Is Bitcoin Halal or Haram? A Critical Analysis of Shariah Objections

is bitcoin halal

There has been a lot of conflicting information about whether Bitcoin is halal – and you’re confused. You do see the value of cryptocurrency and decentralized finance (DeFi) as an alternative to the limitations of traditional finance, but you’re not sure whether blockchain technology is Shariah-compliant. This article hopes to quell the uncertainty and help you feel more confident when it comes to investing in crypto. We will define Bitcoin and its usability, address the Shariah objections on Bitcoin, and answer the ultimate question – “is Bitcoin halal?”

The Beginning of Blockchain

Following the global financial crisis in 2008, Satoshi Nakamoto (a pseudonym), introduced the idea of a digital peer-to-peer (P2P) payment system in the form of Bitcoin and suggested reducing the intermediary role of financial institutions in financial transactions. The system was introduced as an alternative to building trust among the parties of a transaction at a distributed network while maintaining their anonymity, and that too without having a third party to establish that trust. He initiated the idea by developing the Bitcoin system and uploading it as an open-source program in 2009.

The inception of Bitcoin sparked the crypto phenomenon as many people started thinking of introducing decentralized products and services that go beyond the monetary and financial sectors. Now, some of those services have become a full asset class, and “cryptocurrencies” are only a part of it.

There are many types of crypto assets, i.e., NFTs, security tokens, utility tokens, payment tokens, etc. Bitcoin falls under the category of payment tokens/coins or virtual currencies because it is designed and used as such, while other cryptos may have a different design and purpose.

Bitcoin Defined

Some experts define Bitcoin as:

“Bitcoin is a collection of concepts and technologies that form the basis of a digital money ecosystem.” (1)

“Bitcoin is a decentralized digital currency.” (2)

In other words, bitcoin (BTC) is a form of digital cash that uses cryptographic techniques to securely perform transactions on a decentralized network, called blockchain. In this sense, it is a medium of exchange, created and stored electronically on the blockchain, using encryption techniques to control the creation of monetary units and to verify the transfer of funds. It is a privately issued currency that derives its value from the trust of people in the system. A proper categorization of Bitcoin as a currency can be seen in the figure below.

diagram of the categorization of bitcoin

Bitcoin’s Popularity and Usability

People trust the Bitcoin system due to its transparency, security, and decentralized nature. The Bitcoin system is an open-source program that is driven and maintained by the community. The system was set to issue only 21 million bitcoins (BTC) using a proof-of-work (PoW) consensus algorithm.

Bitcoin price was $0 when first introduced and most people obtained it via mining, which only required moderately powerful devices (e.g., PCs) and mining software. The first known Bitcoin commercial transaction occurred on May 22, 2010, when programmer Laszlo Hanyecz traded 10,000 Bitcoins for two pizzas worth $25 only. In July 2010, Bitcoin first started trading, with the Bitcoin price ranging from $0.0008 to $0.08 at that time. As of 12 March 2022, one bitcoin is worth $40,160 with a total market capitalization of more than $763 billion at the current supply of just above 19 million BTC. The daily trading volume of bitcoins exceeds $36 billion, and it holds 41% dominance in the crypto market.

Since the creation of Bitcoin in 2008, it has been the subject of uncertainty, skepticism, hype, and disillusionment. While still early as a technology category, it is now maturing and has demonstrable utility. People can trade/exchange bitcoins at 505 exchanges (as per CoinMarketCap), other than P2P transactions. Many large corporations, i.e., Microsoft, Wikipedia, PayPal, Starbucks, AT&T, Overstock, Amazon, and thousands of small and retail businesses also accept bitcoins as a mode of payment. Many financial institutions and exchanges, i.e., JP Morgan, Goldman Sachs, and Binance have introduced bitcoin-based derivatives, ETFs, and other financial products and services. People can use it for cross-border transactions and foreign remittances as well.

Mixed Shariah Perspectives on Bitcoin

Many Shariah scholars have analyzed Bitcoin from halal and haram perspectives. However, due to its technological complications and innovative approach, their Islamic legal opinions are confusing, or mixed at best. These fatwas clearly show misconceptions, lack of technological understanding, missing out on economic and commercial aspects, and absence of genuine experience in the field. Hence, some fatwa-issuing authorities in Egypt, Palestine, Indonesia, India, Pakistan, Turkey, etc., consider it haram. However, many individual Shariah scholars, i.e., Mufti Irshad Ahmed (Pakistan), Mufti Billal Omarjee (UK), Dr Daud Bakar (Malaysia), Sheikh Nizam Yaqubi (Bahrain), Dr Abdullah Nadwi (United Arab Emirates), etc., who have conducted independent deep research in the area, consider it halal.

Shariah Objections on Bitcoin

Some of the famous Shariah objections and their responses are worth mentioning here.

