Is Bitcoin Halal or Haram? Islamic Finance Professional Reviews - Including Cryptocurrency Checklist
Summary
TLDRThe video explores whether Bitcoin is halal, using a multi-faceted analysis from finance, Islamic law, and digital technology perspectives. The speaker explains that while physical ownership has traditionally been a key concept in Islamic finance, Bitcoin fits within the framework due to its digital utility. Despite its volatility, Bitcoin is an asset that provides value and utility, akin to traditional financial assets. The video concludes that Bitcoin is Sharia-compliant, but highlights the importance of screening other cryptocurrencies for compliance before engaging with them.
Takeaways
- 💼 Bitcoin's Sharia compliance is evaluated by examining Islamic finance principles and its utility as an asset.
- 📜 Islamic law distinguishes between acts of worship (strict rules) and financial dealings (based on principles, not specific prohibitions).
- 🪙 Bitcoin is considered an asset because it provides benefits similar to traditional financial assets like shares, despite not being physically tangible.
- ⚖️ Ownership of Bitcoin fits the Sharia framework as it can be verified and has practical uses, making it valid under Islamic law.
- 🔍 Islamic finance requires that assets have utility, meaning Bitcoin must have a use case or value to be deemed legitimate.
- 💻 Digital products, like Bitcoin and other non-tangible items, are accepted as valid forms of wealth in Islamic finance, as long as they provide benefits.
- 🏦 Defi (decentralized finance) is highlighted as a system that eliminates traditional barriers in finance, and Bitcoin plays a key role within it.
- 🕋 Scholars have identified specific screenings (legitimacy, project, financial, token, and staking) to ensure a cryptocurrency’s compliance with Sharia.
- 📉 Bitcoin's volatility is not a disqualifying factor in Islamic finance, as risk-sharing is an important principle, and volatility is also present in fiat currencies.
- 💰 Bitcoin can be accepted as a medium of exchange in Islamic finance, fulfilling the two necessary criteria: common usage and societal agreement.
Q & A
What is the basis of Islamic financial law when it comes to determining if something is halal?
-Islamic financial law operates on the principle that everything is halal unless specifically stated as impermissible. It is based on principles rather than strict rules, as financial dealings pertain to this world, allowing for flexibility and different practices.
How does the concept of ownership apply to Bitcoin in Islamic finance?
-In Islamic finance, ownership doesn’t always require physical possession. Bitcoin can be considered an asset if it provides benefits like storage or transfer of data. Despite its intangible nature, it can be owned and have value, fitting within Islamic concepts of ownership.
Does Bitcoin have intrinsic value according to Islamic finance?
-Islamic finance doesn’t focus on intrinsic value in a philosophical sense, but rather on utility and benefits. Bitcoin's value comes from its utility within decentralized finance (DeFi), much like how fiat currencies derive value from the backing of institutions.
Why do some scholars argue against Bitcoin being a currency?
-Some scholars argue that Bitcoin lacks the characteristics of a traditional currency, such as being a stable store of value and a reliable medium of exchange, primarily due to its volatility.
How does Islamic finance view the volatility of Bitcoin?
-Islamic finance does not prohibit risk; in fact, risk-sharing is a key component. While speculative risk is prohibited, the volatility of Bitcoin is not inherently impermissible, as volatility exists in fiat currencies too. What matters is the Sharia compliance of the current transaction.
Does Bitcoin qualify as a medium of exchange in Islamic finance?
-Yes, Bitcoin can qualify as a medium of exchange in Islamic finance if it fulfills the two criteria: common usage and mutual agreement among people. These are left to humans to determine, making Bitcoin potentially valid as a currency.
Why is Bitcoin's decentralized nature important in Islamic finance?
-Bitcoin’s decentralized nature means it is not controlled by any central bank, government, or individual. This decentralization aligns with the evolving understanding in Islamic finance, where a central authority controlling currency is no longer seen as essential.
How does Islamic finance justify the absence of government control over Bitcoin?
