Cryptocurrency is a decentralized digital currency that is used to purchase goods. It was created using cryptography, or the use of codes, with the developers claiming that it is more secure than other types of currencies.
Just about anyone can participate in trading cryptocurrencies, which involves buying, selling, and using it to purchase goods. But for Muslims, there is a big question surrounding the use of cryptocurrency: Is cryptocurrency trading halal?
Unlike other currencies such as fiat currencies, cryptocurrencies are not regulated by any governing body. This means that governments and banks do not have any control over each cryptocurrency. Also, because cryptocurrencies are constantly being traded in the market, there is no set value for each coin at any given time.
These factors can contribute to cryptocurrencies being either halal or haram. Read on below to find out more.
What Is Considered Halal?
Halal is the Arabic term for anything that is lawful, allowed, and permitted. This can apply to both objects that will be used, and actions that will be engaged in. The opposite of halal is called haram, which means not permissible or unlawful.
For non-Muslims, halal is commonly seen on the packaging of consumable items like food, cosmetics, and pharmaceuticals. The halal mark on any of these items means that the items were prepared following Islamic law.
There is a strict set of rules to follow on what is halal and what is haram. These rules guide the daily life of Muslims, in accordance with the Sharia, or the Islamic Canonical Law. This law is based on the teachings of the Quran, the Muslim scripture.
Islamic Law on Trading
The first cryptocurrency to come out was Bitcoin. This remains one of the most popular cryptocurrencies today, with its value skyrocketing to several thousand dollars per coin. For those who invested in Bitcoin back in 2009, some of them have gone on to become multi-millionaires after a decade of this investment.
The huge opportunity in cryptocurrency was therefore realized, and the steadily increasing value of Bitcoin opened the doors for more cryptocurrencies to be developed.
The question whether cryptocurrencies are halal or haram is based on how digital currencies are used today. The Sharia prohibits the trading of any commodity to earn profits. This includes investment in stocks and bonds. This is because these commodities are intangible assets, with no fixed value at any given time due to the constantly moving market.
Cryptocurrency: Halal or Haram?
Now that you know what the Islamic Law says about trading, how does this apply to cryptocurrency?
Cryptocurrency can be used mainly for two purposes: for trading, or as a digital currency. Based on the Sharie, trading is prohibited for Muslims to engage in. Since a lot of people invest in cryptocurrency for trading purposes, does this mean that cryptocurrency is haram?
Fiqh Council of North America (FCNA) Ruling
In 2019, the Fiqh Council of North America (FCNA) held a meeting to discuss whether cryptocurrency is halal. This meeting focused mainly on the use of Bitcoin. As a result of this meeting, in 2020, the FCNA issued a fatwa, or an official ruling on a point in the Sharia.
This fatwa declared that there is no reason to prohibit cryptocurrency. The FCNA built a unanimous consensus to come up with this conclusion. However, it should be noted that this consensus was made for the use of Bitcoin only. Therefore, at least in North America, Bitcoin is halal.
The basis of this ruling was that halal is the default of everything. This means that anything that Muslims do, or consume, is halal, unless proven to be haram. The burden of proof for something to be declared haram is on the person that says it is. Therefore, if one person thinks that Bitcoin is haram, it is up to this person to prove it.
For the FCNA, they found no point in the Islamic Law that prohibits an already established cryptocurrency. Take note, for it to be halal, the cryptocurrency must be established. An established coin means that it has already been widely adopted and used on several digital platforms as a form of currency.
Therefore, based on the fatwa of the FCNA, it is halal to mine, invest, and trade cryptocurrency. However, the value of fiat currency must apply to the cryptocurrency. This means that spot trades must be made.
A spot trade is when you purchase a commodity and you immediately receive it in return. Thus, cryptocurrency can be used as a form of digital currency to purchase goods. There is an instant exchange of the currency and of the goods purchased. This is what makes cryptocurrency halal.
Even with this ruling, the guide for all Muslims is to be safe and wise about the use of their money. If Muslims in North America would want to purchase Bitcoin for digital transactions, it is advised to never invest more money than you are willing to lose.
The FCNA has reminded everybody to exercise safety and precautions when purchasing established cryptocurrencies.
Ruling Outside North America
Muslim councils outside of North America have not yet issued a final ruling on the issue of cryptocurrency being halal. This is because cryptocurrencies are imaginary and intangible, and the value is based on speculation. Thus, there is a grey area on the use of cryptocurrency.
Additionally, the Directorate of Religious Affairs in Turkey has stated that engaging in cryptocurrencies is harmful and can lead to gambling or money laundering, making it inappropriate for Muslims to engage in. Discover more about cryptocurrency trading here!
Is cryptocurrency trading halal? The conversation about cryptocurrency will probably continue through the years because there is still a lot to be studied about how to apply the Islamic Law to this form of digital currency.
As of 2020, although the FCNA has approved the use of Bitcoin as a digital currency, the act of trading cryptocurrency itself has not been declared halal. If you are a Muslim located outside of North America, it is better to seek advice from any person handling religious affairs in your region to understand if you are permitted to use cryptocurrency.