Is Crypto Halal, or Haram? What Muslim Investors Need to Know
Cryptocurrencies have emerged as a popular trading and value storage asset over the past decade, with interested investors across the globe, including in the Muslim world. Many predominantly Muslim countries, as well as those with significant Muslim minorities, now feature high rates of cryptocurrency ownership, with the United Arab Emirates (UAE) being the absolute leader in rankings as of 2024. According to the same data, Turkey boasts the third-highest ownership rate, while Singapore, which has a sizable Muslim minority representing around 15% of its population, is in the second position. The UAE and Singapore have also emerged as leading cryptocurrency and blockchain technology hubs.
Despite considerable interest in crypto in the Islamic world, there's still a large degree of uncertainty over its halal status, a key consideration for many Muslim investors. Some countries — for example, the UAE and Saudi Arabia — have issued warnings about the Shariah-compliant status of cryptocurrency and/or crypto trade. However, no country has banned crypto outright on these grounds.
Adding to the confusion, many Islamic scholars have arrived at varying interpretations of the nature of cryptocurrency. Some scholars have opined that crypto is haram (not permissible for Muslims), while others have issued advisory notes broadly endorsing the majority of cryptocurrencies, including Bitcoin (BTC). Due to this difference of opinions, and the absence of any single centralized ruling, many investors are uncertain whether crypto is halal — i.e., permissible for Muslims.
This article covers key points in the ongoing discussion to help you decide whether any cryptocurrencies can be considered halal assets.
Key Takeaways:
Cryptocurrencies are typically used to secure the operations of decentralized networks — blockchains — and to facilitate interest-free digital value storage and transfer.
Islamic scholars have differing opinions on whether crypto is halal or haram, with many providing qualified approval depending upon the specific crypto asset in question and its particular functionality.
Muslim investors are advised to look at the properties of each specific crypto trading or investment product in order to ensure that it’s free from interest, and involves no uncertainty or speculation.
Understanding Cryptocurrency
Cryptocurrencies are digital assets issued and used on blockchains, decentralized networks on which the issuance, transfers and storage of these assets are protected through a cryptographic security mechanism. In a typical blockchain, many independent user nodes protect the operations and integrity of the network through a decentralized consensus mechanism. This decentralized consensus, as well as independence from a central controlling entity, makes these networks and their cryptocurrencies a viable alternative to traditional banking systems.
The world's first (and still largest) cryptocurrency is Bitcoin, the native digital asset of the Bitcoin blockchain that was launched in 2009. A few years after its introduction, Bitcoin was being traded on platforms beyond its native network, such as centralized exchanges (CEXs) and, later on, decentralized exchanges (DEXs) based on other blockchains. By now, thousands of cryptocurrencies are in existence, and these digital assets form an important asset class within the broader finance ecosystem.
On their native blockchain platforms, cryptocurrencies serve as assets for value transfer and storage, and also contribute to keeping their respective blockchains secure and functional so that these networks can operate in a decentralized way. All crypto operations on blockchains are publicly viewable, upholding the transparency ethos of blockchain technology. On CEXs and DEXs, cryptocurrencies can be used for value transfers and storage, as well as for trading to generate profit.
Shariah Law and Islamic Finance
To define whether cryptocurrency is halal for Muslim investors, a firm understanding of Shariah and its specific subset, Islamic finance, are imperative. Shariah defines the overarching set of principles, regulations and laws that guide Muslims' personal, moral, ethical, legal and economic behavioral standards and obligations. Among the fundamental tenets of Shariah law are justice and fairness in all dealings, correct worship practices, good morals and behaviors that Muslims must follow, public and personal health and cleanliness standards, cooperation and solidarity among members of the society, and worship and societal transaction standards.
The last mentioned element of Shariah law — worship and transaction standards — includes a subset of rules and regulations dealing with financial transactions, practices and ethos. These laws and regulations form the body of the Islamic finance principles that Muslims must follow. Some of the fundamental principles of Islamic finance include the prohibition of interest (riba); excessive uncertainty (gharar); and gambling/speculation (maysir). In addition, there’s a proscription against activities that don't result in tangible value for the individual and society. Key principles also include transparency in dealings, and maintaining fairness and ethical standards in all transactions.
Many of the key characteristics of cryptocurrency align with the major principles of Islamic finance. This includes the absence of interest in crypto transactions, the use of cryptocurrency for secure value storage without speculation or excessive uncertainty, and the transparent nature of blockchain-based crypto operations.
