In recent months, there have been several fatwas from Islamic leaders declaring cryptocurrency to be incompatible with Sharia Law. According to a new research paper from Blossom Finance Sharia advisor and compliance officer Mufti Muhammad Abu Bakar, however, digital currency not only meets the Islamic definition of money but is compliant with Sharia requirements as well.
In his paper, the author notes that Egypt’s Grand Mufti, religious authorities in Turkey, the fatwa center of Palestine, and UK scholar Shaykh Haitam have all issued fatwas or opinions declaring cryptocurrencies like Bitcoin prohibited under Islamic law. He identified five “common reasons of prohibition” that those decisions have cited to justify that conclusion:
“a) Bitcoin is not a legal tender
b) Bitcoin’s issuer is unknown
c) Bitcoin has no central authority or government backing it
d) Bitcoin is highly speculative and not stable
e) Bitcoin can be easily used for money laundering and illegal purposes”
The author’s research paper addresses each complaint, effectively arguing that the naysayers have it wrong. He concludes that Sharia does not require legal tender status for money – only that any chosen monetary unit be accepted by the people. He then argues that the identity of Bitcoin’s issuer and its lack of central governance do not make it less trustworthy than other currencies and cites historical examples of nations that saw wealth destroyed by governments and banks.
He also dismisses the arguments about cryptocurrency’s speculative nature and its potential misuse by criminals. As he notes, other accepted forms of money and value are also speculative at times and are commonly used for illegal activities. He reasons that Sharia would effectively prohibit everything from the U.S. dollar and Euro to gold and silver if those same standards were applied in a consistent manner.
He concludes by asserting that cryptocurrency’s permissibility should be defined based on the local regulatory environment and identifies three specific types of regulatory environments. Those jurisdictions include areas where cryptocurrency usage is expressly forbidden, areas where the regulators have yet to decide its legality, and areas where the authorities have legalized digital currency.
The author concludes that Sharia law would only bar Muslims from using cryptocurrency in areas where the authorities had banned it:
“From Shariah point of view, it is permissible in the last two types of jurisdiction to deal with bitcoin and other qualified cryptocurrencies. However, the preservation and protection of wealth is one of the fundamental objectives of Shariah (Maqasid al-Shariah). Therefore, it is necessary for cryptocurrency users to take care of its related risks.”