Is Crypto Halal in 2024? Islamic Scholars` View

Cryptocurrencies have taken the world by storm, with Bitcoin, Ethereum, and many other digital assets entering mainstream conversations. As global financial systems adapt to this innovation, Muslim communities face a critical question: Is crypto halal? This issue isn’t just about finance; it encompasses ethics, religion, and evolving technology, bringing Islamic principles to the forefront of an emerging financial revolution.

Key Takeaways:

• Is Crypto Halal or Haram? The debate is ongoing, with scholars exploring both sides of the argument.
• Islamic Finance Principles: Avoiding riba (interest), gharar (uncertainty), and maysir (gambling) are core to determining the permissibility of cryptocurrencies.
• Country Regulations and Adoption: With countries like El Salvador and the Central African Republic recognizing Bitcoin as legal tender, the perspectives on crypto’s alignment with Islamic law are changing.
• Long-Term vs. Short-Term Investment: Short-term trading often contradicts Islamic finance principles, and long-term, purpose-driven crypto investments may be halal.
• Scholarly Debate and Individual Analysis: Not all digital assets are the same; scholars recommend evaluating cryptocurrencies individually.

Understanding the Islamic Perspective

Islamic finance principles require that transactions are free from riba (interest), gharar (excessive uncertainty), and maysir (gambling or speculation). These principles have historically guided financial dealings, aiming to ensure fairness, transparency, and ethical conduct. The rise of cryptocurrency—an unregulated, decentralized, and volatile currency—poses a unique challenge to these rules.

Some scholars argue that cryptocurrencies do not have inherent value as they are not backed by a physical commodity like gold or regulated by a government authority. However, others contend that as crypto gains wider acceptance and use, its value and legitimacy become evident.

Mufti Muhammad Taqi Usmani, a renowned Islamic scholar and finance expert, has expressed reservations about crypto, labeling it speculative and suggesting that its unregulated nature makes it non-permissible under Shariah. His views highlight a critical argument against crypto: its potential for speculation and involvement in unlawful activities.

Nevertheless, perspectives are shifting as digital assets gain legitimacy and use cases. For instance, countries like El Salvador and the Central African Republic have adopted Bitcoin as legal tender. This evolving status forces scholars to reconsider earlier stances and recognize the possibility of cryptocurrencies being halal.

Is Crypto Halal? The Ongoing Debate

The question of whether cryptocurrency is halal (permissible) or haram (forbidden) has no clear-cut answer. Islamic scholars are divided, each bringing unique insights and interpretations to the discussion.

Mufti Faraz Adam, a UK-based Islamic finance and fintech expert, suggests that certain cryptocurrencies meet the criteria of “Māl” (wealth) under Islamic law. He argues that since cryptocurrencies can be owned, stored, and desired by individuals, they fulfill the definition of wealth and can be permissible in Islam. Furthermore, the Fiqh Council of North America has indicated that objections against crypto, like anonymity and lack of governmental backing, are not sufficient to deem all cryptocurrencies haram.

Rakaan Kayali, founder of Practical Islamic Finance, challenges the notion that cryptocurrencies should be blanketly deemed haram. He argues that risk and volatility are present in all forms of investment, not just crypto. Each cryptocurrency, according to Kayali, should be evaluated individually to determine its compliance with Islamic finance principles. He emphasizes that it’s not the speculative nature but the purpose and structure of each digital asset that matters.

Related: Can Islamic Crypto Be the Savior of the Industry?

Why Some Scholars Consider Crypto Halal

For those who support the idea that crypto can be halal, the argument is rooted in the nature and utility of each digital asset. If a cryptocurrency provides a legitimate economic function without involving riba or excessive speculation, then it may be permissible. For instance, if cryptocurrency serves as a medium of exchange, a utility token for a project, or an investment with tangible value, then it could align with Islamic values.

Staking, or locking up crypto assets to receive rewards, is one area of interest. The intent behind staking is crucial; if the platform uses staked assets to generate loans with interest, it is haram. However, if the purpose is to increase the security of a blockchain or validate transactions, then staking may be deemed halal. Ibrahim Khan of Islamic Finance Guru highlights this distinction, noting that staking as a concept is not inherently problematic in Islamic finance. However, clarity of intent is necessary to ensure compliance.

