Is Crypto Haram or Halal?

Late last year, Indonesian Muslim clerics ruled that “Using Cryptocurrency” is Haram (Forbidden) for Muslims due to its speculative nature. But does crypto really violate Islamic law? Is it ok for Muslims to invest in crypto?

Islamic Finance

Islamic finance is finance and banking activity that complies with Sharia, or Islamic law, Sharia prohibits usury, or interest being paid on loans of money, and investment in businesses which provide goods or services considered contrary to Islamic principles such as selling pork or alcohol. Other prohibited activities include gambling, and financial activities which involve excessive risk or causing others to do the same. 

Quran 2.275

The financial activities of Sharia compliant enterprises are regulated by various Sharia boards in different Muslim countries, although sharing a common goal, their rulings often do not agree on every point.

Which Cryptos are Haram?

Some activities within the cryptocurrency market are clearly forbidden by Sharia law. Lending platforms that charge interest or platforms based on derivatives for example. Moez Mahrez, founder of the blog halal.investor, is a Muslim graduate of McGill University with a major in Economics and a minor in Psychology. He is also a Chartered Financial Analyst. In this tiktok video he explains which cryptos are haram and to be avoided such as AAVE, FTX, Synthetix, Celsius, Compound, and Yearn Finance.

Some Muslim clerics see trading crypto as taking part in gambling, much like the stock market, taking on excessive risk is haram (Forbidden). Short selling (Borrowing an asset to sell), has the property of usury, Margin trading (Borrowing money to buy an asset) all appear to violate Sharia law. 

What Purpose does Sharia Finance Serve?

The Islamic Finance rules are designed to improve fairness in the economy, and protect followers from taking on excessive risk. For example, Islamic loans are designed to share the risk between the borrower and the issuer, for example, Musharaka al-Mutanaqisa, is a popular type of financing for major purchases such as housing. In it, the bank and purchaser (customer) have joint ownership of a purchased asset with the customer also leasing the asset. As the customer gradually pays off the cost, the bank's equity share diminishes from all but the customer percentage of downpayment to nothing. If the customer defaults and the asset is sold, the bank and the customer split the proceeds according to each party's current equity. 

In 2020 the total size of the Islamic Banking sector had a growth rate of 4.3% year on year and reached over 2.7 trillion USD in total assets. While Islamic banking is still largely regional in terms of market share and overall size, it now accounts for over 6% of the global banking market.

The Pro Crypto Argument

Many Muslims believe that crypto is Halal, this makes sense because there is nothing fundamentally unethical about crypto, it is simply a mathematically secure unit of exchange. Some even believe it is MORE compliant with Islam than fiat currency, due to fiat currency being based around debt. Cryptocurrency can also help to remove the middleman in financial transactions. 

Co-founder of investing hub ‘Islamic Finance Guru’, an Islamic investment blog, Ibrahim Khan who holds a BA in Philosophy, Politics, and Economics from the University of Oxford, an ijazah in the memorization of the Quran from Egypt, and an MA in Islamic Banking and Finance from Markfield Institute has created a Halal cryptocurrency guide and gives the top 5 reasons why Muslims should invest in crypto:

5 Reasons Muslims Should Invest In Crypto Now

1. Crypto is just getting started

2. It has fantastic returns

3. No brokers means better rates for everyone

4. Blockchain tech has real potential

5.The top 5% are taking it very seriously

The Situation in Indonesia

Despite the ruling by the Indonesian National Ulema Council, Indonesia has the seventh-largest crypto user base, below Brazil and Pakistan. It is estimated that there are 7.2 million Indonesians who own cryptocurrencies.

Indonesia Blockchain Association

Bitcoin (BTC) is legal in Indonesia as a commodity and can be traded on crypto exchanges. Early this year, the Indonesian Commodity Futures Trading Regulatory Agency (BAPPEBTI) issued a whitelist of legal crypto assets for trading in Indonesia. 

This whitelist consists of 229 crypto assets, including Bitcoin, Ether (ETH), Polkadot (DOT), Cardano (ADA) and the popular memecoin Dogecoin (DOGE), that are allowed for trading on registered exchanges. 

In Conclusion

Crypto just like any form of asset can be used for both good and sometimes immoral acts. The rulings issued by religious authorities are meant to protect people from potential harm caused by fraud or risky financial decisions. If you want to trade crypto and comply with Sharia finance it’s worthwhile to dig a little deeper and find an ethical and morally righteous way to invest.

Crypto has been popular among muslims since its inception and that popularity is only increasing.

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