-Traditionally, Islamic finance viewed government control as essential to ensure the welfare of society. However, with decentralized technologies like Bitcoin, where transactions are validated by a network of users, this requirement is seen as outdated.
What are the key screenings for determining if a cryptocurrency is Sharia-compliant?
-Sharia-compliant cryptocurrencies must pass several screenings: legitimacy (to ensure the project is not a scam), project compliance (to meet Sharia standards), financial criteria, token compliance, and staking mechanism compliance.
Is Bitcoin Sharia-compliant according to the analysis presented in the transcript?
-Yes, based on the analysis, Bitcoin is considered Sharia-compliant. It passes the tests for ownership, utility, and compliance with Islamic financial principles.
Outlines
🔍 Exploring Bitcoin in Islamic Finance
The speaker approaches the question of whether Bitcoin is halal by using a multi-faceted perspective based on their experience in finance, technology, accounting, and Islamic finance. The main point is that, unlike worship-related matters in Islamic law, which are strict and precise, financial transactions are based on principles that everything is halal unless explicitly prohibited. The analysis focuses on how Bitcoin fits into the broader Islamic Sharia framework, particularly in regard to ownership, which is more complex in digital finance.
📊 Bitcoin's Ownership and Financial Asset Status
This section delves into whether Bitcoin can be classified as a real asset under Islamic law, which requires ownership of a tangible or beneficial item. While physical ownership has traditionally been the norm, the speaker argues that digital assets like Bitcoin can still meet the criteria of ownership because they provide financial benefits, such as storage or transfers, within the decentralized finance (DeFi) infrastructure. This section also compares Bitcoin to other financial assets, like stocks, to show how ownership in finance differs from non-financial assets.
💰 Utility and Intrinsic Value in Islamic Finance
Here, the speaker explains that Islamic finance requires any asset, including Bitcoin, to have utility and a strong use case to be considered halal. Unlike commodities or precious metals that have intrinsic value due to their use, Bitcoin's value comes from its ability to provide financial benefits. While intrinsic value is often a philosophical debate, Islamic finance focuses on practical utility. The speaker emphasizes that Bitcoin, like fiat currencies, provides a medium of exchange without needing intrinsic value, aligning with Islamic principles.
✅ Sharia Compliance of Bitcoin and Cryptocurrencies
This section outlines the various screenings used to determine whether a cryptocurrency, including Bitcoin, is Sharia compliant. The screenings include legitimacy, project, financial, token, and staking screenings. Bitcoin passes these tests, but the speaker warns that not all cryptocurrencies are Sharia compliant and urges caution for those exploring other digital assets. The section highlights the differing scholarly views on whether Bitcoin can be considered a currency, particularly due to its volatility and its role as a store of value.
💼 Risk and Volatility in Islamic Finance
The speaker tackles the issue of Bitcoin's volatility and the perception that it does not qualify as a legitimate store of value. In Islamic finance, risk is not prohibited, and in fact, risk-sharing is a key element of permissible financial transactions. While Bitcoin may have higher volatility than fiat currencies, this does not make it inherently impermissible. The section emphasizes that as long as Bitcoin is used within the Sharia framework at the time of the transaction, future uncertainties do not invalidate its use.
💱 Bitcoin as a Medium of Exchange
This paragraph discusses the validity of Bitcoin as a medium of exchange under Islamic law. The speaker references the Hanafi school, which states that a currency is valid if it is commonly used and agreed upon by people. Bitcoin was designed as a peer-to-peer payment system, and while it may not be universally accepted, it does function as a legitimate currency in certain contexts, fulfilling the necessary criteria. Decentralization allows Bitcoin to operate independently of any central authority.
🏛️ Decentralization and Islamic Currency Requirements
This section explains how the traditional Islamic finance rationale, which required a central government to control currency, is no longer applicable with decentralized digital currencies like Bitcoin. Bitcoin's decentralized network operates through a transparent, distributed ledger that maintains the validity of transactions without government oversight. This decentralized control is presented as a modern equivalent to government oversight, aligning with Islamic principles of fairness and transparency in currency management.
