What is Halal?
Any business, action, or food permissible in Islam is known as halal. To describe a business as halal means that Muslims can engage in it. Such businesses are not forbidden (haram). Haram is the opposite of halal.
- What is Halal?
- Meaning of Haram
- Difference Between Halal and Haram
- Popular Islamic Interpretations
- Cryptocurrency Investments and Illegal Activities
- Crypto as a Medium of Exchange
- Conclusion
Meaning of Haram
Haram is the opposite of halal. Anything that is unlawful and prohibited in Islam, which Muslims are admonished to avoid, is known as “haram.” Both words are of Arabic origin.
The debate about whether Muslims can invest in cryptocurrency has been ongoing since digital coins gained popularity a few years ago.
In this article, we take an Islamic perspective on what the Holy Quran says about permissible investments for Muslims and whether they can invest in Bitcoin or other forms of cryptocurrency.
Difference Between Halal and Haram
In Islam, actions, behaviors, or foods that are allowed and permissible for the faithful are referred to as “halal.”
Haram, on the other hand, refers to anything that is unlawful and prohibited, which Muslims are advised to avoid. Both words are Arabic in origin.
However, discussions about cryptocurrency in Islam have extended the application of these terms to determine whether trading in crypto assets is halal (permissible) or haram (not permissible). Islamic clerics around the world have different opinions on the matter.
In recent decades, technological and digital advancements have introduced innovative payment systems. Cryptocurrency, in particular, has gained widespread acceptance, serving both personal and business purposes globally.
Several cryptocurrencies are currently in circulation, and more are expected to emerge. However, Bitcoin remains a pioneer as it was the first digital coin to achieve mainstream adoption.
For Muslims who strive to uphold their faith and adhere to Islamic principles, the question remains: Is cryptocurrency consistent with Islamic teachings, and is it permissible under Shariah law?
Popular Islamic Interpretations
There are two primary Islamic views on cryptocurrency:
- Shariah experts who support cryptocurrency
- Islamic experts who oppose crypto-related investments
Those Who Support Investing in Crypto
Islamic scholars hold differing views on whether cryptocurrency is halal. While some believe its adoption is permissible, others argue it violates Shariah law.
A well-documented interpretation on this matter was given by Shariah advisor Mufti Muhammad Abu-Bakar. He supported cryptocurrency and influenced many Muslims to invest in Bitcoin.
Although he acknowledged the speculative nature of cryptocurrency, he argued that all currencies, including the US dollar and the euro, have speculative elements. He pointed out that the value of traditional currencies fluctuates, just like Bitcoin and other crypto assets.
Based on this reasoning, he asserted that trading in Bitcoin and other cryptocurrencies is not haram and is permissible under Shariah law.
Additionally, several other Muslim scholars have maintained that cryptocurrency is halal under Islamic law. Since Islam forbids financial activities that involve interest (riba), and cryptocurrency does not inherently promote such practices, these scholars consider it permissible.
Many Muslims rely on rulings from well-respected Islamic scholars to ensure their actions align with Shariah law. Once several Islamic scholars pronounced blockchain technology as compliant with Islamic finance principles, many Muslims felt more confident investing in crypto.
As a result, some mosques in London began accepting cryptocurrency donations from Muslim faithful.
Those Who Oppose Investing in Crypto
Some Islamic scholars, however, have opposed cryptocurrency. A key argument against crypto is that Islamic financial transactions require a tangible asset of value. While some scholars believe cryptocurrencies meet this requirement, others argue they do not.
For instance, in Indonesia, the National Council of Islamic Scholars ruled that cryptocurrency is haram, leading the government to restrict its use. Despite the country’s large crypto investor base, religious authorities declared crypto impermissible, citing its lack of physical form and stable value.
A prominent Indonesian scholar from the Nahdlatul Ulama (NU), a respected Islamic organization, stated that cryptocurrency does not meet Shariah principles and could be harmful if misused. However, this ruling has faced criticism, and some authorities have suggested that cryptocurrencies could be traded as commodities if they meet certain conditions.
Islamic critics of cryptocurrency argue that crypto trading involves gambling and uncertainty, both of which are prohibited in Islam. They also point out that cryptocurrencies can be used for illegal activities, such as money laundering and fraud.
Despite this opposition, many Islamic financial experts argue that since stock trading is accepted under Islamic law, cryptocurrency should be as well—although some critics counter that stocks derive value from a company’s performance, whereas crypto does not.
Cryptocurrency Investments and Illegal Activities
One of the major concerns critics raise is that cryptocurrency is often used for illegal activities. Because crypto transactions are anonymous and difficult to trace, they have been linked to criminal activities such as terrorism financing and online gambling.
Governments worldwide have expressed concerns over cryptocurrency’s decentralized nature, with many central banks refusing to support it. Critics argue that crypto should not be trusted because it lacks legal recognition and regulatory oversight.
However, some Islamic scholars maintain that an asset can be considered halal, even if some people use it for illicit purposes. The same argument applies to traditional currency, which can also be misused for unlawful activities.
Ultimately, the use of cryptocurrency depends on the individual. Just like conventional money, a person decides how to utilize their digital assets. If crypto is used for ethical purposes, it should not be deemed haram solely because others misuse it.
Crypto as a Medium of Exchange
Despite criticism, cryptocurrency offers undeniable benefits. Many businesses worldwide now accept crypto as payment for goods and services.
While digital currencies like Bitcoin are volatile, they have gained acceptance as a medium of exchange. For some, cryptocurrency is even preferable to traditional currencies due to its convenience in cross-border transactions.
Many Muslims worry about missing out on the technological revolution of blockchain due to religious misinterpretations. Investing in cryptocurrency aligns with ethical investment principles and does not inherently violate Shariah law.
Several major banks and financial institutions now recognize cryptocurrency, signaling that it is not an inherently illicit or unethical asset. This supports the argument that Muslims can trade, buy, and sell digital coins without religious conflict.
Conclusion
Cryptocurrency operates on blockchain technology, which was designed to encourage decentralization and reduce reliance on central authorities. It promotes transparency, security, and accountability, making fraud and manipulation difficult.
As technology evolves, more Muslims seek clarity on whether cryptocurrency aligns with Islamic financial principles. Since investments must be deemed halal before a Muslim can participate, Islamic scholars play a crucial role in evaluating new financial instruments.
The debate surrounding cryptocurrency and Islamic finance continues. However, with growing acceptance among Islamic scholars and financial institutions, the legitimacy of crypto as a halal investment is gaining traction.