Islamic Finance Blog & Articles
How Does Islam See Money?
Islams view money or any form of wealth as something to be invested for society's benefit. They view anything of value as money, as long as it can be traded, whether in food or valuable metals such as gold and silver, it can be considered money. Islamic views of money all align with Shariah or Islamic Law.
Definition of Currency in Islam
Islams view any item as currency, as long as its value is not arbitrary. Money itself does not have any inherent value, whereas it is only a unit of measurement to be converted into something of actual value. If it can be traded for something of similar value without adding anything else, it can be called currency.
What is cryptocurrency?
A cryptocurrency is a form of digital money, which has been around since 2009. It is managed by a decentralized system instead of a financial figure, and its value is protected by cryptography. Since it isn't governed by financial institutions such as banks, peer-to-peer trading is possible without employing a third party to act as a middleman for the transaction. It does not have an assigned value; instead, its value is determined by demand. Much like regular currency, its value is also determined by its exchange rate in the online market.
Is crypto halal or not?
There are several arguments regarding cryptocurrency being halal or not. First, halal means "allowed" or "lawful," It has been a long-standing debate in the Muslim community whether Muslims should participate in cryptocurrency trading.
Shariah dictates that for something to be considered halal, it has to fulfill three conditions:
1. The item to be traded must have a kind of monetary value, or "thamaniyyah." It is definable by its value's stability and its transaction management.
2. It must also have legal value, or "taqawwum," which is considered halal.
3. It should also be considered as property, or "maal." It should be something that can provide socio-economic justice and stability for man.
If we look at cryptocurrency, it fulfills half of the three conditions. First, it has legal and monetary value, but it cannot be considered property. Second, it represents value, but in itself is not valuable. Third, it is not stable, and there is no transaction management by a fixed financial institution. An invisible system manages cryptocurrency instead, which, like any other system, can be destabilized at any given time.
So, is cryptocurrency halal? Here are a few arguments on why cryptocurrency may or may not be Shariah compliant.
Arguments on why Crypto may not be Halal
With the rise of bitcoin came the questions from the Muslim community. Cryptocurrency value skyrocketed, and of course, our business-minded Islam brothers wanted in on the action. But not being able to fulfill the Shariah mandate of being an effective and efficient form of payment can make it non-halal. Here are some reasons why cryptocurrency cannot be Shariah compliant.
1. It cannot be considered an asset because it does not have a fixed value; therefore, trading can be tricky. Additionally, there is no financial institution or government to certify its value, and Muslims highly value the legality of an asset.
2. In line with the topic of legality, cryptocurrency is highly susceptible to fraud and theft. Without strong enough cybersecurity, crypto coins can easily be stolen by hackers.
3. In Shariah, it is haram (unlawful) to trade without equal value. Cryptocurrency is used in margin trading, which allows proof of stake. Your coins are locked up for a certain period, and when you get them back, you receive a reward to add to your coins. In Islam, loaning money and expecting a reward for lending it is highly unlawful. Charity is the only acceptable form of lending money.
4. In addition to the first argument, cryptocurrency fluctuates at a highly irregular rate, and traders are unsure what its value will be in the next minute since it is unstable. This proves that cryptocurrency cannot be an effective form of payment, thus not Shariah compliant.
Arguments on why Crypto can be considered Halal
Before proceeding with why bitcoin can be halal, we must first remember that not all cryptocurrencies are created equal. Looking at this form of currency objectively can generate many opportunities since it's not always about interests and instability. Let's delve into the reasons for cryptocurrency being Shariah compliant.
1. Since 2018, bitcoins have been widely accepted as a form of payment, equal to fiat or paper money. Companies such as Coke and Paypal consider bitcoin as a legitimate form of payment. Since Shariah law dictates that as long as the people widely accept it, it can be regarded as money.
2. As mentioned earlier, Muslims value the legality of an item to be traded or exchanged. Therefore, cryptocurrencies may not be managed by banks and governments. Still, blockchain technology, the system on which bitcoin runs, is kept and managed, has its own laws and rules, which other technologies cannot circumvent.
3. Shariah dictates that using something in a haram act does not make that thing haram. So, regardless of how other people use cryptocurrency in itself, it is not unlawful. Furthermore, since some Muslims have used cryptocurrency in transactions, it is not viewed in itself as haram.
Is cryptocurrency halal in Singapore?
In Singapore, fiat currencies occur in the form of Singapore dollars. However, Pergas, says that bitcoin can be accepted as a means of exchange since it is widely accepted. Moreover, since the Islamic statutory body is not explicitly against cryptocurrency, it has helped several Muslims in their financial investments and transactions in Singapore, contributing to the general welfare of the country's economy.
Shariah does not explicitly say that cryptocurrency is halal or haram. Instead, it just warns the Muslim community to be aware of the risks it presents and to be cautious against temptation and greed.