Bitcoin: Shariah Compliant?

Bitcoins

The concept of money has been evolving across time. Goods, gold, silver, banknotes, electronic money have all played the role of money. The birth of blockchain technology gave rise to an innovative, decentralised peer to peer payment system called Bitcoin. This gives a glimpse of a futuristic cashless, digital economy. With all the excitement and boom of Bitcoin, the very essence of Bitcoin is still obscure. Is it money? Or a commodity? Or nothing at all? In this research, an interpretive and inductive method is adopted in analysing the primary and secondary sources of Islamic law to identify the principles of defining money in Islamic law. The various scholarly opinions are considered in respect to Bitcoin. Although the opinion that Bitcoin is not Māl (asset) at all has some weight, there seems to be a difference between Bitcoin and other derivatives. This paper reasons that Bitcoin does seem to be Māl (wealth) with Taqawwum (legal value), however, it does not possess Thamaniyyah (currency attributes). Furthermore, the associated risks with Bitcoin, the Maqāṣid al-Sharia framework are considered to determine whether Bitcoin fulfils the Islamic ideals of an Islamic economic function. Bitcoin falls short of fulfilling the principles of the preservation of wealth in Shariah. Bitcoin is further assessed in terms of the principles of Islamic moral economy. A key theme and objective of Islamic moral economy is embedded financing and investments linked to the real economy. Bitcoin and cryptocurrency investments do not serve the real economy and do not promote real growth of an economy. Thus, it was concluded that Bitcoin is not ideal as a long-term investment and neither should the Islamic finance industry consider its use in exchange unless there is a specific need to until a regulated and transparent framework is established. At this current time, Bitcoins are just another investment which are for individual profit maximisation. Nevertheless, returns on Bitcoin investment would be lawful and Shariah compliant according to this understanding. However, the global Islamic finance bodies and expert Shariah scholars are in the best position to offer the most accurate advice.

Our sister company, Amanah Finance Consultancy (www.afinance.org) has published a brand new paper on Bitcoin available on the following link:

Research Paper on Bitcoin – Mufti Faraz Adam

 

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