SHARIAsource

In this paper, Muftī Muhammad Abu Bakar determines that cryptocurrency is permissible under Islamic law in principle as it is treated as a good with value, as evidenced by its high market price on global exchanges and its acceptance as a form of payment at a wide variety of global merchants. He further notes that the permissibility of cryptocurrency is determined by its classification as currency in a governing legal and regulatory environment. Where jurisdictions prohibit dealing with cryptocurrency, its usage is prohibited in Islamic law as well. Muftī Abu Bakar adds that, before trading with cryptocurrency, users must consider its volatility and associated risks, given that preservation of wealth is one of the fundamental objectives (maqāṣid al-sharīʿa) of Islamic law. He concludes that, overall, it is not advisable to buy cryptocurrency for investment purposes, but to utilize it as a system of payment instead. 

In this video,  Sheikh Mustafa Umar approaches the question whether cryptocurrency is ḥalāl or ḥarām with hesitancy, cautioning other scholars from making any determinations without fully understanding decentralized currency. Noting that there are a wide variety of cryptocurrencies as well as varied intentions behind their usage, Sheikh Umar concludes that the cryptocurrencies might be permissible or disliked, but at this stage in its development, it is too early to say that it is impermissible (ḥarām) in Islamic law.

When asked about the permissibility of cryptocurrency, Muftī Muḥammad Taqi Usmani responded that, although he is not satisfied with it due to its speculative purposes which seem impermissible in principle,  he will have to defer his decision until a later date in the case that its use may expand into real trade. He mentions that its mass use is not likely due to the possibility of weakening economies at the hands of an elite few, so he does not encourage its usage. 

In this review and order to address noncompliant investment practices, the U.S. Securities and Exchange Commission determined that the New York-based robo-adviser Wahed Invest, LLC had made misleading statements on investments, breached its fiduciary duty to investors, and failed to comply with the law related to its sharīʿa advisory business. According to the SEC’s review, from September 2018 through July 2019, Wahed Invest advertised the existence of its own proprietary funds when no such funds existed, and the firm further promised investors that it would periodically rebalance their advisory accounts but did not do so. The SEC’s order also found that when Wahed Invest ultimately launched a proprietary Exchange-Traded Fund (ETF) in July 2019, it used its clients’ advisory assets to seed the ETF without prior disclosure to those clients of any conflicts of interest. The order further found that Wahed Invest marketed itself as providing advisory services compliant with sharīʿa, or Islamic law, including marketing the importance of its income purification process on its website. Despite these representations, the review board determined that Wahed Invest did not adopt and implement written policies and procedures addressing how it would assure sharīʿa compliance on an ongoing basis. Wahed Invest consented to the entry of the SEC’s order finding that the firm violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-1(a) and 206(4)-7; the firm further agreed to the Commission’s cease-and-desist order, to pay a $300,000 penalty, and to retain an independent compliance consultant, among other requirements.

In this video, Dr. Ziyaad Mahomed discusses the permissibility of cryptocurrency. After giving an overview of scholars’ rulings on the question, he determines that there is not enough known about cryptocurrency to determine whether its usage is permissible at this time. He adds that users should exercise caution when using cryptocurrency due to its volatility and the lack of Islamic legal standards on the practice. 

Grand Muftī Shawky Ibrahim Allam of Egypt's Dār al-Iftā' states that all uses of cryptocurrencies, including trading, buying, selling, leasing, are religiously prohibited (ḥarām) because of their negative effects on the economy, disruption of the market equilibrium and the concept of work, and the lack of required legal protections and financial oversight for traders. The Grand Muftī also concludes that cryptocurrencies infringe on the rights of those in authority, dispossessing them of their special prerogatives in this domain, and may give rise to damages from uncertainty, ignorance, and fraud in novel banking processes, standards, and values. For him, this conclusion finds support in the general statement of the Prophet Muḥammad that "He who deceives us is not of us.” Given the high risks that cryptocurrencies pose to individuals and to government, he thus concludes that there is further support for their prohibition with reference to the Islamic legal canon of “no harm”; “lā ḍarar wa-lā ḍirār.” He came to his decision by reference to economists and other related experts.

Dr. Ali al-Qaradaghi considers the question whether cryptocurrency is a legitimate currency (ʿumla). Traditional Islamic law rulings define currency to reflect instruments with intrinsic value, such as gold or silver, or with credit value, which requires state backing. In his view, cryptocurrency has no inherent value [in the Middle East]. Rather, in his estimation, cryptocurrency’s value is in transactions. But even when it is used as credit, it has no state behind it or agreed-upon recognition [again, specifically with respect to the Middle East]. Thus, he concludes, it is not actually ḥaqq mālī (a property claim). Rather, it is a program or algorithm. He concludes on those grounds that investment in it is religiously prohibited (muḥarram) but only by means of the concept of “prohibition of the means" (taḥrīm al-wasāʾil). This is the lightest of prohibition types, because it is not prohibition for excessive interest (ribā) but to protect property (ḥifāza ʿala māl).

In this panel titled “Crypto Conundrum in Islamic Finance: Digital Assets and Shariah Compliance,” Dr. Mohamed Ali El Gari and  Dr. Mohd Daud Bakar consider the question whether cryptocurrency is permissible from an Islamic legal perspective. Dr. Bakar opines that cryptocurrency is an asset and not considered currency because it does not fulfill three conditions: use as a valid medium of exchange, stable stock value, and known unit of measurement. Although he acknowledges that cryptocurrency is in use as a medium of exchange, the electronic product currently lacks a stable stock value and known unit of measurement. However, he adds that if cryptocurrency comes to be backed by gold or silver, it could be deemed to be a rival to traditional currency and thus be understood as valid currency. Dr. El Gary opines that cryptocuruency can be permissible only if it is possible to establish that that it qualifies as wealth (māl) or as an asset according to the Islamic law (sharī'a). Doing so requires determining the presence of three conditions: the currency must be in use with a societal desire to normalize its usage, its use must be permissible under normal circumstances, and its must have a value assigned to it in habitual and customary practice. Applying these criteria to cryptocurrency, he concludes that it does meet all three conditions and thus determines that, while it is permissible to use because it is fungible, all the rules restricting the use of money under the rules of excessive interest (ribā) must apply. He further notes that one must be cautious in its use due to cryptocurrency’s speculative nature, which could border on gambling, but that this is not sufficient to say that it religiously impermissible (ḥarām) at presence. Collectively, the panel advises that those who are not very knowledgeable on the cryptocurrency and its attendant issues are to avoid it.