Mohamad Sawwaf on Islam and Cryptocurrency

Let’s start with the basics for those who have heard this term for the first time. A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. Bitcoin, Ethereum, and Ripple are some of the popular cryptos that are out there and are being used regularly.

Since the advent of these currencies, there has been much debate within the community on whether they are Halal or Haram to invest in, hold, and use. Because they are products of financial engineering and objects of speculation, cryptocurrencies tend to sit uneasily with Islam.

We are by no means Mufti’s (Muslim legal expert who is empowered to give rulings on religious matters) but we hope to shed some light on this topic and assist in allowing you to better understand this topic and hope this will help you make an informed decision.

There is no doubt that together, blockchain and cryptocurrency could bring numerous benefits to Sharia finance. There currently are collaborations happening which are helping build potential new markets and opportunities. These include but are not limited to Islamic financial institutions that have started adopting blockchain technology for complex financing structures, Sharia-compliant insurance (takaful), transactions and others.

If we look back at the principles of Islamic Finance, this may bring us closer to making an informed decision on whether we should incorporate this into our lifestyle. Islamic finance principles, in addition to banning interest (riba) payments, emphasize real economic activity based on physical assets and frown on pure monetary speculation or maisir. Additionally, transactions should be asset-based or backed. And since most cryptos are not backed by any type of tangible asset, it becomes very tough to argue that these are permissible instruments.

There is however a crypto by the name of 1 gram, which claims to be Shariah compliant because each unit of their cryptocurrency is backed by one gram of gold. HelloGold is another cryptocurrency with a similar offering.

It would be safe to say that when assessing whether certain investment transactions, instruments, or vehicles are halal, one should refer back to the main principles of risk sharing, non-exploitation, asset-backed/based, and clear and transparent contracts to decide.