Islamic Scholars’ Views on Cryptocurrency
Islamic scholars have not formed a unified view on whether cryptocurrency is either halal or haram. Some scholars or institutions consider it haram. For instance, Turkey's Directorate of Religious Affairs (Diyanet) stated back in 2017 that crypto is haram, due to its potential for speculative use (i.e., maysir). Another high-profile opinion on this matter came from the former Grand Mufti of Egypt, Dr. Shawki Allam, who said that crypto trading may be haram due to its unregulated nature and potential to be used for funding illicit activities.
However, many other Islamic scholars and institutions assessing the Shariah compliance of financial products take a more nuanced approach. For example, the Shariyah Review Bureau, a popular Shariah compliance consultancy that operates the Shariyah.net portal, assesses the halal status of each cryptocurrency individually based on its use cases and functions.
In general, the Bureau assigns the haram classification for lending and borrowing decentralized finance (DeFi) crypto projects like AAVE (AAVE), GameFi apps like Axie Infinity (AXS) and meme coins with zero utility, such as Dogecoin (DOGE). For most other cryptocurrencies, including Bitcoin, it typically endorses the halal classification. The advantage of the Bureau's approach is in its detailed and selective nature of assessment. Instead of treating all crypto assets and platforms as one and the same, the Bureau examines the details of each asset.
Some scholars and institutions have largely endorsed crypto in general as halal. One of the U.K.'s leading Islamic law scholars, Mufti Abdul Qadir Barkatullah, has maintained that cryptocurrency is halal because it’s evolved into a widely accepted form of value exchange. This aligns with an earlier ruling specifying that if an asset has been widely accepted as a legitimate form of payment in society, it should be treated as halal.
Another leading Islamic scholar, Mufti Muhammad Abu Bakar, takes an in-depth look into cryptocurrency, Bitcoin and blockchain in general in his working paper, concluding on the basis of his extensive review that cryptocurrency is halal.
So, Is Cryptocurrency Halal — or Haram?
How can Muslim investors make confident investment decisions concerning these digital assets in an environment of varying opinions on crypto's halal status? In general, it's recommended that prospective traders or investors take a selective approach and look at the features and functionality of each crypto asset and product they might consider. Cryptocurrencies and blockchains differ substantially in terms of their properties. Some, like the crypto tokens of DeFi platforms on which interest features prominently, aren't likely to be viewed as halal by anyone.
Many other crypto coins, however, aren't related to interest-generating solutions, and their transfers and storage involve no interest (riba), uncertainty (gharar) or speculation (maysir).
Some cryptocurrencies represent tokenized versions of real-world assets (RWAs). These are directly based on tangible assets that may exist beyond the crypto world, such as real estate, stocks and bonds. Depending upon their origin, these assets may align well with the principle of tangibility in Islamic finance, which stipulates that any economic activity should be based on real assets and the generation of real-world value.
When it comes to crypto trading — as opposed to the basic operations of transferring and storing funds — the halal status of cryptocurrencies might be less certain, depending upon the actual trading product used. The same asset (e.g., Bitcoin) might be used in crypto trading and investment products that involve no riba, and feature low probability of uncertainty or speculation. These products might qualify as halal. On the other hand, if the same crypto asset is used in an interest-bearing or highly volatile trading product, it's unlikely to be aligned with Islamic principles. As such, a decision often depends upon the precise product features, rather than the underlying cryptocurrency itself.
Is Bitcoin Halal, or Haram?
Bitcoin is by far the largest cryptocurrency by market capitalization, and typically features volatility levels that are significantly lower than those of most other crypto assets. Its high trading volumes and reputation as a secure value storage asset contribute to its lower volatility and, therefore, lower uncertainty than that of lower-cap cryptocurrencies.
Bitcoin also features the valuable utility of being used as a secure and private peer-to-peer (P2P) exchange asset. Moreover, Bitcoin is a deflationary cryptocurrency, with a maximum supply limit of 21 million tokens. This characteristic is designed to avoid excessive supply inflation, and to reduce the likelihood of its devaluation. Such a deflationary feature arguably adds stability to Bitcoin, further enhancing its potential acceptance as a halal asset.
As a vehicle of value exchange and wealth storage with deflationary characteristics, Bitcoin itself — unless used in specific interest-bearing or highly volatile crypto products — might be deemed halal, a view that is shared by the assessment of the Shariyah Review Bureau (among other institutions).