📚 Conclusion: Bitcoin’s Sharia Compliance
The speaker concludes that Bitcoin is Sharia compliant based on its utility, decentralized nature, and ability to serve as a legitimate asset within the DeFi system. They reiterate that while Bitcoin meets the necessary criteria, not all cryptocurrencies do, and individuals should be cautious. The video wraps up by suggesting viewers watch a related video on Islamic fatwa rulings to further understand the process of making these decisions.
Mindmap
Keywords
💡Bitcoin
💡Sharia compliance
💡Ownership
💡Utility
💡Decentralized Finance (DeFi)
💡Volatility
💡Medium of exchange
💡Intrinsic value
💡Risk
💡Decentralization
Highlights
Islamic financial law is based on principles, and everything is considered halal unless explicitly stated as impermissible.
The concept of ownership in Islam is not restricted to physical items, as financial assets like shares also hold value despite not being tangible.
Bitcoin, as part of the decentralized finance (DeFi) infrastructure, fits into the Islamic framework of ownership as it provides benefits, like storage, transfer of data, and purchasing power.
Bitcoin is recognized as an asset under Sharia law because it has utility and can provide benefits to its users.
Islam doesn't require intrinsic value for money; rather, it emphasizes utility and the benefits derived from it.
While some scholars argue that Bitcoin's volatility makes it unsuitable as a currency, risk is an inherent part of Islamic finance.
Islamic finance emphasizes risk-sharing, meaning the presence of risk does not make Bitcoin impermissible as long as transactions are Sharia-compliant at the time of use.
Bitcoin's volatility is compared to fiat currencies, which also experience fluctuations, although to a lesser degree.
The Hanafi school of thought in Islam suggests that a valid currency requires common usage and agreement among people, which Bitcoin fulfills.
Bitcoin was created as a peer-to-peer payment system, and its acceptance as a form of payment in certain places supports its legitimacy as a medium of exchange.
The decentralized nature of Bitcoin eliminates the need for a central government to control or regulate the currency, which shifts the traditional view of currency legitimacy in Islamic finance.
Decentralized networks, like Bitcoin, validate transactions through cryptographic protocols, making the traditional role of banks and governments redundant.
Bitcoin’s transparency and the inability for any single entity to control it align with Islamic principles of fairness and risk-sharing.
The requirement for a government to control currency is now outdated due to digitalization and decentralization.
Bitcoin passes multiple Sharia-compliant screenings, including legitimacy, project compliance, and financial criteria, making it a valid financial asset under Islamic law.
Transcripts
is Bitcoin Halal so this wasn't a
straightforward question but luckily I
had a few unique skills to call upon
when coming up with a decision instead
of approaching this from one angle I
used my experience of working in finance
working in big Tech being a chared
accountant as well as being qualified in
Islamic Finance to come up with an
answer with the first of the four erors
I looked at being the digital angle so
firstly when it comes to Islamic Loyd
matters regarding worship this is very
particular strict and precise and that's
because it's related to the Hereafter
everyone around the world throughout
history has been given the same
conditions and requirements to achieve
the best life in the Hereafter however
when it comes to Islamic law related to
transactions and financial dealings the
law is based on principles with the
foundation being everything is halal
unless it is said it is impermissible
now the Islamic Financial law framework
is wide because it's related to this
world and so God has provided leeway to
us to take into account different
practices and Norm so when it comes to
bitcoin it's not about some specific
point that's been mentioned in the Quran
but more so if Bitcoin fits into this
General Sharia framework and the first
point that Scholars have looked into is
if Bitcoin is real because of the Hadith
which stipulates you cannot sell what
you don't own so for the most part of
human history the majority of ownership
has been physical which made this easy
to understand we've got assets such as
cars mobiles phones books all of which
we can hold sell and also derive benefit
from and so it begs the question how can
something such as Bitcoin fall under
this ownership criteria when there's no
chance you will ever see it in your
hands well Tak it a step back not being
able to see something doesn't imply it's
not there we all know there's air around
us even though we can't see it and we
can also perform tests and view the data
to verify and prove that it's around us
