal) and money.

There is a famous Islamic legal maxim explained by jurists:
“الاباحة المعاملات في الاصل”. (Al-aslu fil- mu’āmalah, al- ibaahah)
This means that original rule is permissibility in financial and
business transactions. In other words, everything is permissible
unless we found it clearly contradictory to Shariah principles.

According to this principle, cryptocurrency is permissible
principally. Likewise, anything can be considered as money if it
has these attributes:

  1. treated as valuable thing among the people,
  2. accepted as medium of exchange by all or substantial group of
    people,
  3. it is a measure of value,
  4. and it serves as unit of accounts

Therefore, any cryptocurrency which fulfills these conditions
(such as Bitcoin) is acceptable as money.

The fatwa center of South African Islamic seminary, Darul Uloom
Zakariyya, has taken the position that Bitcoin fulfills the
conditions of mal and therefore it is permissible for trade.
However, they note that to be qualified as currency, it should be
approved by relevant government authorities.

In a 2019 podcast with Radio Finance International, UK-based
Islamic finance and fintech consultant Mufti Faraz Adam was
enthusiastic about Bitcoin’s potential to create a system that
“works in favour of the people.” He added: “It’s fair, it’s just,
it’s transparent, it’s atomized, it’s not monopolized. Then, I
don’t see why Shari’a would prohibit this system.”

Mufti Muhammad Abu-Bakar – Mufti Muhammad undertook a detailed
analysis of this topic here. His personal conclusions were that
Bitcoin is permissible as it is seen as something valuable and
available on currency exchanges and is a medium of payment accepted
by a number of shops and platforms today. He also makes a more
prudential note that this is a nascent industry, prices are
volatile, and there is a risk of loss.

Ziyaad Mahomed, Shariah Committee Chairman of HSBC Amanah
Malaysia Bhd – He argues that while gold and silver are
unambiguously permissible as currencies in Islam, the sharia
doesn’t require that a currency have intrinsic value. All that is
important is that there is social acceptance among people that such
currency has value and it is capable of being used in
transactions.However Shaykh Ziyaad also points out that where
cryptocurrencies like bitcoin become excessively volatile with
retail investors driving irrational increases in price, the trading
in bitcoin could be seen as more questionable.Overall, the Shaykh
concludes on a cautiously optimistic note regarding the potential
of cryptocurrency.

Oziev and Yandiev (2018) have identified the conformity of
Bitcoin to Islamic teaching and found that it has no emitter,
monetary control, or transparency. Some Islamic scholars also have
different opinions on this issue. The Shariah Review Bereau (2018)
identifies that cryptocurrency and tokens are permissible as money
as they meet habits of exchange transactions besides other
requirements such as maal (property), manfa’ah (usufruct), haqq
(right), and dayn (liability). Furthermore, there are some
differences between coins and tokens. Tokens are also varied but
the function as a medium of exchange is similar. Amalin (2018)
opined that cryptocurrency fulfilled for money exchange it is
transparent and clear regulation for trading. It does not contain
usury (riba), which is banned in Islamic teaching. Similar reasons
proposed by Zain (2018), he also stated that Bitcoin can be used
for illegal transactions due to unregulated by central bank.

CRITICAL ANALYSIS OF THE OPINION

Scholars that argued for its permissibility base there argument
on “it’s transaction and trade” and  it’s generally agreed
upon that trade is permissible. Allah says: “whereas Allah has
permitted trading and forbade riba (interest) [2:275]“.

However, it has concurrently been stipulated that there must not
be any prohibitions of the Islamic legislation included in the
business transaction. If a preventative cause from the legislation
exists in the transaction, the it becomes unlawful (haram). For
example, if someone exits the mosque and he finds a man at the door
of the mosque selling bottles of alcohol, if asked, “what are you
doing?” He will say: “selling”.  He will say: “It’s
unlawful(haram)”, and he would respond: “The origin in business
transactions and trade is permissibility and Allah says: “whereas
Allah has permitted trading [2:275]“. Would a sane person say this
is valid? No. It contains a Legislated preventative. And we have
clarified the preventatives in the legislation such as obscurity in
transaction, unknown trade, and the wasting of wealth pertaining to
these currencies.