Other Notable Shariah-Compliant Cryptocurrencies
Ethereum (ETH)
Ether (ETH) is the second-largest crypto by market cap behind Bitcoin. It's used to secure the operations of the Ethereum blockchain, and may be used for digital value transfers and storage, similar to the way the BTC coin is used on the Bitcoin blockchain. ETH provides tangible value as a secure wealth exchange and storage asset in a decentralized environment. As such, unless it's used in specific interest-bearing or highly volatile crypto trading products, ETH might qualify as a halal asset.
It should be noted that the Ethereum blockchain hosts a variety of decentralized apps (DApps), many in the DeFi niche. Certain DeFi apps on Ethereum are actively involved in interest-bearing lending, borrowing and yield management operations. However, these DApps normally use their own crypto tokens — e.g., AAVE or COMP — for these operations, rather than the ETH token.
Tether (USDT)
Tether (USDT) is a stablecoin cryptocurrency that maintains a tight peg to the U.S. dollar. While it ranks behind BTC and ETH, taking the third position in market cap rankings, USDT is the world's most traded crypto asset. Its stable peg to the greenback has largely been successfully maintained since Tether’s launch in 2014, which makes it a highly popular asset for crypto-to-fiat operations. The coin's near-perfect stability and backing by the world's most popular fiat asset makes it an RWA that is likely to be considered halal.
Solana (SOL)
SOL is the native crypto coin of the Solana blockchain, Ethereum's major competitor in the niche of DApp-capable blockchains. Solana aims to provide a platform for DApps that’s cheaper and faster than Ethereum. In general, SOL performs exactly the same functions on Solana as ETH does on Ethereum: digital value transfers, value storage and securing the network via its proof of stake (PoS) block validation mechanism. Similarly to BTC and ETH, SOL is likely to be considered a halal asset unless it’s used in specific interest-generating or highly speculative crypto products.
XRP Ledger (XRP)
XRP is the native cryptocurrency of the decentralized public XRP Ledger. The token is used primarily to support B2B payments and settlements. As a cryptocurrency that enables efficient and secure digital currency payments in the business world, XRP provides real utility, arguably bolstering its viability as a halal asset.
Polygon (POL)
Polygon (POL) is an ecosystem of decentralized platforms and solutions that primarily provides cost-efficient and scalable ways to conduct crypto operations on the Ethereum blockchain. The ecosystem's native crypto asset, POL, is used to secure the functioning of these platforms through a decentralized consensus mechanism. It can also be used for secure digital asset transfers and storage. POL’s functions are largely similar to those of ETH and SOL within their respective environments, increasing the likelihood that POL is to be considered a halal asset.
Concerns and Controversies
The use of cryptocurrencies raises specific concerns from the perspective of Islamic finance. Many crypto trading activities involve excessive volatility, which may lead to uncertainty (gharar). There are also instances of crypto products supporting speculative activities that may qualify as being maysir.
Additionally, while most blockchains are publicly viewable (which contributes to better transparency), the actual identities of address holders remain anonymous. This might raise ethical concerns with regard to the legality and ethics of funds circulating on the blockchain. Some might also argue that the digital nature of cryptocurrencies could contradict the Islamic finance principle of all economic activity being based on tangible assets.
Islamic Finance and Cryptocurrency
Despite these concerns, it's important to remember that cryptocurrency is designed simply for the secure storage and exchange of value while promoting the independence and decentralization of blockchain platforms. This in itself provides tangible value to the concept of cryptocurrency. Importantly, by default, crypto transactions involve no interest (riba), and they operate away from traditional banking systems in which riba is a heavily utilized mechanism.
As such, depending upon the actual trading or investment product involved, cryptocurrencies may selectively be considered to be assets aligned with core Islamic finance principles.
Closing Thoughts
Since there's no central governing body that provides a definitive and all-inclusive fatwa (ruling) on cryptocurrencies' halal status, Muslim investors need to look into the specifics of each product and crypto asset they might consider. If the cryptocurrency or the product it's based on is free from riba, involves no excessive risk and isn't based on speculation, it might comply with Shariah principles. Additionally, Muslim investors might further consider specifically designed Shariah-compliant cryptocurrency products, such as Bybit's crypto Islamic Account, to ensure that they take advantage of crypto opportunities without violating the principles of Shariah.
Disclaimer: Due to varying opinions on Shariah compliance of crypto trading, we recommend you to conduct your own further research. Please note that the posts on Bybit Learn should not be considered as fatwa. Our aim is to present information on different topics to empower readers to make informed decisions.
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