Islamic Arguments against Cryptocurrencies
(Shaykh Dr Sajid Umar, Standing Shariah Committee, Islamic Council of Europe (ICE), Interviewed by Usman Malik)
U: In terms of the evidences of the scholars who say cryptos are haram, they offer a few justifications, and based on my reading, some are auxiliary evidences or arguments, and some are primary. In terms of the auxiliary evidences, then we have the following: Cryptocurrencies are currencies and not a form of asset, and currencies are the right of the state. What are your thoughts?
S: While the second premise may be true, as that is a strong premise from a fiqhi perspective and many of the fuqaha highlight this, the first premise may not necessarily be true. And I shared my reasons earlier as to why it is a distorted currency at this stage of its development today and not a currency; and thus if it is not a currency, the ‘right of the state discussion’ would not apply currently. Accordingly, it can be traded as any form of wealth is bought and sold – with the list of conditions shared earlier – if the conditions for it to be considered wealth (the conditions of maliyyah) apply. Again, we discussed the idea of this term earlier.
U: It is also said that the objective of crypto is to go against the system of the central bank, and this will lead to harm on a mass scale.
S: This reasoning is respectable, and would be applicable if these currencies were viewed to be purely currencies at this stage of their development, and if they did indeed unsettle the monetary policies which ensure a stable economy. In the absence of this harm though, the scope for discussion from a fiqhi perspective would remain open.
U: Another justification used is that the idea of Thamaniyya has not been realised in cryptocurrencies, so they are forbidden.
S: We spoke about this earlier, and in this case it would be forbidden for it to be exchanged and used as a currency. But would this include it being forbidden from being exchanged as a form of wealth as well? If the other conditions of maliyyah apply, and it not being illegal, at the transaction level the rules of exchange are fulfilled. Then from a fiqhi perspective this would not entail a closed case, as there would be further room for discussion.
U: Those who say it is haram mention as a reason that Crypto currencies have no physical real presence.
S: Yes, this has been said, and this reasoning is subjective in terms of perspective even from a fiqhi paradigm; today we consider things to have a tangible physical presence in the real sense (or haqiqi, in the Arabic language), and tangible in the constructive sense (or hukmi, in the Arabic language). It is because of this idea of something being tangible in a constructive sense that scholars have extended the concept of wealth to things that are not physically tangible, like intellectual property, rights to claims, and so on.
As we discussed earlier, based on the current stage of the life of these crypto currencies, whilst thamaniyyah may not apply, the idea of it possessing the characteristics of wealth can be argued effectively.
And even from a fiqhi perspective, if we look at the discussion of the fuqaha (scholars of fiqh), we see that the majority of them considered a usufruct (right to an amenity) as a form of wealth, even though it is not something physical. Yes, the hanafi madhhab differed with the majority of the scholars on this, in that they said that wealth can only be wealth if it is physical. However, if you look at the discussion of Ibn Nujaym al-hanafi for example, and other later specialists of the madhhab and their treatment of the definition of wealth you will find that whilst they did stipulate wealth as being something physical, they left enough room in their wordings to include something considered to be physical in a constructive sense (hukman). Thus, we see the hanafi scholars from Syria, Iraq, Turkey, and the Indian subcontinent permitting the sale of non-tangible items of value today.
Also, we must not forget that upon the view that a currency must be physical, this evidence would apply if it is said that bitcoin and altcoins were actual currencies from a fiqhi perspective.
U: Those who view them as forbidden have also said as part of their reasoning that they are used for money laundering and illegal activity.
S: In this case, the ruling of haram would then apply to the transactional activity and not the crypto itself. For it to be applied to the crypto itself, it would need to be proven that the majority intend it based on illegal intentions from a shariah perspective. And accordingly, sadd al-dhara’i, or the idea of ruling something as forbidden as a preventative measure would apply, as per the fiqh processes of the Maliki and hanbali madhhabs.
That said, the treatment of sadd al-dharai has a different framework of application in the Hanafi and Shafii madhhabs, which would make the discussion of this point more intricate. Perhaps I can complete a writing on this for the Financial Arbitrations Division at ICE in sha Allah.
U: In terms of currencies falling under the jurisdiction of the state, talk us through this briefly – as this seems to be the strongest argument for cryptocurrency being impermissible in the event of it being viewed as a currency.
S: If we look at the discussion of the fuqaha, we see that from a fiqh perspective, the reasoning for this is based on the achievement of maslahah (communal benefit and success) and prevention of mafsadah (communal harm). In terms of the fiqhi discussions and conclusions of the scholars of fiqh we can say that: a) all the scholars of Islam agree that currencies can be circulated by the state to be used as a standard of a measure and a means of exchange, and b) all the scholars agree that it is forbidden for a currency to be released by other than the state if it leads to the mass harm of consuming the economy and people of that society…
However, they differed with the idea of other than the state circulating currencies, if harmful outcomes are not feared. Their views are as follows:
The first view: There is no issue Islamically for circulating a currency without the permission of the state, on the condition that no harm on the economy or its people occurs. This is the reported view of Imam Abu Hanifah, his student Muhammad b. al-Hasan, and Sufyan al-Thawri. However, in some other sources, their views have been restricted to the condition of it being minted in accordance with the criterion of the currency minting of the state.
The second view: This is the view of the majority of the scholars, including Imam Abu Yusuf from the Hanafi madhhab. They say that this is not permissible, even if the currency circulates according to the mandates of the currency of the state. They added that a person who does this qualifies to be punished by the state. In fact, some of the Maliki scholars went as far as saying that being punished by the state also applies to the one who damages the currencies released by the state, even if they are the owners of it.
This fiqhi discussion and perspective is a strong one. It would be applicable if these currencies were to be considered actual currencies, and not just a means of exchange, from a fiqhi perspective.
What is your view on buying cryptocurrencies?
U: You have offered an academic analysis of important parts of the discussion with great insights, but what is your personal view on this matter?
S: Okay firstly, as a disclaimer: this view is not the view of ICE, as ICE does not have an official view on the topic. In fact, among my esteemed colleagues on the ICE Scholarly panel are those who disagree with me on this.
In terms of my view, then I say that based on it being a ‘distorted currency’ and not a currency; I do not see it as Islamically prohibited for someone to go ahead and satisfying their purchase needs if the following conditions are strictly adhered to:
- a person studies the value proposition of a crypto-currency well, has a confident understanding of what it actually is by reading and understanding its white-paper or via any other acceptable means of learning, and then studies diligently how it is purchased and sold appropriately;
- through their financial acumen sincerely reaches a conclusion that the crypto will entail a beneficial investment in the long term, or be the standard of choice for payments in the future, or present a value proposition which the purchaser considers important to their unique world view or needs, despite any possible value crashes in between;
- they have excess funds over and above their financial obligations and requirements towards their Lord, themselves, their family, and their community, and finally
- the purchase is considered legal, and they have no intention of using it for anything illegal (such as money laundering). The permission stands on the condition that the rules of financial transactions from an Islamic perspective are followed in their entirety and the transaction does not fall within the category of israf (excess). And Allah knows best.
To be continued at Decrypting Cryptos – VI: Tokens from an Islamic Perspective
Reproduced with permission from A Master Class on Decrypting Cryptocurrency