As for their argument that some countries have approved this
currency, like Germany, and some other European countries and some
South American countries, then we respond; none of the countries
have issued this currency or adopted it in their economics or back
it financially. What actually occurred is that some of these
countries approved these currencies for accountability purposes in
the attempt that the country ensures its share from the tax. When
these countries noticed the financial activity involved and the
substantial amounts of money, they decided that if they do not take
action, the country would lose its gains from the taxes.

However, they deemed that if they validate it, we are the able
to commit our citizen stop a taxes from these transactions.
Therefore, they do not approve of them from an economical
perspective, not do they issue them, nor does the government of the
country ensure a guarantee for it in the case of its collapse,
rather, it is to guarantee its right to the taxes. If a person
experiences any complexities with the currency, they do not have
any warranty for their loss, yet, they are obliged to pay a tax
return related to these currencies. This is what occurred. It is
also mandatory to differentiate between approving a currency for
accounting benefits and approving a currency by issuing it and
giving a warranty for it. The point that must be adhered to is that
a country approves these currencies by either issuing them and
making them legal tender or giving warranty, and all this is not
present with in these currencies.

VIEWS ON IMPERMISSIBILITY (HARAM)

The Grand Mufti of Egypt – Shaykh Shawki Allam – The Mufti
argues that there is a high degree of uncertainty, risk,
fraudulence, He also noted that there is no deep or systemic
control or rule mechanism around the issuance of these coins and
that this currency is not linked to any established marketplace or
economy.The Shaykh also noted the instability and price
fluctuations that bitcoin is prone to and the risks that brings to
market participants. He also noted that in order to effectively
store bitcoin you need to keep the unique private key for your
bitcoins safe through heavy encryption in order to ward of theft,
virus attacks and loss. This high level of sophistication needed
means that bitcoin is a far remove from normal currencies and the
stability and relative ease of storage for them.

If there has been a loss or a theft there is almost nothing that
can be done to recover the amount – which is very different to if
your normal currency was misplaced by a bank for example.

The mufti also noted that bitcoin is often used by criminal and
nefarious elements to fund their work too due to the untraceable
nature of the cryptocurrency.

The Turkish Government’s Religious wing – They issued a similar
edict declaring bitcoin haram based on excessive uncertainty and
the potential to be abused by criminal elements.

Shaykh Haitham al-Haddad – he wrote a detailed paper in Arabic
on this topic. He argues that bitcoin is not permissible as it is a
currency that is not based on any real value. He also considers
mainstream fiat currencies to not be based on any real value since
the 1971 Bretton-Woods agreement to unpeg the dollar from
gold.However, unlike fiat currencies, there is no authority to back
up cryptocurrencies and they are not particularly stable. Also,
unlike the use of fiat currency, there is no necessity to use
bitcoin.Shaykh Haitham leaves open the potential for a directly
gold-backed cryptocurrency and for it to be seen as halal.

The Shaykh also concludes that by implication bitcoin mining is
also impermissible as it is creating money from nothing.

Shaykh Assim al-Hakeem an eminent scholar of the century stated
“Bitcoins remain anonymous when you deal with it. Cryptocurrencies
facilitate money laundering, drug money and haram (forbidden)
money. Hand to hand exchange of currencies are permissible in
Islam, however, in virtual currencies you don’t have this”.

The Directorate of Religious Affairs, Turkey, issued out that
“Since crypto currencies are open to speculations, mostly used for
illegal deads, and far from state auditing and supervision; their
trading is not appropriate at this point, in the light of
Shariah”.

