In this article, we will analyze how Islamic laws view cryptocurrencies. Is it halal or haram for them? Do they embrace cryptocurrency, or are they against it?
This debate is worth considering because it dictates the adoption of cryptocurrencies in Islamic nations, constituting about 24.1% of the world population.
Are Cryptocurrencies Halal or Haram?
The Islamic laws or the Shariah laws are based on the teachings of the Prophet Muhammed written in the Holy Quran. As for these laws, there are several elements that one should consider before deciding on the acceptability of cryptocurrencies.
Islam states that money is a transaction entity that gets its status through affirmation and acknowledgment by both the public and the government. Many countries do not consider cryptocurrencies to be a solid means of transaction. There are several points to be considered in deciding whether cryptocurrencies are halal or haram.
● Element Of Gharar
“Gharar” represents uncertainty. The outcomes of cryptocurrency trades are uncertain as cryptocurrencies are inherently volatile. In effect, cryptocurrency trading resembles gambling in many ways, which is strictly prohibited in Islam. So the element of Gharar creates confusion in Islam regarding its adoption.
● Anonymity of Transactions
Crypto transactions are done anonymously, i.e., without revealing the identity of the parties involved. This is so to uphold the privacy of cryptocurrency transactions. Islamic laws view such privacy efforts with suspicion because they can pave the way for illicit activities such as money laundering. This aspect makes cryptocurrencies harmful in the view of Islamic laws.
● Involvement of Riba
Riba refers to the concept of usury in Islam. Cryptocurrency transactions can sometimes cause profit or loss to the users based on the market conditions. In Islam, using monetary transactions to make a profit is prohibited.
● Non-tangible Nature
Cryptocurrencies are non-tangible digital assets, which is against Islamic finance laws. As per Islamic laws, a financial transaction needs an underlying physical commodity to corroborate its validity. This lack of physicality questions the intrinsic value of cryptocurrencies, and their validity as a medium of exchange in Islamic finance remains debatable.
● High Risk Investment
Cryptocurrencies are a high-risk investment as the outcome of their transaction is unpredictable. The varying market conditions affect cryptocurrency transactions. As per Islamic laws, financial practices that cause excessive risk or give rise to speculative behavior are generally discouraged, and this applies to cryptocurrency transactions as well.
● Crypto Is Not Money In The True Sense
Another point is that cryptocurrencies are not considered money in the true sense. This is because, unlike traditional currencies, cryptocurrencies are not supervised by any central or government authority. This decentralized nature raises the question of whether cryptocurrencies are fathomable in the Islamic understanding of a legitimate currency, which should be widely accepted and backed by its users and remain generally stable.
● Unregulated Nature
The unregulated nature of cryptocurrencies is another factor that poses a significant challenge. There are no centralized agencies to supervise the activities of various cryptocurrency platforms which can result in the crypto market being subject to potential manipulation and fraudulent financial practices. Such manipulative attempts may prove to be in stark contrast to the principles of fairness and integrity upholded in Islamic finance.
Islamic law scholars are divided in their opinion about whether cryptocurrencies are halal or haram. Some argue that cryptocurrencies are haram due to the above-mentioned reasons. However, there is a faction of scholars who consider cryptocurrency as halal which Muslims can invest in. They put forward the following arguments in favor of their stand.
- There is often a lack of riba (interest). As cryptocurrencies are based on decentralized platforms and are governed without any central authority, there is no interest charged or payable.
- Crypto is a legitimate medium of exchange with a purpose in financial and economic transactions.
- Some scholars argue that it is the use of the crypto that determines if it is Sharia-compliant or not. If the user can use it responsibly, there is nothing haram in investing in them.
Also, Check: UK Crypto Regulations
The Bottom Line
There is no clear-cut consensus regarding whether cryptocurrencies are halal or haram. Scholars are divided in their opinions. The users should ensure their compliance with Islamic laws based on their specific use cases.
