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Cryptocurrency in Islam: Bitcoin Halal or Haram?

Cryptocurrency in Islam: Bitcoin Halal or Haram?
Cryptocurrency in Islam: Bitcoin Halal or Haram?

Cryptocurrency in Islam: Is Bitcoin Halal or Haram: Islam embraces technological advancements, provided they adhere to Shariah principles. Unlike traditional currencies regulated by national authorities, cryptocurrencies operate independently using blockchain technology. Bitcoin, the pioneer cryptocurrency, aims to function as a universal payment medium, challenging fiat currencies.


Scholars and Fatwa institutions worldwide have varied opinions on Bitcoin’s permissibility under Shariah, with debates extending to other cryptocurrencies like Ethereum and Litecoin. Each digital currency’s unique characteristics necessitate specific Shariah guidelines for classification.


Governments globally react diversely to Bitcoin’s rise. Some, like Dubai, integrate blockchain for urban planning, while others, like Venezuela, introduce state-backed cryptocurrencies. This dynamic prompts Muslims to question whether cryptocurrencies are Halal or Haram.


The term „cryptocurrency‟ is used because all transactions and issuance of new units will use the cryptography system that is developed using the blockchain technology. The intended function of the Bitcoin was to be a universal medium of payment that replaces the currency of a certain country (DeVries, 2016). Cryptocurrency is also known as virtual currency or digital currency (Adam, 2017). Scholars and Fatwa institutions all around the world have provided their views related to the use of Bitcoins (Adam, 2017; Oziev&Yandiev, 2017; Meera, 2018; Abubakar et al., 2018). However, those views cannot be generalised to all digital currencies. Various digital currencies have been created based on the original Bitcoin concept with various functions that has expanded the use of digital currencies (Albrecht et al., 2019).

An increase in digital currencies with various functions requires different legislation and Shariah guidelines for each of the function developed. Therefore, there are specific characteristics of these digital currencies outlined by scholars as well as certain countries to classify it into several categories of digital currencies monitored by a specific legislation. With the rise of Bitcoin compromising the traditional fiat currencies, the world saw governments reacting to it in various manners.

Some like Dubai legalized it and proceeded to utilize its underlying technology, „the Blockchain‟ to establish plans for a smart city though some even familiarized their own cryptocurrencies like Venezuela. In any case, for Muslims, another problem of the “Halal or Haram” perspective is available which must be managed for progress in the Muslim world. In existing cases, a few researchers have considered Bitcoin as Haram on the accounts of vagueness and excessive risk included, others have expressed it as Halal proclaiming it be even cleaner than the debt-based fiat currencies we use today (Li et al., 2019; Böhme et al., 2015). Nevertheless, moving beyond Bitcoin, not much literature is available to guide Muslim investors in terms of the other cryptocurrencies and tokens that exist like Ethereum, Litecoin, and Golem.



Scholarly perspectives on Bitcoin vary widely: some deem it Haram due to ambiguity and high risk, while others argue it’s Halal, even cleaner than fiat currencies based on debt.


Understanding Cryptocurrencies


Cryptocurrencies differ from physical or fiat money; they aren’t controlled by banks but by decentralized networks using cryptography. They serve as digital representations of value, facilitating exchange, acting as a unit of account, and storing value. Unlike fiat currency, they lack legal tender status and operate peer-to-peer.


Bitcoin, for instance, utilizes a digital wallet and blockchain for transactions, verified through cryptographic processes.


Bitcoin Halal or Haram?


Islamic finance faces challenges in adopting cryptocurrencies due to compatibility with Shariah law. Key considerations include:


Riba (Interest): Prohibited in Islam, transactions involving interest make cryptocurrencies Haram.

Unlawful Industries: Cryptocurrencies serving industries like gambling or alcohol are deemed Haram.

Gharar (Uncertainty): Transactions involving excessive uncertainty are forbidden; minor uncertainty is permissible.


Furthermore, with the rise of Bitcoin and supported a few people manage it so as to get rich immediately was to be halted with managing this cash to currency at a result and the decision on the authenticity of managing it (Asif, 2018; Polasik et al., 2015).

Humanity managed gold and silver exchange, Dinar and Dirham, paper currency and afterward in a digital currency that exist in banks these days. At present, the virtual currency has emerged, which incorporate the Bitcoin. It is known in financial aspects that there must be three conditions to be known as a currency; the principal condition is to be a mediator acceptable for exchange with the goal that the seller acknowledges it for their products. The subsequent condition is to be a measure by which the value of the commodity can be resolved.

The third condition is to be a reservoir of wealth (Ahmed, 2018; Corbet, 2018; Fry & Cheah, 2016). Moreover, bitcoin and comparative digital forms of money fulfil the money related employments of money – going about as mode of exchange, unit of record, and store of noteworthy worth – and moreover gain status as Islamic cash by being “standard cash”. Shariah notices standard cash as being whatever increases money related status through wide affirmation in the open eye or by government order (Meera, 2018; Corbet et al., 2019).

In Germany, digital currency is supposed as legitimate cash and as such qualifies as bitcoin Islam cash in Germany. In countries, for instance, the US, Bitcoin needs official legitimate financial status yet is recognized for portion at a variety of traders, and thusly qualifies as bitcoin Islam standard cash. A portion of the purposes behind the rise of price are speculations in this currency (Pike, 2018; Luther, 2016).

