Is Crypto Halal or Haram? A Closer Look Under Islamic Principles & Shariah Law

A Closer Look "Is Crypto Halal or Haram": Under Islamic Principles & Shariah Law


Is Crypto Halal or Haram? Cryptocurrency is the new decentralized payment method; there is a contradiction among Muslims regarding cryptocurrency because Islam has stringent rules for economic concerns. Since cryptocurrency is a new financial system, it isn’t easy to interpret. Islamic laws are known explicitly as Shariat and are based on the principles of the Qur’an and the teachings of the Prophet Muhammad {Peace and Blessings of Allah be Upon Him}. Cryptocurrencies are being used to complete financial transactions like cash. Cash exists in current economic systems worldwide, while cryptocurrency does not exist because it is a digital or virtual currency, and its transactions are done digitally too, which is why it needs to be more straightforward to comprehend. 

The clarity of its Halal and Haram is not even for that cause of where the digital currency exists and who controls it. According to Islamic Scholars, users do not decide to use cash to purchase and sell anything unless it is legal in the view of the public or legitimate by a government order. Almost ten countries legalize digital currencies in their boundaries as payment methods to buy and sell commodities or any other transactions like their fiat currency, which implies the government endorses cryptocurrency. 

A fatwa of Mufti Shawki Allam regarding a legitimate strategy for Governments is noticeable. According to Mufti Shawki Allam, the trading on CEXs in digital currencies is Haram because the Government Financial Institutions do not endorse cryptocurrencies. Not being approved by financial institutions leads to money laundering, terrorist activities, and using the dark web for illegal activities. Mufti Shawki Allam did not elaborate, but now it is our perception that if any country’s government allows it, we can consider crypto as Halal.

Interest (سود) under Shariah Law

In Islam, Interest is undoubtedly forbidden whenever a fatwa is given about any Islamic financial matters, so Islamic Scholars put every economic issue in the scales of usury. Giant financial institutes such as banks (The World Bank, Asian Development Bank), stock markets, and IMF can never do business without implementing usury worldwide. So, it is challenging for Islamic Financial Institutions to work without usury in today’s modern world. Islamic scholars research the changing economic conditions, and issue fatwas to deal with today’s current financial problems based on their findings. 

Mufti Taqi Usmani Sahab Views about Cryptocurrencies

A scholar Mufti Taqi Usmani Sahab from Pakistan, who is famous worldwide, particularly in Arab countries, has comprehensive research on Islamic finance matters. Mufti Taqi Usmani Sahab has written a book on Islamic financial principles named اسلام اور جدید معشیت و تجارت. In Pakistan and Arab countries, many banks, such as Meezan Bank Limited, Dubai Islamic Bank, Soneri Mustaqeem Islamic Bank, Al Baraka Bank, and BankIslami Pakistan Limited, started their Islamic branches, which operate according to the Shariah Law. 

Cryptocurrencies are primarily a medium of exchange, and creating them as a tradable item to earn a profit is against Islamic principles. In Shariah, there is no valid justification to take it as a currency. According to Mufti Taqi Usmani Sahab, it is just a mathematical or digital number that is created by computers. Mufti Sahib’s complete views and details on digital currencies are below.

Is Crypto Halal or Haram?

Spot Crypto Trading is Halal or Haram

Most people consider that spot trading is halal because they apprehend that just as they buy physical products such as Gold, Oil, and other commodities from the market for business purposes, same as like, they buy online digital products such as Bitcoin, Ethereum, and XRP. The consumer earns a profit when the price of the physically purchased product proliferation. If the price drops of the same product, they will get a loss. 

So, as a result, profit and loss are involved in doing business with physical products. Crypto users argue the concept of profit and loss simultaneously will occur, and they assume they have digital products instead of physical products and can earn a profit when the digital product price goes up and can get lost if the price goes down. 

According to Muhammad Tah Riaz, Darul-Ifta Jamia Binoria Aalamia, Karachi, Pakistan, cryptocurrency is not physical; it has no physical reality like our paper currency. Instead, it is an invisible currency that is now being used by many people worldwide for transactions. However, the law of transactions carried out by fiat currency is yet to be adopted as an alternative to digital currency. 

