Islamic Views On Cryptocurrency

When cryptocurrency started in 2009 with bitcoin, we stepped into an advanced digital world. Trillions of payments in digital currencies are now being made.

Largescale businesses have included cryptocurrencies in their commercial system. Likewise, small and medium enterprises are also welcoming cryptocurrency payments for their services.

What Is Cryptocurrency?

It is a digital currency that works as a medium for transactions in a distributed peer-to-peer system. This system consists of an encryption technique that controls the formation of monetary units and verifies the transactions.

Bitcoin is a most popular example of a cryptocurrency comprising 60.8% of the market share. An interesting fact about cryptocurrency is the absence of any central authority to control the mechanism.

You cannot withdraw money; the owner can only transfer it to other parties.

Islamic Finance under Islam:

Islam is one of the fastest spreading religions in the world with currently 1.9 billion followers. Digital currencies are still under an ongoing debate in Islam.

Muslim scholars have contrasting views on cryptocurrency and other digital currencies. So we have to understand what Islam says about finance and the digital currency market.

Being a Muslim, it is our prime duty to abide by the laws and regulations under the principles of Islam. 

In-depth knowledge of the teachings of Islam is crucial for adherents of Islam. Islamic Finder helps Muslim gain the requisite knowledge and information related to Islam. It tells you accurate prayer timings and Qibla directions. You can find specific duas and audio recitations in this app as well. This app has every option to meet your religious needs.

Principles of Islam:

Islamic law focuses on the following principles;

1.      Prohibition of Interest:

Interest is prohibited in Islam. It is a biased source of getting profit and is exploitative. Interest benefits the lender while the borrower experiences a great loss.

2.      Prohibition of Unlawful Business:

Like some items and activities are haram, an investment made in such prohibited activities is also haram. For instance, pork, gambling, alcohol, etc.

3.      Prohibition of Speculations:

Speculations are strongly opposed as they can lead to considerable losses. If uncertainty is present in the transactions, Muslims can’t go for those contracts.

4.      Prohibition of Gharar:

Risks and hazards associated with any business (Gharar) are termed haram and are discourage by Islam. Muslim adherents must not go for short-selling and derivative contracts, as they constitute the element of Gharar.

Cryptocurrency In Islam; Halal Or Haram?

Cryptocurrency is much under debate among Islamic scholars because of its abstract nature. Islam approves physical assets and real economic actions only. Monetary speculations are objected. 

But still, some digital coins have been tossed into the markets that are sharia-complaint. Bitcoin has no real monetary usage but they are permitted because of halal payment network method.

On the flip side, cryptocurrency entails price speculations and the absence of any central authority. This reflects an element of Gharar that is contrary to Shariah law. Gharar refers to the risks and uncertainty associated with a particular activity. Islam strictly forbids businesses that are vague and risky.

The majority of famous Muslim scholars have termed cryptocurrency to be halal and better than conventional banking. Unlike modern finance, it is not a debt-based system. Instead, it focuses on confirmation of payment.

So Muslim users and investors must understand the associated risks of bitcoin before the purchase and make an action plan in response to its failure.

Cryptocurrency In Muslim-Majority Regions:

Despite being unable to promote the growth of the real economy, cryptocurrency is getting a hype. Cryptocurrency networks are proliferating in Muslim-majority markets, such as Malaysia, Indonesia, the Middle East, and other Muslim countries. 

These networks are gaining momentum in major hubs of Islamic finance. For instance, Islamic Development Bank (IDB) uses a blockchain financial system to stimulate growth and financial inclusion in member states. 

The encryption-based digital currency has caught the attention of many institutions in Dubai. UAE Central Bank has warned people about the mismanagement aspect of such transactions. But still, Emiratis are inclined toward the need for digital currency.

Halal Cryptocurrency; What Does It Mean:

Some Muslim scholars believe that cryptocurrency has a value that is acknowledged by the people. It serves as a medium for the exchange of money that serves individuals and corporations alike.

Muslims around the world are including innovative terms in cryptocurrency making it complementary to Shariah law. One example is OneGram, a startup found in Dubai in 2017, which is using gold for backing cryptocurrency.

As its speculative nature is restricting Muslims, so OneGram is convincing Muslims that cryptocurrency can be compatible with their faith. Each cryptocurrency unit in OneGram is backed by one gram of gold.

This makes crytpocurrency close to the real economy by giving it a physical value. This way, the speculative nature of cryptocurrency has been lowered significantly. 

Islamic Law Committees And Global Markets:

Hardly 20 to 30 percent of South-East Asian and Gulf banking is Shariah-compliant. Conventional banking is preferred because of its high profit and convenience. 

Religious acceptability is still a matter of concern among Islamic financial institutions. The major issue is no one is certain how cryptocurrency will play out. Muslim governments have no authority to enforce cryptocurrency and blockchain systems.

Likewise, they do not want to lose the chance of benefitting from the fruits of the digital world. Dubai and South Arabian central banks have warned Muslims about the uncertainty and risks of cryptocurrency but have not formally banned bitcoin.

In South Africa, Islamic jurists have favored cryptocurrency while some scholars in India, Turkey, and Britain have deemed it contradictory to Islamic jurisprudence. A Grand mufti in Egypt has also opposed cryptocurrency trading and warned people about its volatility.

So there is much complexity and never-ending debate on the permissibility of cryptocurrency in Islam. Scholars have not yet given concluding remarks on bitcoin. Islamic financial institutions are not taking concrete measures on acceptance or restriction of cryptocurrency.

Final Words:

We can say that cryptocurrency lies on the border of acceptance and rejection. High speculations drag it to the rejection end but extreme social acceptance is taking it away from prohibition. 

Investors around the world are investing billions of dollars in the cryptocurrency market creating an artificial demand. So, cryptocurrency is getting appreciation even without contributing to the real economy.

Cryptocurrency is itself lawful but the way we use it is under much debate. We cannot label it as halal or haram. It is exposed to manipulations, so Muslim users or investors must be cautious. 

Because of its complicated nature, there should be an in-depth research on halal cryptocurrency. It should be a legitimate platform for exchange among Muslim communities.

The future of cryptocurrency in the Muslim world is still unclear. Creative steps should be taken to benefit Muslims without conflicting with their religion.

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