as well as the different elements in the
air in other words even though we can't
see something it can be proved that
exists now coming back to bitcoin this
topic falls under the world of finance
and finance has its own laws you see to
facilitate the spread of Finance rules
such as physical ownership and the
definitions of ownership don't fully
extend to it for example if you own
$11,000 worth of trainers you can wear
them you're deriving benefits from them
and in the same thinking it's possible
to own $1,000 of Apple shares and this
will be classified as our assets however
just because you own $11,000 of Apple
stock it doesn't mean you can go into
any Apple Store and walk out with a
Macbook we actually own when having
those $1 $1,000 of Apple stock is a
claim against a company so the benefits
of financial assets are different to
what you'd consider with non-financial
assets but whether an asset is physical
or digital it has to have the ability to
give you a benefit in other words there
has to be a reason to want it now the
traditional method of Finance has always
known to have high barriers to entry
High fees Financial exclusion delay of
transactions and that's just to name a
few of its problems this is where defi
comes in which seeks to get rid of all
of those barriers to entry the point of
this isn't to explain what defi is but
rather to mention to succeed in having
defi you need to incentivize people to
take part in it you need to give them
something and this is what crypto assets
aim to do this is why it is an asset and
there is a reason why people would want
to obtain Bitcoin if you need to look at
the infrastructure of defi you'll come
to see that there are equivalent bricks
and water assets to it just like
traditional financing you've got crypto
assets blockchains and smart contracts
each of these give you either storage
transfer of data or can be used for
purchases in other words Bitcoin which
is part of the defi infrastructure fits
into the point and concept of ownership
as you have a reason to own it and you
can benefit from it as well by
performing any one of those mentioned
points so we understand Bitcoin is an
asset and we can therefore come claim
ownership of it however Islamic Finance
requires you to have assets where there
is a strong use case for it in other
words does it have
utility so utility is referring to the
value of something in other words there
has to be some intrinsic value that
people give to an item for it to be
legitimate you can use Commodities as
their value can be derived from their
use you can use precious metals as their
values can also be derived from the
usage but what about Bitcoin what is the
the intrinsic value of that so intrinsic
value is actually a philosophical
concept and Islam doesn't really care
about philosophy it cares about the
actual utility and the benefits
something can provide to its users when
we think of Fiat money the dollars the
pounds the Euros utility isn't because
those papers are valuable it's because
they represent intrinsic value that the
country and its institutions will remain
there and guarantee their perceived
value but in Islam money has no
intrinsic value it's only a medium of
exchange the Quran or Sunnah never
defined any characteristics or
conditions of what money should have and
at the end of the day Sharia is not
fixated on the form something takes but
based on as mentioned earlier the
principles and framework for it to be
beneficial for the economy there's many
digital products which will never be
tangible but provide great benefits
these include digital books digital
videos as well as digital currencies and
the scholars have no issue with
non-tangible items being a form of
wealth things such as electricity or
Goodwill and accounting aren't
necessarily physical items but they all
have been recognized as wealth and
Bitcoin is also included in this
category that being said not all crypto
assets are Sharia compliant covering the
criteria for what makes a cryptocurrency
Sharia compliant are the following
screenings legitimacy screening ensuring
that crypto assets is a genuine product
and not a scam project screening
ensuring that the project is Sharia
compliant Financial screening ensuring
that it meets the financial criteria if
it is an equity based token token
screening understanding the share
compliance of the token and staking
screening understanding the Sherer
compliance of the staking mechanism and
whilst Bitcoin passes these tests if
you're thinking of getting involved with
other cryptocurrencies these are the
screening you'll have to go through to
take into
account starting with a disclaimer this
is probably the area with the most
competing views on the one side you've
got Scholars who don't see Bitcoin as a
currency they say if you look at the
characteristics of currencies Bitcoin
doesn't possessed them they don't see it
