Haitham al haddad cryptocurrency
What is cryptocurrency and is it halal? The technological and digital revolution over the last few decades has meant that innovative payment systems have been created and utilised, and cryptocurrency is one of the major breakthrough payment systems for business and personal finance use. Although there are over 2, cryptocurrencies on the market now, Bitcoin is probably still the most known form of cryptocurrency in the blockchain market, and was the first cryptocurrency coin to go mainstream but there are other cryptocurrencies entering the market.
For Muslims across the Islamic world, the question arises as to whether crypto payment platforms are deemed to be halal or haram in the eyes of Allah and in accordance with Shariah principles, and whether as a currency it prevents money laundering. Ultimately, it is the duty of every Muslim to be seeking knowledge, and this guide will address the use of the cryptocurrency market and its intrinsic value. We will consider whether crypto currency is permissible as a form of actual money under Islamic laws and in the Islamic world.
We will consider the views of Islamic jurists and scholars on this emergence of what is considered to be new money addressing the question of is cryptocurrency halal. A comprehensive Islamic law interpretation, one that sparked a massive rise in Muslim investment in Bitcoin and Ethereum in , was provided by Sharia advisor Mufti Muhammad Abu-Bakar former advisor to Blossom Finance who looked at the question of is cryptocurrency halal as a money supply.
He argued that Bitcoin is permissible under Islamic principles. Mufti Abu-Bakar considered arguments that crypto itself was speculative when it comes to personal finance, but his view was that all currencies have a speculative element and this did not automatically deem cryptocurrency as haram. Their argument is based on the notion that crypto itself does not hold enough credibility as a currency to be deemed to be halal.
However, many other Sharia scholars believe that crypto itself does confirm to Sharia money rules and Muslims are permitted to invest in crypto. These views lend credence to the notion that Muslims can invest in crypto.
Islamic banking laws are also anti-interest so the technology, pricing, and buying and selling of cryptocurrency money is deemed halal by many Islamic scholars who rely on the teachings of Prophet Muhammad PBUH when seeking guidance about permissibility ultimately, only Allah knows best. Gold as a precious metal was literally seen as the gold standard of currencies. Perhaps the evolution of cryptocurrency is just another stage in the evolution of currency and trading.
Where previously money and currencies were backed by physical assets including gold, this changed over time to include currencies that led to secure transactions without physical assets and gold reserves ie the US dollar.
The US dollar and other money currencies are considered to be fiat currencies - that is they are government issued currencies. These currencies are not backed by gold and as they became popular they were seen as being permissible by Shariah scholars. It is likely that other currencies, including other cryptocurrencies, will follow the same trajectory. Blockchains act as a system of record and the reason this form of technology is so important is that it is virtually impossible to hack, change or cheat the blockchain platform or marketplace.
With the use of blockchain, centralized financial institutions and establishments are not needed as no central control is required. This also means that crypto trading and the stock market is more transparent. According to many Islamic scholars and religious leaders, this addresses the question of is crypto halal within Islamic Finance rules and Islamic law more generally.
As cryptocurrency money is deemed permissible and halal under Islamic Sharia rules this has unlocked the crypto investment market to a global Muslim community with increasing numbers of Muslims with an interest in buying crypto and use it as a form of currency. In terms of business practices, there are some basic principles discussed in this article relating to crypto and cryptocurrency trading that help many Muslims to decide if their entrepreneurial journeys and endeavours are permissible or strictly prohibited.
Mal refers to possession and effective storage, and cryptocurrencies meet the criteria required as they can be possessed and stored and have commercial value Mutaqawwam. Crypto is a real and viable digital asset, its worth and value lies in what is paid for it, and it is capable of being owned and traded commercially so the Shariah requirements are satisfied and the the question of is crypto halal can be answered.
This mosque deemed cryptocurrency halal and permissible and generated a lot of interest on the topic of the permissibility of crypto more generally under Islamic law. The principles of Shariah law should be applied to the financial systems we operate in and there has been some discussion amongst Muslim scholars about whether rules devised centuries ago can still be applied to a technologically modern digital financial marketplace. 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.
Shaykh Haitham al-Haddad — he wrote a detailed paper in Arabic here 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 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. 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.
What is cryptocurrency and is it halal?
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Dr Haitham al-Haddad Dr Haitham al-Haddad wrote a lengthy paper in Arabic elucidating his view on the question, which can be accessed here. Dr Haitham argues that cryptocurrency is not based on any real value so cannot be considered permissible. He likens this to how the Bretton-Woods agreement from unpegged the dollar from gold, ending the gold standard.