Mufti Shawki Allam, ruled that “Trading in Virtual Currency is
haram. This is because it is not approved by legitimate bodies,
such as Treasury Departments of States, as an acceptable interact
of exchange. Such currencies leads to esae in contrabands trade &
money laundering, and they are amounted to Gambling”.

Mufti Taqi Usmani “Currencies are originally a medium of
exchange, and making them a tradable commodity for profit earning
is against the philosophy of Islamic economics. In Shariah, there
is no valid reason to accept Bitcoin or other Cryptocurrencies as a
currency. It is just an imaginary number, which is generated
through a complex mathematical process. It is purchased for
Gambling or Speculations, and used in illegal or unlawful
transactions”.

Bakar et al. (2017) found three conditions excluding
cryptocurrency from the category of money. It is characterized
by

(a) no intrinsic value,

(b) has an anonymous holder, and

(c) it is unstable. A similar issue was proposed by Meera
(2018), who suggested that “Islamic” money should be backed by an
asset. Therefore, cryptocurrency does not fulfill that requirement.
He suggested that to meet the Islamic principles, cryptocurrency
should be backed by a real asset.

Nurhisam (2017) stated that Bitcoin is not permissible as money
because it is not under government regulation and the risks and
weaknesses are greater than the benefits. He was concerned with the
legality of money issuance by government and uncontrollable
issues.

If we look at the above mentioned fatawa and views of scholars
and experts with regard to prohibition of cryptocurrency and
bitcoin, we find some common reasons of prohibition:

  1. a) Bitcoin is not a legal tender
  2. b) Bitcoin’s issuer is unknown
  3. c) Bitcoin has no central authority or government backing
    it
  4. d) Bitcoin is highly speculative and not stable
  5. e) Bitcoin can be easily used for money laundering and illegal
    purposes

CRITICAL ANALYSIS OF THE OPINION

If one carefully study the opinion of the scholars that ruled
otherwise for its permissibility, it will be noted that they mostly
concentrated on its use for illegality act, but it should be known
that something being use for illegal things doesn’t make that thing
haram (illegal).  Mufti Muhammad Abu-Bakar argues that this
(illegal use) does not render Bitcoin itself illegal, and posits
the following analogy to demonstrate this:

“In general terms, the use of something lawful for an unlawful
purpose does not make the thing itself unlawful. Unanimously, the
four Sunni schools of thought permit the lawful sale of grapes.
Malekis and Hanbalis consider the sale of grapes to a wine merchant
invalid, whereas Hanafi’s and Shafe’is merely discourage such
sales.”

WRITER’S VIEW

Undoubtedly, the issue of cryptocurrency remains an arguable
fact by scholars. When debatable issue arise in contemporary issue
in Islam, the opinion of the scholars is that one weighs the
opinion of all sides of the debate and uphold the one that seems to
be most correct. If one is unable to determine which one seems to
be most correct, then some maxims in Islamic jurisprudence can
guide.

In Islamic jurisprudence, there’s a rule which is deducted from
the hadith of the prophet which states: دع ما يريبك إلى ما لا
يريبك”      “Da’ maa yaribuka ila ma la
yaribuka” which means: “leave what is doubtful to that which is not
doubtful”. It’s clearly known that the issue at hand is doubtful
then why not leave it and go for that which is not doubtful?.

Also, anything that can lead to haram must be prevented (Saddu
dhariiha  سد ذريعة). Notable scholars, finance expert, bitcoin
guru have argued that bitcoin can enhance criminal activities,
interests, internet fraud and the likes.

The writer is of the opinion that trading in cryptocurrency
(bitcoin) is a doubtful issue and doubtful issue should be
abstained from.

SHARIAH ISSUES IN CRYPTOS AS MEANS OF
PAYMENT

  • 1- How it is procured – Hacking and other forms of cybercrimes
    are haram
  • 2- For what is the payment being made, for halal transaction or
    for haram transactions.