The Case Against Why Some Scholars Believe Crypto Is Haram

On the other side of the debate, some Islamic scholars hold that the speculative and volatile nature of cryptocurrencies closely resembles gambling or betting, which is prohibited in Islam. Mufti Shawki Allam, the Grand Mufti of Egypt, argues that crypto trading is haram as it often lacks backing from legitimate government authorities and can be used in illegal activities like money laundering. According to this view, the anonymity and unregulated nature of many cryptocurrencies make them inherently problematic.

In Indonesia, the Majlis Ulama Indonesia—the nation’s council of religious leaders—ruled that cryptocurrencies are haram due to the gharar (uncertainty) and darar (harm) associated with them. However, critics of this stance argue that these risks are not unique to cryptocurrencies; they are common across all financial markets.

Crypto Trading: Halal or Haram?

The type of trading is critical in Islamic finance. Spot trading, which involves the immediate exchange of assets, is generally seen as halal if it adheres to the principles of avoiding riba and ensuring transparency. This also applies to crypto spot trading.

However, short-term speculative trading, such as day trading or scalping, is generally viewed as haram due to its speculative nature, which aligns more closely with gambling than investment. Mohammed AlKaff AlHashmi, co-founder of HAQQ Network, stresses that Islamic finance principles favor investments contributing to real economic growth and societal benefit. Speculative trading strategies often do not meet this criterion, as they primarily aim for quick profit without adding tangible value.

Investing in Crypto: A Halal Perspective?

Long-term investment, or holding crypto assets with the intent to accumulate wealth over time, is generally seen as halal. AlHashmi asserts that if a token has a clear utility for a valid economic purpose and discloses its risks and benefits transparently, it can be deemed halal under Shariah. This long-term view aligns with Islamic finance principles, focusing on sustainable wealth-building without excessive speculation.

Many experts and scholars who see crypto as potentially halal allow for investing in it as long as the transaction complies with Islamic finance rules, meaning it does not involve interest or other non-compliant activities. The investment should also contribute to economic development and have a beneficial purpose.

Evaluating Which Cryptocurrencies Are Halal

Determining whether a cryptocurrency is halal or haram requires examining its purpose, structure, and utility. For example, Bitcoin is widely considered halal because it is increasingly accepted as a legitimate currency for transactions and investments. The Fiqh Council of North America also supported the view that Bitcoin is fundamentally halal when used within Islamic principles.

Ethereum presents a more complex case due to its multifaceted use cases. At its core, Ethereum is a decentralized platform used to build decentralized applications (dApps). If these apps are designed in a way that aligns with Islamic values and does not support haram activities, then using Ethereum could be permissible. However, scholars emphasize that the use of Ethereum for illegal activities or gambling would render it non-halal.

Other cryptocurrencies, particularly meme coins or tokens without any practical use case or inherent value, are often deemed haram. They fail to meet the criteria of “Māl” and are typically viewed as speculative assets with no tangible benefit or utility.

Is Bitcoin Mining Halal?

The concept of crypto mining also comes into question under Islamic law. Bitcoin mining is considered halal by many scholars as it involves providing a necessary service to validate transactions on the blockchain. This activity aligns with the principles of honesty, transparency, and societal benefit, as miners help maintain the integrity of the network.

However, scholars caution that involvement in any illegal activities using the mined Bitcoin could make the entire process haram. Thus, intention and adherence to Islamic principles are key to determining the permissibility of crypto mining.

Evolving Nature of Crypto in Islam

In 2024, the question of whether crypto is halal remains open-ended, reflecting the complexities of both Islamic finance and the rapidly evolving digital asset landscape. While some scholars caution against cryptocurrencies due to their speculative nature, others advocate for a nuanced approach that considers each digital asset’s purpose and compliance with Shariah.

The growing acceptance of digital assets globally is encouraging more scholars to lean toward a view of permissibility, especially when it comes to long-term investments with clear economic utility. The consensus is that crypto requires careful examination on a case-by-case basis, focusing on its adherence to Islamic principles and its contribution to ethical, sustainable economic growth.