Is Bitcoin Halal?

Introduction
In recent years, investors have taken a liking to cryptocurrency. As of November 2021, the most prominent form of digital currency, Bitcoin, reached its highest peak in five years. Naturally, it's tempting to want to acquire some of this highly desired virtual money.

Cryptocurrencies have been outlawed by China and are experiencing different levels of regulation from the UK and US governments, whereas El Salvador has embraced Bitcoin as a legitimate form of payment.

Many countries - including the US and India - are starting to introduce regulations around cryptocurrency. Legal transactions with cryptocurrency remain prohibited in Muslim-majority countries. However, Bitcon though not regulated is legal in India.

Notably, cryptocurrencies are primarily utilized as an investment option rather than a replacement for traditional payment methods amid the escalating inclination towards its adoption.

Islamic View
Within the realm of cryptocurrency, Sharia law can be difficult to understand for a layman, especially concerning Bitcoin. The Islamic community is divided on whether it's permissible or not. The clear financial principles of Islam leave little room for flexibility, but given how fresh the concept of crypto is, it's unsurprising that discussing its legitimacy within the Muslim faith has become a popular discourse.

The Islamic view towards the issuance of currency is that the issuing entity cannot be unknown. This forms the basis of the requirement for a centralised authority. This centralised authority should be responsible for such issuance and no one can supersede it. Havoc and anarchy among the masses can result if any individual or group of individuals attempts to issue currency, regardless of their means and styles. While people may possess gold and silver, they cannot convert it into currency by themselves. They must instead exchange their precious metals for the currency issued by the authority (such as Rupees, Dollar, Dirhams and Dinar).

In case of bitcoin the issuing entity is unknown and there is no centralised authority controlling or issuing the currency.

Bitcoin's lack of regulation due to its decentralized nature worries certain academic experts, leading them to theorize that this could leave the cryptocurrency vulnerable to unlawful undertakings like money laundering - something that goes against Islamic beliefs.

Islamic Jurists favoured a centralised monetary system because of the following reasons:

1. Trust in the currency,
2. Presence of a regulatory framework,
3. Secure system,
4. Wide acceptance,
5. In terms of pricing and transacting it is easy for the people and
6. A benchmark for transactions.

Islamic finance principles also prohibit transactions with excessive uncertainty (Gharar). The volatile nature of Bitcoin prices makes it susceptible from Islamic point of view. The valuation system used in the crypto market is based on the exchange between supply and demand, making it very unstable.

Gemini reported that crypto prices experience skyrocketing peaks and depressive troughs quicker and at a more extreme rate compared to mainstream asset prices. This is due to the unorthodox system the market employs, where conventional currency does not apply. This unpredictability sets it apart from traditional monetary systems. In November 2021, one Bitcoin was worth almost 50,000. By June 2022, the value had plummeted to less than 15,500.

If Bitcoins are traded with the intention of making profits solely from price fluctuations (which can be significant), it might be considered a form of gambling, which is Haram (forbidden) in Islam.

Some scholars believe that because Bitcoin lacks tangible or physical form, they might not meet Islamic requirements for a valid form of currency or trade.

The 'Ijtihads' of Ustad Abu Khaled and Sheikh Ata, as well as the decision of the Malaysian Fatwa Council have stated that Bitcoin is not suitable to be used as currency because there is an element of extreme speculation and uncertainty (Gharar) and lack of authoritative body issuing it. It is apparent through an observation of the reality and the Islamic legal provisions relating to Gambling (Maysir) and Gharar that Bitcoin possesses the elements of being speculative in terms of its value and that it is traded on a manner akin to gambling.

'Ijtihad' is a significant concept in Islamic jurisprudence (fiqh). "Ijtihad" is a term derived from the Arabic root word "jahada," which means "to strive" or "to exert effort." This process involves making a judgment or interpretation of Islamic law, or Sharia, through independent reasoning and critical thinking.

'Gharar' is an Arabic term that is commonly used in Islamic finance and jurisprudence. It refers to uncertainty, ambiguity, hazard, and excessive risk in a contract or transaction. In Islamic finance, transactions are required to be free from 'Gharar' to comply with Sharia principles.

The Gharar sale includes selling fish that are in the water, selling a slave that has escaped, selling birds that are in the sky and similar type of sales all of which are prohibited.

In this regard it is apparent that the ambiguous and unknown (i.e., majhool and ghayr ma�loom) fall to also be things which are Gharar.

The Messenger of Allah (peace be upon him) forbade Gharar transactions and Hasah transactions.

Hasah transaction refers to a transaction in Islamic finance where the buyer and seller engage in a direct exchange of goods or services, where the quantity and quality of the items to be exchanged are not known or specified in advance.

On 14 December 2017, Andrew Bailey (Head of the Financial Conduct Authority) stated that dealing in Bitcoin was 'similar to gambling. The head of the Central Bank of Australia, Philip Lowe, described the dealing in Bitcoin as 'speculative mania.

Mal (Property)
Mal (Property) in the Arabic language signifies whatever in effect one may acquire and possess; whatever that is corporeal (ayn) or usufruct (manfa'ah). The benefits of material possessions are varied and abundant. From the glittering radiance of gold and silver, to the grace and usefulness of the animals and plants we depend on, there are myriad ways that our lives are enriched.

