Introduction

Bitcoin has revolutionized finance as a decentralized, peer-to-peer digital asset. As Muslim investors seek to align their investments with Shariah principles, a key question arises: Is Bitcoin halal?

In this article, we explore Bitcoin through the lens of Shariah and Islamic finance, drawing from detailed research.

Bitcoin as an Asset in Shariah

The first question we should ask from the Shariah or Islamic Fiqh perspective is: Is Bitcoin an asset or not in the eyes of Shariah?

The answer is: Bitcoin qualifies as “Māl” (wealth, property, or asset) according to Islamic jurisprudence. Because, it is desirable, valuable, digitally storable, distinguishable, and tradable, fulfilling the basic criteria for an asset (Māl)​ in the traditional Islamic law. It can be digitally owned and constructively possessed, and it can be transferred from one person’s ownership to another. It can also be bought, sold, and used as a medium of exchange, like other assets. With these features, Bitcoin fulfills the Shariah criteria of an asset. Therefore, Bitcoin is considered an asset or property (Māl) in Shariah.

Since Bitcoin, being a virtual asset, does not have any physical existence, some Shariah scholars might have confusion regarding the recognition of a digital or intangible asset in Shariah. This is just a confusion, not a real Shariah issue. Shariah does recognize virtual asset as part of intangible assets category. Shariah recognizes utility, services, rights, usufruct and benefits as intangible assets, by virtue of the same, digital assets can be accepted as well.

For example, International Islamic Fiqh Academy of Organization of Islamic Cooperation (IIFA-OIC)[1] in its Resolution No. 43, 5/5, issued in 1988, recognizes different types of rights as a form of assets in Shariah. Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)[2] in its Shariah Standards No. 42, iterates the same opinion.

Bitcoin is Halal as a Digital Asset

Once it has been established that Bitcoin qualifies as an asset (Māl), the next Shariah question is whether it is a permissible (halal) or impermissible (haram) asset. In Islamic law, the governing legal maxim states:

“The basic principle regarding things is permissibility until evidence proves otherwise.”[3]

Applying this principle to Bitcoin, if there is no haram intrinsic or essential element within Bitcoin itself, it is deemed halal. Upon analysis, Bitcoin’s issuance, mining process, and underlying blockchain technology do not involve any prohibited (haram) elements. Therefore, Bitcoin, as a digital asset, is permissible (halal) under Shariah.

Some may raise concerns about the significant price volatility of Bitcoin, suggesting that this fluctuation indicates Gharar (uncertainty), which could potentially render it impermissible. However, this argument is incorrect, because it fails to distinguish between external market price fluctation and the nature of the asset itself. In Islamic jurisprudence, it is a well-established principle that:

“Gharar must exist in the principal subject matter of the contract itself to affect its validity. If Gharar relates to something ancillary and not the main purpose of the contract, it does not invalidate the contract.”[4]

In the case of Bitcoin, the asset itself — Bitcoin — is clear, identifiable, and tradable. Price volatility is an external market factor, not a defect or uncertainty within Bitcoin’s essence as an asset. In other words, Gharar is not an attribute of Bitcoin. Thus, there is no inherent Gharar in Bitcoin that would affect its permissibility under Shariah.

For an in-depth discussion on the topic of Gharar and cryptos, click here.

Risks and Ethical Considerations

Some scholars have noted some other concerns, like use in illegal transactions, lack of regulatory frameworks, etc. However, these risks pertain to usage and environment, not to the inherent nature of Bitcoin itself. Moreover, these issues are not uniquely related to Bitcoin, these issues persist with other different assets as well.

For example, the United Nations Office on Drugs and Crime estimates that up to 5% of the global GDP, roughly US$2 trillion annually, is laundered, with a significant part in cash. On the other hand, the illicit share of all crypto (including Bitcoin) transaction volume during 2017-2022, was not even over 2% of the market capitalization of the whole crypto. In actual numbers, crypto-related crimes volume in USD was not more than US$6 billion. In this sense, USD cash is more criminal friendly than Bitcoin, but we do not see any fatwa declaring the use of USD as haram.