Non-Existent Object

Some scholars think that Bitcoin is a non-existent currency (due to its digital nature) whose value is imaginary. This objection is based on the lack of understanding of the technology part. Bitcoins digitally exist in the form of tokens on the blockchain. These tokens (or units) are distinguishable, people can electronically store and transfer them. In this way, people can own, possess, save, and exchange them whenever they like. Therefore, it not only means that these tokens do exist but also fulfill the requirements of a property/asset (mal) in shariah. Scholars can see it as a form of intangible and virtual asset. Furthermore, the utilities and benefits of the Bitcoin system give value to its units. Hence, people consider it as a valuable asset for which they are willing to pay $27,341 (current market price as of May 2023) to own it.

High Volatility in Price

Some muftis object that its price highly fluctuates and is unstable. This causes the element of speculation, and even gambling, to occur for the traders. This argument is also flawed because price fluctuation and instability do not necessarily entail gambling. Because gambling, from a Shariah perspective, only occurs when there is a game of chance and a zero-sum game combined in a transaction. While people may gamble using bitcoins, it does not mean that its simple trading or exchange is gambling in nature.

As for the speculation angle, in an active and dynamic market, everything changes its price based on the principle of supply and demand. A businessperson speculates on the price of an object and hopes that it will go up, so he could realize profit by selling that object at a higher price. This type of speculation exists in every business and object. Every businessperson speculates or estimates the price direction because nobody knows the future. Such price volatility can be found even in the value of national currencies on foreign exchange. Such fluctuations cannot be equated to prohibited speculation.

Black Market Activities

Some people argue that Bitcoin is mostly used in illegal activities. It is true that the Bitcoin market is one of the largest unregulated markets in the world. Due to this fact, until 2018, approximately one-quarter of users of Bitcoin were involved in illegal activities. Around USD 76 billion worth of unlawful activities per year involved Bitcoin and other crypto assets (46% of Bitcoin transactions), which was close to the scale of the US and European markets for illegal drugs. However, the illegal share of Bitcoin activities has been declining with mainstream interest in the space and with the emergence of tracing techniques for Bitcoin. According to the Chainalysis 2022 Crypto Crime Report, criminal activities in crypto fell quite dramatically, from 2.1% in 2019 (approximately USD 21.4 billion worth of transfers) to <0.5% in 2020 (USD 10 billion in transaction volume).

Another argument against this objection is that hard cash is also widely used for illegal activities because it is difficult to trace it. But it does not mean that hard cash or a country’s physical currency can be considered haram in its nature. It is an external factor that may not have any relevance to the subject matter – Bitcoin in our case – per se.

Absence of Government Support and Regulatory Ban

The legal stance of Bitcoin has been taking quite a tumultuous ride in various countries, with the ultimate question: to regulate or not to regulate it. While speculation and fake news regarding the topic highly influence the Bitcoin market and its price, many governments are still confused about choosing to decide their path for now.

There are significant differences in the legal premise of crypto assets among the various regulatory agencies. Therefore, the legal categorization and status of Bitcoin and products based on it in various jurisdictions is a huge point of discussion currently. How can the challenge of multi-regional laws be tackled while dealing with Bitcoin? The issues of KYC, tax evasion, terrorist financing, black market transactions, and compliance also need in-depth discussion from the regulatory and compliance perspective.

Some scholars argue that due to the current regulatory and legal uncertainty, Bitcoin should be considered haram. Although the regulatory and legal ambiguity does hold some weight, on such basis, Shariah scholars may suggest that Bitcoin and its usage should be avoided. But such uncertainty does not seem to be sufficient proof to harshly declare Bitcoin completely haram.

Scams and Fraud

Another concern about Bitcoin is the high occurrence of frauds and scams. Many people have become victims of such criminal activities due to the lack of knowledge and adequate understanding of Bitcoin. It can be safely opined that market manipulations, scams, frauds, and various forms of deception are more widespread in Bitcoin. This has also raised a serious Shariah concern.

This is a valid argument because scammers exploit human greed for their own benefit. However, this is not unique to Bitcoin, as we also see frequent frauds in the traditional world. Moreover, it is an external factor that should be tackled separately. Instead of considering Bitcoin as the source of fraud, scammers should be seen as the real culprits. They should be discouraged from criminal activities, rather than banning Bitcoin.

Is Bitcoin Halal?

Blockchain is a Shariah-neutral technology that does not intrinsically have any shariah prohibited element. Moreover, considering Bitcoin’s nature as a digital token, its issuance and distribution also do not involve any haram factor.

It is true that due to various external factors, the overall Shariah status of Bitcoin is not clear to many Shariah scholars. But the right approach should be to objectively analyze Bitcoin from the Islamic law perspective as a subject matter separate from other external factors and to clarify the Shariah ruling based on its nature and utility.

As for the factors negatively influencing Bitcoin, they should be analyzed separately, and the Shariah ruling should be given on a case-by-case basis. For example, when a company commits fraud with people using Bitcoin, the action of the company should be considered as haram, instead of considering Bitcoin as haram.

Invest in Halal Crypto via Sahal Wallet

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(1) Antonopoulos, A. M. (2015). Mastering Bitcoin. Sebastopol, CA: O’Reilly Media.

(2) Franco, P. (2015). Understanding bitcoin. Chichester, UK: John Wiley & Sons Ltd.