A few nations have begun to adopt it in the official circulation, expanding new services areas by embracing them as airlines, notwithstanding electronic shops what’s more, money changers that exchanger currency, for example, dollars to Bitcoin and can buy some of them from websites. The most governments on the planet have not yet adopted the Bitcoin currencies forms as a currency of exchange, yet not very many countries, for example, Germany and Japan have routinely permitted Bitcoin to be exchanged and affirmed as a method of payment.

These countries have interests in permitting the currency to exchange and speculate, in the guideline of exchanging and control the movement of this currency (Muedini, 2018; Haddad & Hornuf, 2019; Pieters & Vivanco, 2017). Besides, Bitcoin has become in restaurant, inns, and e-shops around the world. This currency has risks and drawbacks, including the accompanying: The price of Bitcoin is dependent upon fluctuation because of reasons, for example, attacks, serious viruses and the closer of large stores that sell in Bitcoin (Hrnjic & Tomczak, 2020; Peters et al., 2015; Beck et al., 2018).

Likewise, in light of the fact that Bitcoin is customizing with mathematical algorithms, which influences the programming with the impacts we referenced, which can’t be dealt with by people who complain to any party in light of the fact that there is no particular substance liable for objections and claims in this currency. This currency is managed by a network of users and programmers around the world who have made a network for them and are working in this currency.

Despite the fact that the Bitcoin is an open network that any programmers can propose or create or change on the program that the traders work for and the products they have, and this should be effort and professional (Rehman, 2020; Gandal & Halaburda, 2016). Most importantly, the Islamic Canonical Law, unmistakably known as Sharia relies upon the exercises of the Quran and denies certain activities, for instance, affirmation of specific premium which is perceived as usury (Riba) or interests in associations which are contrary to Islamic affirmation for example alcohol. Late enthusiasm for Islamic dealing with a record has rose with even the International Monetary Fund’s official board holding the first since everlastingly exchange on Islamic Banking. Regardless of the way that premium, adventure, and theory in Bitcoin and digital money have continued taking off upward, there remains creating disorder among Muslims – which make up right around a fourth of the total populace – concerning whether Bitcoin and cryptographic types of money fit in with Shariah law (DePietro, 2018; Gandal & Halaburda, 2016; Makarov & Schoar, 2020).

Shariah law is an arrangement of principles sought after by Muslims according to the standards of the Quran and exercises of the Prophet Muhammad, harmony peace arrives. The Islamic reserve portion, which offers money related things to Muslim individuals and Islamic foundations, sticks to Shariah law – clear comprehension of digital money and blockchain continue creating in criticalness as specialists dynamically perceive that blockchain will change each zone of the overall budgetary structure correspondingly the web changed media and dispersing (Singhal & Rafiuddin, 2014; Walch, 2015; Ølnes, 2016).

Furthermore, it is fundamental to comprehend the essential contrast between a cryptocurrency and a token so as to know what one is investing in. Cryptocurrencies are coins that are explicitly made to be utilized as digital currencies, as a medium of exchange (Schilling & Uhlig, 2019; Hockett & Omarova, 2016). Actually, tokens serve as a gathering fundraising tool utilized by start-ups identified with the crypto sphere instead of conventional finance raising methods, for example, venture capital. Tokens are discharged to the public through an Initial Coin Offering (ICO) similarly as shares are given by a public limited company (plc) through an Initial Public Offering (IPO).

The latter is carefully controlled while ICOs have been abused to pull off scams previously. In spite of the fact that this is changing with nations, for example, America placing regulations on how these are directed, the fraud can without much of a stretch be maintained a strategic distance from by due steadiness, consequently it doesn’t conflict with Islam’s standards.

The value of a token relies upon how the organization who issued it in any case is holding request and performing. This can be viewed as possessing a share in an organization, however, with less right, for example, no value, no state in the start-up’s choices and no state toward the path the start-up takes. This additionally complies with the Islamic principles of an investor knowing regarding what they are purchasing with no trickiness included. So, cryptocurrencies are digital currencies while a token is an asset much like a share (MacDonald et al., 2016; Dierksmeier & Seele, 2018).

Above all, cryptocurrencies and tokens in themselves are Halal and further dig into isolating the Shariah-compliant and non-Shariah compliant types. Everything being equal, it is preposterous to expect to assess each and every digital currency or token however by analyzing the protocols that oversee every currency, the intended use instances of each currency and seeing whether the digital currency or token being referred to falls into certain areas, for example, Riba, this paper dives into the angles that would make a cryptocurrency or token haram alongside its subsidiaries, for example, alternatives and futures contracts.


Criteria for Shariah Compliance


Islamic finance principles derived from the Quran and Sunnah dictate permissible investments. Halal cryptocurrencies must avoid Riba, involvement in unlawful industries, and excessive uncertainty. They must comply with consensus protocols compatible with Islamic values.




Cryptocurrencies hold potential but must adhere to Shariah principles to be deemed Halal. As technology evolves, Islamic countries may collaborate to develop Halal cryptocurrencies, supporting trade and finance while ensuring compliance with Shariah. This approach integrates technological innovation with religious principles, fostering acceptance and utility in the Muslim world.


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