having a store of value due to its
volatility a medium of exchange or be
used as a payment for transactions or
settling debts so tackling these points
the lack of value due to its volatility
is a strong argument in my opinion risk
is not prohibited in Islam in fact if
you go back to the fundamentals of the
Islamic Finance risk is a core component
risk sharing is something that an
investor has to make sure exists when
they're getting involved in a project if
there is no risk in other words 100%
guaranteed profits then that would be an
impermissible project to be involved in
in Islam now speculative risk risk where
it's akin to gambling or isn't sh
complied but volatility exists in Fiat
currencies as well just because Bitcoin
has higher volatility than say the pound
or the dollar this doesn't make it have
an excessive risk component in it
another angle that people may look at
bitcoin's risk is well you don't really
know what's going to happen to Bitcoin
in 10 years time it might actually
become worthless again that's true for
everything but specifically Islamic
Finance doesn't care about the future in
that sense as long as in the current
period when utilizing Bitcoin there are
clear terms of trade and the transaction
and usage that you're doing right now is
within the Sharia framework then that's
all that matters the future is always
down to the markets and so we never know
if anything will perform in the future
now when it comes to being a medium of
exchange the Quran hasn't actually said
any specific criteria for what a
currency should have for example the
hanafi school says for a currency to be
valid there's only two criteria that are
required common usage and for people to
agree on it how these two points are
fulfilled God has left to us to
determine and in the end humans will
always figure out what is valuable and
what isn't and lastly people forget
bitcoin's Origins Bitcoin was made as a
peer-to-peer payment system being
involved with Bitcoin means you're
accepting this there are places where
Bitcoin payments are accepted and it's
even possible to have your salaries paid
via Bitcoin and so this addresses the
last two points very easily just because
it's not accepted everywhere is
irrelevant after all not every currency
is accepted in every location around the
world what decentralization means is
Bitcoin is not under the control of any
Central Bank
nor is it in the hands of any one person
government or regulatory body to verify
supplies and transactions now earli in
the video I did cover some of the
barriers to entry that traditional
Finance has and Islamic Finance does
have some rules around the requirement
that some sort of central body usually
governments should exist when it comes
to currency and its Supply the logic
behind this was that the government
exists to look after Society overall it
won't have a profit motive and nor will
it be used to benefit an individual or a
small Elite of group of people and when
a government achieves this in a
particular currency Islamic Finance
agrees that this now becomes the
legitimate currency so how does Bitcoin
fit in here after all there is no
government that controls it well this
view of the government deciding the
legitimacy of a currency was held for a
very long time in Islamic Finance
however with the digitalization and the
impact of decentralization this has all
changed you see Bitcoin is built on a
decentralized network of computers which
has the singular purpose of validating
and clearing transactions on the Bitcoin
Network the distributed and
decentralized network allows each
individual user to verify the validity
of individual transactions and the
system as a whole throughout the
cryptographic protocols and the
transaction history of the Bitcoin
Network in other words the old
requirements for the need of a
government controlling currency no
longer exists no one can create cait
Bitcoins as the D data of all Min
Bitcoins is available for all of view no
one needs to control the money supply as
Bitcoin has its own formula to release
Bitcoins at set intervals no Bank needs
to keep transaction records as every
user involved on the blockchain has
access to all of this and this is via
the Bitcoin Network and lastly nothing
can be corrupted by any one individual
as everything surrounding Bitcoin is all
based on maths and controlled by an
objective decision making process as a
result of this the Islamic Finance
rationale for governments to control
currencies has to now be retired having
review these four points it's clear
Bitcoin is Sharia compliant and if you
want to learn more about how rulings are
made in Islam and the different methods
Scholars come to fatwas I've already
made a video on this topic which I leave
next to me so go check that out and I'll
see you all in the next video
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