Indeed, even the basic elements of dwelling, dressing, and transport yield immense benefits in terms of comfort and convenience. In terms of linguistic categorization, it is impossible to label things as Mal if they are unattainable. For instance, birds soaring in the sky, fish swimming in the water, trees towering in the forest, and minerals residing deep within the earth are not generally classified as Mal.

List of characteristics which qualify things as Mal (Property) is given below:

1. In order for it to be considered Mal, it must be something that people naturally desire. This is what we refer to nowadays as "commercial value."
2. Possession and ownership are key factors that the object in question must meet. It is essential that the item can be possessed and owned for it to be considered Mal.
3. Stored capability it must have.
4. It must be beneficial in the eyes of the Shariah.
5. The ownership of the thing must be assigned and transferable.

What do Islamic scholars say about Bitcoin?
Many Islamic scholars seem to agree that, as it stands, Bitcoin is haram, and should be avoided by Muslims.

In the largest Muslim-majority country, Indonesia, cryptocurrency trading has been banned due to the unpredictable nature and negative impact attributed to it by the Indonesian Ulema Council. They stated that as it lacks defined physical form, clear value, and precise quantity, it poses a significant amount of risk. Nevertheless, cryptocurrencies adhering to government rules are still admissible.

For the moment, Dr Anas Amatayakul, an Islamic scholar, suggests that Muslims should steer clear of buying or selling cryptocurrency. However, there is potential for advancements in cryptocurrency that would make it acceptable for Muslims to use, such as increased regulation and decreased instability.

If you're going by Islamic beliefs, currency must be rooted in tangible assets. Money is only worth anything if it can purchase necessities. If Bitcoin is useless at the grocery store, it fails to pass as legitimate tender.

In the realm of untraceable ownership and exchange, Bitcoin reigns supreme, often utilized for makruh or haram purchases. Reports indicate that in 2018, over $872 million in Bitcoin was exchanged on the dark web. According to Europol, the EU enforcer, cryptocurrency's illegitimate use is closely linked to the laundering of monetary transactions, the trading of illegitimate goods and services, as well as fraudulent activity. Valued at a massive $76 billion annually, illegal activities make up about 46% of all bitcoin transactions, according to a 2019 Oxford Academic Study. "Criminal activity is often associated with the use of Bitcoin," published a study finding that a staggering 25% of bitcoin users partake in illicit actions. Accordingly, the reputation the cryptocurrency has earned for being a preferred tool among lawbreakers spurs some scholars to call it haram.

As a means of exchange, Bitcoin is still not widely accepted enough to be considered a legitimate currency. A study found that "money" classification for cryptocurrencies is restricted due to this reason. Instead, it is commonly viewed as an investment. As a result, major banking institutions are opting for different terminology such as "crypto assets." Notably, Bitcoin's worth is not inherent like precious metals or fiat currency.

Arguments for Bitcoin being Halal
In principle, cryptocurrency is deemed Sharia-compliant by the Islamic Finance Guru. They classify it either as a genuine currency or as a digital asset, according to their Sharia policy. Muslim investors in crypto are advised to evaluate each crypto investment or project separately to determine if it falls under halal or haram. Furthermore, it's non-interest generating - or riba-free - which is halal. As a result, using it to make money may be seen as less contentious than charging high rates of interest on loans.

Conclusion
However, Bitcoin may be considered Haram and not Halal on the following grounds:

1. The authority who issued Bitcoin is unknown. The ambiguous and unknown (i.e., majhool and ghayr ma'loom) fall to also be things which are Gharar.
2. Bitcoin has not been issued by any centralized authority or authoritative body or regulatory framework.
3. The volatile nature of Bitcoin prices (element of extreme speculation and uncertainty - Gharar) makes it susceptible from an Islamic point of view. Islamic finance principles prohibit transactions with excessive uncertainty (Gharar). In November 2021, one Bitcoin was worth almost 50,000. By June 2022, the value had plummeted to less than 15,500. In Islamic finance, transactions are required to be free from 'Gharar' to comply with Sharia principles.
4. If Bitcoins are traded with the intention of making profits solely from price fluctuations (which can be significant), it might be considered a form of Gambling (Maysir), which is Haram (forbidden) in Islam.
5. Some scholars believe that because Bitcoin lacks tangible or physical form, they don�t meet Islamic requirements for a valid form of currency or trade.
6. Bitcoin is not considered Mal (Property) as per Islamic definition of the term.
7. Based on the tenets of Islam, currency must be backed by tangible assets, and its application should extend to include the payment for all expenditures. The lack of feasibility to pay for groceries utilizing Bitcoin renders it an illegitimate form of currency.
8. Since it can be easily used for illegal activities, it is called Haram.
9. Bitcoin cannot be considered real currency due to its lack of widespread acceptance as a medium of exchange.
10. Bitcoins don't have intrinsic value like Gold, silver, fiat currency, etc.

However, cryptocurrencies may be considered halal if the shortcomings contrary to the Islamic belief are removed.

References:

1. https://bloommoney.co/learning-hub/is-bitcoin-halal-a-guide-to-cryptocurrency
2. https://www.sarwa.co/blog/is-cryptocurrency-halal
3. Breaking Down Bitcoin, A study of Bitcoin and the Shari Hukum related to it, A.C. Ahmed, Istinarah Press

Written By: Md.Imran Wahab, IPS, IGP, Provisioning, West Bengal
Email: [email protected], Ph no: 9836576565