Lack of regulatory framework is also not a valid Fiqhi reason to declare Bitcoin haram, because lack of regulations is more of an administrative or governance issue, instead of a pure Fiqhi issue. Based on this, the most Shariah scholars could say is to suggest people to avoid dealing in it due to high risk. But it cannot be simply declared haram on this basis, because for declaring something haram, jurists need clear textual evidence from the sources of Shariah for such a strong verdict.

Of course, the regulatory landscape is also rapidly evolving. Now many regional and national regulatory bodies are seriously developing frameworks for regulation, legal, and governance aspects of cryptos. For example, USA, Canada, UK, Australia, EU, Singapore, UAE, and many other countries have implemented comprehensive legislation for regulating crypto assets. Due to these developments, the Shariah opinion for cryptos should also change, because:

“لا ينكر تغير الأحكام بتغير الأزمان”

“The change of [Shariah] rulings with the change of times [or situation] is not to be denied.“[5]

Final Verdict: Bitcoin is Halal (Shariah-Compliant) with Conditions

Bitcoin, as a digital asset, is halal (Shariah-compliant) under Islamic principles. Moreover, it should be treated as a currency in Shariah. Meaning that the rules of currency exchange (Al-Sarf) are also applicable on it.

Likewise, spot transactions — the buying and selling of Bitcoin with immediate transfer of ownership and possession, without involving leverage (margin trading), derivatives, or contracts-for-difference (CFDs) — are also permissible.

In addition, Muslim investors must ensure that:

• Their Bitcoin transactions are conducted through lawful (halal) means.
• They avoid haram activities, such as interest-based lending, the purchase of impermissible goods, or engagement in illegal transactions.
• They exercise caution against excessive risk-taking, including activities such as options trading, futures contracts, and leveraged trading, which introduce elements of Gharar (excessive uncertainty) and Maysir (gambling).

By adhering to these principles, Muslim investors can engage with Bitcoin in a manner that remains aligned with Shariah.

[1] The International Islamic Fiqh Academy (IIFA) was established in January 1981 as a universal scholarly organization by the Organization of Islamic Cooperation (OIC). Its members are eminent Muslim jurists, scholars, and intellectuals who specialize in jurisprudential, cultural, scientific and economic fields of knowledge from different all around the world. They study contemporary life issues, performing an authentic and effective Ijtihad, aiming at providing solutions stemming from Islamic heritage and open to the developments of Islamic thought.

[2] AAOIFI, established in 1991 and based in Bahrain, is the leading international not-for-profit organization primarily responsible for development and issuance of standards for the global Islamic finance industry. It has issued a total of 100 standards in the areas of Shariah, accounting, auditing, ethics and governance for international Islamic finance. It is supported by several institutional members, including central banks and regulatory authorities, financial institutions, accounting and auditing firms, and legal firms, from over 45 countries.  Its standards are currently followed by all the leading Islamic financial institutions across the world and have introduced a progressive degree of harmonization of international Islamic finance practices.

[3] «القواعد الفقهية وتطبيقاتها في المذاهب الأربعة» (1/ 190):

«الأصل في الأشياء الإباحة حتى يدل الدليل على التحريم»

[4] «الموسوعة الفقهية الكويتية» (31/ 151):

«يشترط في الغرر حتى يكون مؤثرا في صحة العقد أن يكون في المعقود عليه أصالة. أما إذا كان الغرر فيما يكون تابعا للمقصود بالعقد فإنه. لا يؤثر في العقد. ومن القواعد الفقهية المقررة: أنه يغتفر في التوابع ما لا يغتفر في غيرها» الأشباه والنظائر لابن نجيم ص121 ط دار الهلال، الأشباه والنظائر للسيوطي 120 ط دار الكتب العلمية 1983م.

[5] Majallah Al-Ahkam Al-Adaliyyah, Clause 39.