In that case, fiat currency was also without real value. He notes that there is no necessity to use Bitcoin so it cannot be permissible for that reason. As a corollary the Shaykh notes that crypto mining is impermissible as it is creating money from nothing. Firstly, just regarding the storage of these currencies, sophisticated encryption techniques are required to prevent fraud and theft.
For the average person, this is very different to the experience an actual currency provides through its ease of use and storage. Hence, in his view, it cannot be called a currency per se. He explains that these digital currencies are not set against the backdrop of any established economies or marketplaces and there is no rules-based system around the issuance of these coins. This lack of a rules-based systems leaves individuals at a loss were anything to happen to their cryptocurrency, as opposed to actual legal tender and established currencies which are backed by governments, legal systems, and regulated financial institutions.
In addition to this, he notes that due to the very volatile nature of these coins, especially Bitcoin, it brings deep risk to market participants through price fluctuations. Whether cryptocurrency is halal or haram centres on the rules of Sharia law.
The answer quite simply is yes, Shariah principles can be applied to modern crypto analysis and digital currencies as they are based on social justice, accountability and ethics which transcend all forms of financial transactions. As long as there is no illegal activity, then trading or investing in crypto should not be deemed to be contrary to Shariah principles. Critics of Bitcoin also argue that it is not legal tender as it is not backed by any central government that assigns its value and maintains regulatory standards, and it is therefore deemed to be speculated trading.
However, Islamically the use of an item that is deemed halal for an unlawful purpose does not make the original item halal. Whether it is halal or haram depends on the multiple factors. This means that investors can take part in trading as and when they want, retaining control of their assets.
As mentioned above, the publication of the working paper conducted by Mufti Muhammad Abu Bakr clearly identified that cryptocurrency is permissible under Shariah rules. For Muslims worldwide this could have huge implications for the payment of Zakat monies that are made to the poor and to charities globally.
This means that it can operate in legally diverse and unpredictable environments, often making it more accessible than mainstream finance options. It is a valid form of currency that holds purchasing power. Although vulnerable to market changes, crypto coins such as Bitcoin and Ethereum are deemed to be a legitimate medium of exchange, available for use in transactions and trading. Although crypto has not yet reached the status of being a globally accepted medium of exchange, it is fair to say that it is on the way to becoming so.
Commentators expect crypto to appreciate over the course of time and to store value. From a financial perspective, Islamic charities could benefit hugely from Zakat and other donations as a result of crypto investment. Many banks and financial establishments globally are recognising crypto as a financially viable medium of exchange, and this makes it easier for investors to continue to trade, buy and sell cryptocurrency.
With billions of Muslims worldwide, and the growth of crypto, it seems clear that what is perhaps needed is some form of shariah compliant cryptocurrency guidelines for Muslims to follow. This would enable Muslims to assess themselves the validity of cryptocurrency when assessed against Islamic finance rules. CONTRACTS In terms of whether contracts relating to crypto are Shariah compliant, given that the contractual relationships in crypto are based on smart contracts using blockchain technology, this means that the process can be made increasingly secure and automated.
This not only reduces administrative complexities, confusion and errors, but also ensures that banks are more likely to accept the contractual relationships created. In demonstrating Shariah compliance, cryptocurrency is earning legitimacy across the Islamic finance world. This adds further legitimacy to the rulings that cryptocurrency is halal and can be utilised by Muslims and Islamic financial institutions.
Of course, there needs to be ongoing discussion to consider is crypto halal as it operated within a dynamic and changing industry. As the crypto market continues to evolve more questions will need to be asked, and each crypto coin should be analysed against Islamic finance principles to check for permissibility.
However, as things stand right now, crypto is recognised as an asset under Sharia law and this lends it legitimacy. The things to be careful of are making sure that any cryptocurrency you are involved in does not link to any haram things and industries or activities or any form of money laundering. Whilst there is no central body who can make a final ruling on whether crypto is halal or haram, but as there is no element of interest riba and no exorbitant fees relating to crypto the interest from Muslims is growing.
Crypto can be used within Islamic finance principles to make ethical investments and wealth management in a Shariah compliant way. This could unlock the cryptocurrency investment market to billions of Muslims worldwide who are looking to enter the crypto market as investors. As the currency is still in its infancy it is important to keep an eye on all new developments and to assess and analyse changes in the market.
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