The most significant issue associated with the name cryptocurrency is scams. So I advise everyone to avoid investing in it. However, suppose the consumer has invested in it. In that case, he should withdraw his digital investments and contribute the earned amount to charity without any intention of reward. So, as a result, spot trading is also Haram according to Islamic Shariah until the Governments approve it. 

Future Crypto Trading is Halal or Haram

Islamic scholars believe that future trading is a hazardous investment like gambling. Consumers who trade in futures use leverage to increase their profits, which entails greater risk and potential reward. Futures, margin, and options trading are all types of derivatives that are used in the cryptocurrency industry and are all about lending money and conducting business utilizing that money. 

Unlike fiat currencies, cryptocurrency prices fluctuate based on supply and demand. Because of this, it is a very volatile market. A clear understanding of digital money and blockchain is growing in importance. Experts believe that blockchain will change the technology system around the world. Just like in the past, the Internet in the 90s and social media apps in the 2010s have completely transformed the world of technology. 

For example, in March 2020, the price of BTC was $6,500, and in November 2021, the price jumped to around $68,500 within approximately 20 months. By June 2022, the price had dropped to less than $15,500; in May 2023, the price of BTC was equal to $25,000. For this reason, the risk of damage is very high. When crypto users trade with 100 percent leverage in derivatives on exchanges, and the crypto market goes against them, they lose their initial investment too. So, the term “Derivatives” are directly linked to interest (usury), which is why they are banned in Islam.

According to Sheikh Asim Al-Hakim, cryptocurrency is an unidentified asset with which you are doing your business. Cryptocurrencies are primarily being used for illicit activities such as drug money, money laundering, and paid-for murders. There is no room for such currencies in Islam, so I believe it is outlawed “Jazak Allah e Khair”. 

Final Thoughts about “Is Crypto Halal or Haram”

Although cryptocurrency is a new decentralized payment method, Muslims have differing opinions on it. Shariat, or Islamic law, is based on the Prophet Muhammad’s teachings and the Qur’an’s tenets. Every economic problem is weighed according to usury by Islamic scholars, who then issue fatwas to address today’s financial issues in light of their conclusions. He thinks it is against Islamic principles to create cryptocurrencies as tradable goods to make money because they are primarily meant to be used as a medium of exchange. 

Spot cryptocurrency trading is either halal or haram because customers believe they purchase digital instead of physical goods and stand to gain or lose money depending on how much the price changes. A mysterious asset called cryptocurrency is used for illegal activities like buying drugs, money laundering, and paying for murders. The cryptocurrency industry uses a variety of derivatives, including futures, margin, and options trading. According to Sheikh Asim Al-Hakim, cryptocurrency is an untraceable asset that is only used for illegal purposes and is therefore forbidden in Islam.

Frequently Asked Questions: 

1. Which cryptocurrency is halal?

There are more than 24,000 cryptocurrencies, so we can’t say that one cryptocurrency is halal or the others are haram. The term “Cryptocurrency” can be explained that it is Halal or not. According to our findings, it is not Halal until your Government doesn’t stamp out the legislation of the cryptocurrencies. 

2. Is trading halal in Islam?

According to Islamic Scholars, trading is permitted, and consumers can profit by trading products. But, there are limitations in Islam; if usury is not involved in trading, then it is wholly allowed according to Sharia. On the other hand, if trading falls into usury parameters, then it will be prohibited. 

3. Are Stocking products Haram in Islam?

On a positive note, stocking products are not haram in Islam because Islam permits the business by purchasing a product, and when the trader gets some profit, then sells it. The duration between purchasing and selling is called stocking products which is Halal. There is a condition if a trader stores any food items like rice or wheat and there is a shortage of it in the market, and people are longing for it, then it is forbidden and also a crime in Islam.

4. Is cryptocurrency legal in Pakistan? 

In Pakistan, trading or mining cryptocurrencies is still illegal; before April 2018, there were no government restrictions. However, The State Bank of Pakistan (SBP) informed all banks and financial organizations in April 2018. It instructed them to cease providing services to assist cryptocurrency transactions, such as debit and credit card transactions. The Pakistani Government asserts that it took this measure because it thinks cryptocurrency can prevent money laundering and other illicit activity. For the complete article, click on the link