Is Bitcoin halal?

Whether or not Bitcoin is halal has been a point of contention for many Muslims, as well as several Islamic banks and financial authorities in recent years.

This has left many Muslims worried about investing in cryptocurrencies—particularly during times of extreme growth—since they couldn't be sure whether the appreciation of their investment would be considered haram (forbidden) or halal (permissible) under Islamic law.

With around 1.9 billion Muslims in the world, equivalent to almost a quarter of the world's population, a clear consensus on the Islamic view of Bitcoin could be a major boon for adoption.

Bitcoin is (mostly) halal, say scholars

According to Islamic Law, there are a number of criteria that individuals must adhere to, in order to ensure their investment or other income is considered halal. For one, income obtained through unethical or exploitative means such as bribery, extortion, and profiteering is considered haram. It would be challenging to argue that simply using Bitcoin as a standard payment method would violate this tenet.

As of yet, there are still no clear official guidelines on whether Muslims should or shouldn't invest in Bitcoin. This task would fall on the legislators that codified the religious precepts of Islam, but such an undertaking has yet to be completed. Despite this, a number of Islamic scholars have offered their interpretation of the Islamic Canonical Law and how it applies to Bitcoin.

Perhaps the most comprehensive of these interpretations was published by former Shariah Advisor to Blossom Finance, Mufti Muhammad Abu-Bakar. His report, which was last updated in December 2019, argues that all currencies are speculative to some degree due to the nature of supply and demand; since fiat currencies, gold, and most other financial instruments are permissible under Sharia, so too should Bitcoin be.

Likewise, though there is an argument that Bitcoin is sometimes used for illegal purposes, Mufti Muhammad Abu-Bakar argues that this does not render Bitcoin itself illegal, and posits the following analogy to demonstrate this:

"In general terms, the use of something lawful for an unlawful purpose does not make the thing itself unlawful. Unanimously, the four Sunni schools of thought permit the lawful sale of grapes. Malekis and Hanbalis consider the sale of grapes to a wine merchant invalid, whereas Hanafi's and Shafe'is merely discourage such sales."

In a 2019 podcast with Radio Finance International, UK-based Islamic finance and fintech consultant Mufti Faraz Adam was enthusiastic about Bitcoin's potential to create a system that "works in favor of the people." He added: "It's fair, it's just, it's transparent, it's atomized, it's not monopolized. Then, I don't see why Shari'a would prohibit this system."

Certain Bitcoin uses are considered haram

Although most uses of Bitcoin can be strongly argued to be halal, there are several popular uses that are almost certainly haram.

One of these is gambling. Since gambling, in general, is forbidden under Sharia law, so too is gambling with Bitcoin. Some also extend this to cryptocurrency trading, since many cryptocurrency traders are effectively guessing their way through the market—which could be considered to be gambling.

Other, more recent uses for Bitcoin may also be considered haram, including its use in margin and decentralized finance (DeFi) lending. Since earning interest (or paying) interest on loans is considered "riba" or unjust, individuals would not be able to charge interest on loans or receive a Bitcoin loan if interest is charged. This essentially means that using Bitcoin (or more specifically, Wrapped Bitcoin) with most DeFi protocols is probably haram.

An Arabic paper written by Shaykh Haitham al-Haddad sheds further light on why some Islamic scholars might consider Bitcoin and other cryptocurrencies to be haram. In it, Shaykh Haitham al-Haddad argues that since Bitcoin isn't backed by anything and has no central authority to enforce its value, it isn't permissible as a currency. However, he states that a gold-backed cryptocurrency would be permissible since it inherits the properties of gold.

According to Coinfluencers founder Jamal Aezaz, identifying whether an intended Bitcoin use is haram is a simple as considering whether the same use for fiat currencies would also be impermissible:

"There is a general misconception that anything related to Bitcoin is haram," said Aezaz. "This stems from the fact that Bitcoin is a cryptocurrency rather than a currency issued by a central bank. However, like fiat currencies, simply holding Bitcoin as a means of payment and store of value are perfectly halal. Beyond this, using Bitcoin for any purpose that would be considered haram with fiat currency would also be considered haram with Bitcoin."