Is It Permissible to Trade Bitcoin and Cryptocurrencies in Islam?

Answered By Shaykh Dr. Muhammad Fayez Awad

Question

What is the ruling on dealing with digital currencies like Bitcoin?

Answer

All praise is due to Allah, Lord of the worlds. Blessings and peace be upon the Master of the Messengers, his Family, and all his Companions.

Definition and Characteristics

Cryptocurrencies are a new development that contemporary scholars have examined to determine their ruling and the permissibility of dealing with them. Several Islamic jurisprudential bodies have issued fatwas declaring it impermissible to engage with these currencies.

To understand this ruling clearly, it is essential to first define these currencies before discussing their ruling.

Electronic Money

This refers to digital currency stored as electronic data on a smart card or hard drive, allowing the owner to transfer ownership to others without the need for a bank account. [al-Athar al-Naqdiyya wa al-Iqtisadiyya wa al-Maliyya li al-Nuqud al-Iliktiruniyya]

Cryptocurrencies (or virtual, encrypted, or digital currencies) come in various forms. The debate about their legality and usage continues, and they cannot be given a singular, blanket ruling. Therefore, a detailed analysis based on specific considerations is necessary. These considerations are summarized as follows:

First: Characteristics of Cryptocurrencies

Cryptocurrencies share several characteristics, the most important of which are:

• They are produced programmatically within an encrypted digital environment, and transactions involving them are conducted electronically. Unlike tangible currency, they have no physical presence.
• They are decentralized and not issued under any recognized legal authority or government supervision. They are characterized by a lack of clarity regarding their origin and production. In contrast, traditional currencies are a symbol of sovereignty and political authority.
• There is no standard reference for their valuation or regulation of market liquidity.
• Cryptocurrencies are not backed by gold, a basket of currencies, foreign reserves, or any other traditional economic assets that usually underpin a currency’s value and strength. Thus, they lack intrinsic value, are not governed by established financial laws or regulatory oversight, and their valuation in the market is not grounded in economic principles. They are essentially encrypted electronic figures and forms produced by specific software with no direct connection to established economic and monetary principles.
• Cryptocurrencies are surrounded by numerous risks and clear ambiguities. The absence of legal recognition and regulatory frameworks for their trading and oversight means they can be used in dubious electronic transactions. This makes them an attractive market for illegal currency traders, international criminal syndicates, and money laundering operations. Their decentralization significantly contributes to this risk.

Another major risk is their reliance on the internet. Any technical glitch in the network or the presence of hackers could result in the loss of these virtual currencies.

Second: Scholarly Rulings on Cryptocurrencies

Based on the aforementioned considerations, many reputable scholars have issued the following rulings:

• Dealing with cryptocurrencies, like Bitcoin, in their current form is prohibited. This is due to the numerous risks and reasons for prohibition, such as ambiguity, uncertainty, and suspicion of gambling-like elements.
• There is conditional permissibility if risks are mitigated. If these currencies were issued by central banks or trusted institutions, recognized as having value through clearly defined mechanisms, and accompanied by clear regulations to prevent misuse and fraud, their use could be permissible. Some countries have started to adopt such frameworks. In such cases, dealing with them would be allowed, provided they remain free from usurious or other prohibited elements.
• Despite the prohibition on dealing with these currencies, if they are treated as having value by those who produce and trade them, they may be subject to the rulings related to actual money. This includes the occurrence of riba (usury) and the obligation of zakat on them if they meet the necessary conditions. [Fatwa al-Majlis al-Islami al-Suri]

Academic References

This topic has been discussed in various scholarly assemblies and academic theses, such as:

• Muhammad Ibrahim al-Shafi‘i, “al-Nuqud al-Iliktirūniyya” (Electronic Money), Journal of Security and Law, Dubai, 12th year, Issue 1, January 2004.
• Sarah Multaq Al-Qahtani, “al-Nuqud al-Iliktruni Hukmuha al-Shar‘i wa Asaruha al-Iqtisadiyya” (The Legal Ruling on Electronic Money and Its Economic Impacts), PhD Dissertation, Kuwait University, 2008.
• Statement from the Islamic Economy Forum (Muntada al-Iqtisad al-Islami).
• Decisions of the Islamic Fiqh Academy, Muslim World League, 2004.
• Statement from the Islamic Economy Forum on Bitcoin, published on the Encyclopedia of Islamic Economy and Finance website.
• The website of the Jordanian Fatwa Department.
• The website of the Egyptian Fatwa Department.

We ask Allah to grant us lawful and doubt-free sustenance and to remind ourselves of the Prophet’s (Allah bless him and give him peace) saying:

“Leave that which makes you doubt for that which does not make you doubt.” [Ibn Jarud; Ibn Khuzayma; Ibn Hibban; Abu Dawud]

All praise is due to Allah, Lord of the Worlds.

[Shaykh] Dr. Muhammad Fayez Awad

Shaykh Dr. Muhammad Fayez Awad, born in Damascus, Syria, in 1965, pursued his Islamic studies in the mosques and institutes of Damascus. A graduate of the Islamic University of Medina in 1985, he holds a Ph.D. in Islamic Studies from Bahauddin Zakariya University in Pakistan.

He has extensive experience developing curricula and enhancing the teaching of various academic courses, including conducting intensive courses. Shaykh Awad has taught Fiqh, Usul al-Fiqh, Quranic sciences, the history of legislation, inheritance laws, and more at several institutes and universities such as Al-Furqan Institute for Islamic Sciences and Majma‘ al-Fath al-Islami in Damascus.

He is a lecturer at the Sultan Muhammad al-Fatih Waqf University in Istanbul, teaching various Arabic and Islamic subjects, and teaches at numerous Islamic institutes in Istanbul. Shaykh Awad is a member of the Association of Syrian Scholars, a founding member of the Zayd bin Thabit Foundation, a member of the Syrian Scholars Association, and a member of the Academic Council at the Iman Center for Teaching the Sunna and Quran.

Among his teachers from whom he received Ijazat are his father, Shaykh Muhammad Muhiyiddin Awad, Shaykh Muhiyiddin al-Kurdi, Shaykh Muhammad Karim Rajih, Shaykh Usama al-Rifai, Shaykh Ayman Suwaid, Shaykh Ahmad al-Qalash, Shaykh Muhammad Awwama, and Shaykh Mamduh Junayd.