To this effect, the prophet said:

On the authority of Abu Barzeh Nadhla bin Ubaid Al-Aslami He
said: The Messenger of God said: A servant’s feet will not go away
on the Day of Resurrection until he asks about his life, what is he
for?  And about his knowledge, what did he do about it? 
And where he acquired his money from?  And on what he
spent?  And about his body, what did he do.

  • And of course such a cryptocurrency much enjoy wide acceptance
    (rawaaj).

SHARIAH ISSUES IN MINING OF CRYPTOS

  • PoW is halal based on the rule of Jaaalah
  • PoS is also halal since the reward is not from the competing
    miners/forgers themselves. Unless if it is certain that interest is
    being paid on what the investors have staked for validation of
    transaction

CONCLUSION

Bitcoin Halal or bitcoin haram is a concept that is not going to
be resolved easily. There are some rules that consider bitcoin
halal while others consider it haram. However, majority of scholars
so far sure that Trading in Bitcoin is not Halal because it has no
value in and of itself. Neither any economic strength gives it
value, nor it returns an origin of some sort. It has not been
adopted by any legitimate government entity and its value is only
based on the fluctuation of the market. Most aspects and features
of bitcoin or other cryptocurrencies are haram, and they are used
for gambling and other such tasks that are considered haram.

Finally, I will like to remind every Muslims that what is lawful
is clear and what is unlawful is clear as well but there is between
the two, doubtful matters. One of the doubtful matters is the issue
of cryptocurrency why not adopt the saying of ibn  Umar
Verily, I place a barrier between the unlawful and me with a
barrier from the lawful. I do not puncture it.

RECOMMENDATION

The author would like torecommend the followings:

  1. The understanding of cryptocurrency, its mining, tradability,
    security and systematic impact is evolving. Therefore, it is
    expected that Shariah opinions must become more informed and
    conclusive as cryptocurrency is better understood.
  2. The blockchain is not only a platform for bitcoin &
    cryptocurrency; it is a decentralized digital ledger technology to
    record anything of value whether it is currency or assets.
    Blockchain may be considered a boon to the Shariah requirements of
    transparency and disclosure. Blockchain can serve to enhance the
    notions of trust in exchange transactions and transfers. It can
    serve to enforce the principle of cash transactions in exchange of
    currency and commodities.
  3. Not all aspect of cryptocurrency is haram so Muslims who think
    they can’t do without cryptocurrency should be fair in their
    dealings and be mindful of their return to their lord since they
    will be asked on how they accumulate their wealth and how they
    spend it.
  4. The IIFA should keep organizing seminars on cryptocurrency and
    at long run issue a fatwa (ruling) on it.

REFERENCE

PROFESSOR ABDULRAZZAQ ABDULMAJEED ALARO; CRYPTOCURRENCY: AN
ISLAMIC LAW PERSPECTIVE, 2021

MUFTI MUHAMMAD ABU-BAKAR; SHARIAH ANALYSIS OF BITCOIN,
CRYPTOCURRENCY AND BLOCKCHAIN, 2017

SHAYKH SULAYMAN SALĪMULLĀH AR-RUHĀYLĪ; CONTEMPORARY FINANCIAL
TRANSACTIONS, 2018 (AUDIO TAPE VIA ARABIC LANGUAGE, TRANSLATED TO
ENGLISH LANGUAGE BY UTHMĀN AS-SUDĀNĪ, 2018)

ALBERTO BRUGNONI ASSAIF; MONEY IN ISLAM.

DR SCOTT MORRISON; THE DEFINING CHARACTERISTICS OF MONEY IN
ISLAMIC LAW, 2019

KEULERE NABIL OLAREWAJU, LLB 1, AHMADU BELLO UNIVERSITY, 0905
868 8488, mbamj1012@gmail.com

https://www.linkedin.com/in/keulere-nabil-olarewaju-b495431a7[1]

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