Is Crypto Halal or Haram?

Uncover the Truth

Every practicing Muslim, such as yourself, is on the quest for differentiating between Halal and Haram.

We, Muslims, legit don’t eat a single bar of chocolate without being sure if it is Halal.

When we can’t consume something as little as a chocolate, how can we get involved in a new concept such as Cryptocurrency before being clear on the subject of it being Halal.

This reveals our Emaan. This reveals that we are thoughtful. This reveals that we hold ourselves accountable of our actions.

This does not mean we are lagging behind in the world.

And that’s what I love about Muslims.

So, this is what I am here for. I am here to set your heart at ease and clear your mind about any ambiguity of Crypto being Halal or Haram.

Sit tight because you and I are going to cover this issue point-by-point!

What do you mean by Islamic Finance?

Islamic finance is guided by the principles of Sharia law, derived from the Quran and the sayings of Prophet Muhammad.

Unlike traditional finance, where some financial activities are deemed halal (allowed) and others haram (prohibited) for religious reasons.

Understanding what is strictly Haram

• Charging interest, or riba, on loans is haram as it exploits the borrower and favors the lender.

• Speculative behavior, or maisir, is also haram as it generates wealth through chance and is considered unproductive.

• Businesses engaging in prohibited activities such as selling pork, alcohol, or tobacco are haram.

Okay, now let’s discover what is Halal

• Equity finance (Mudarabah): You deposit funds with a bank which invests in projects/businesses. Profits are shared between the bank and you in a pre-agreed proportion.

• Leasing (Ijara): In Islamic finance, leasing uses assets without ownership. The customer pays a rental fee and the asset reverts back to the owner at the end of the lease.

• Profit-and-loss-sharing joint ventures: Two parties fund a project/business and share profits/losses based on a pre-agreed ratio. Both parties share the risk of investment and participate in its success.

• Islamic contract forwards (Salam and Istisna): Customers purchase goods/services in future at a fixed price, today. Payment is made in advance, and delivery is deferred. This helps customers lock in prices and plan/budget for future expenses.

In Islamic finance, money has no intrinsic value and making money from money through activities like lending is haram.

Wealth can only be created through legitimate investments and trade. Risk must be shared and investments must benefit society socially and ethically.

What is Crypto?

A lot of people out there who declare crypto haram are not even fully aware of what it is so first let’s have a basic overview.

Cryptocurrency is like virtual money that people use to buy things online.

• Cryptocurrency operates on blockchain technology, which is a decentralized and a secure ledger system that keeps track of all transactions i.e. who has how much money.

• The value of a cryptocurrency depends on how many people are using it and accepting it as a trade-able asset.

• Some cryptocurrencies are linked to real-world activities, such as education, where students where students can pay or receive rewards in the form of the network's token

• Reputable new crypto offerings aim to create a network that provides real value to its users and establishes the coin's worth beyond just speculation.

4 conditions that verify Crypto as Halal

The Islamic Economic Forum argues that a cryptocurrency is permissible as long as it has "Māl" and does not breach Islamic prohibitions on contractual uncertainty, interest, and gambling and

Māl refers to things that you can own or have. These things can be physical, like a car, or they can be rights, like the right to use a property.

For something to be considered Māl, it must be something that you would want to have and that you can keep or store, such as wealth, property, or possessions.

This is how Cryptocurrency fairs in these 4 categories:

1. Contractual Uncertainty

According to Sharia law, a contract is valid if there is a consideration, known as Mal.

For a contract to be considered halal, there must be an exchange of a real asset that can be owned, possessed, stored, and traded. As cryptocurrencies are real digital assets, some Islamic scholars consider them halal.

2. Absence of Interest (Riba)

Islamic finance prohibits interest.

As cryptocurrencies do not charge interest, some Islamic scholars believe they are halal.

3. Gambling and Illegal Activity*

Cryptocurrencies are speculative in nature, but some experts argue that all financial assets are speculative to some extent.

The key factor is the motive of the investor. If the goal behind investing in crypto is to earn wealth or use it as a store of value, then it is considered halal.

4. Māl

Cryptocurrencies are digital assets that can be stored in digital wallets, traded on exchanges, and used as a medium of exchange.

These attributes make cryptocurrencies a desirable and storable form of Māl, and thus they can be considered halal according to Islamic law.

*Illegal Activity Concerns

Using a halal object for haram purposes does not make the original object itself haram (referring to scammers). Scholars argue that if a Muslim is using cryptocurrency for the purpose of investing, no ethical codes are being broken.

So, here’s what we drew from context

• Cryptocurrency is considered to be in compliance with Sharia principles.

• It is viewed as a true currency or digital asset by Sharia policy.

• Muslim traders are advised to assess each individual crypto project to determine its halal status. Therefore, I always conduct in-depth on every crypto project before investing in it.

• Cryptocurrency's absence of interest, or riba, makes it less controversial than traditional high-interest loans.

The halal or haram status of crypto depends on how it is used, with purchasing allowed goods without the intention of profit being considered permissible.

24 Halal and 1 Haram Top Projects

This is my take on Cryptocurrency being Halal or Haram, followed by some really pressing points. To keep myself secure, I research crazily before investing and I would suggest you do the same!

Because truly Allah is All-knowing and Most Merciful. May He forgive our sins committed due to lack of knowledge!

On that note,

Allah Hafiz from Zain and Hafsa from team Inspired Analyst!

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Disclaimer: Please note that this information is based on research and is not intended to be taken as religious or financial advice. We are not scholars and cannot give authoritative opinions on the matter. This information should be taken as a reference only and investors are advised to do their own research and consult with relevant experts before making any investment decisions. We cannot take any responsibility for the consequences of any investment decisions made based on this information.