Is Bitcoin Halal or Haram? Islamic Finance Professional Reviews - Including Cryptocurrency Checklist

Summary

The 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

00:00

🔍 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.

05:02

📊 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.

10:03

💰 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.

Keywords

💡Bitcoin

Bitcoin is a decentralized digital currency that operates without the need for a central authority, such as a government or bank. In the context of the video, Bitcoin is analyzed through an Islamic finance lens to determine if it is Sharia compliant, particularly regarding its ownership, value, and functionality as a currency within the decentralized finance (DeFi) ecosystem.

💡Sharia compliance

Sharia compliance refers to financial and business practices that align with Islamic law. In the video, the speaker explores whether Bitcoin adheres to Islamic principles by examining its characteristics, such as ownership, utility, and risk, within the framework of Sharia financial rules. Bitcoin is ultimately deemed Sharia compliant after meeting these criteria.

💡Ownership

Ownership is a central concept in Islamic finance, which requires that individuals must own something to sell or trade it. The video discusses whether Bitcoin can be considered a legitimate form of ownership, despite being intangible. The speaker compares Bitcoin to other financial assets like stocks, which, while non-physical, still provide benefits and thus satisfy ownership requirements in Islamic law.

💡Utility

Utility refers to the usefulness or value that an asset provides. In Islamic finance, for something to be considered legitimate, it must have utility or intrinsic value. The video addresses whether Bitcoin has utility, concluding that it does because it enables decentralized financial transactions, offers a store of value, and functions as a medium of exchange.

💡Decentralized Finance (DeFi)

DeFi is a financial system that operates on blockchain technology without intermediaries like banks. In the video, DeFi is discussed in relation to Bitcoin, which plays a key role in this ecosystem by providing a decentralized, peer-to-peer payment system. The speaker highlights how DeFi removes traditional barriers to entry in finance, offering accessibility and lower costs.

💡Volatility

Volatility refers to the degree of variation in the price of a financial asset over time. Bitcoin is often criticized for its volatility, which some argue makes it unsuitable as a currency. However, the video suggests that risk, including volatility, is not prohibited in Islamic finance as long as it is not excessive or akin to gambling. Bitcoin's volatility is seen as a manageable risk.

💡Medium of exchange

A medium of exchange is an instrument used to facilitate the sale, purchase, or trade of goods between parties. The video debates whether Bitcoin qualifies as a medium of exchange under Islamic finance principles. The conclusion is that Bitcoin can function as a medium of exchange, even though it is not universally accepted, because it meets the criteria of common usage and mutual agreement.

💡Intrinsic value

Intrinsic value refers to the inherent worth of an asset, independent of external factors. In the video, Bitcoin's intrinsic value is questioned, but the speaker clarifies that Islamic finance does not require money to have intrinsic value. Instead, Bitcoin's utility as a decentralized currency and its ability to facilitate financial transactions give it value within the framework of Islamic finance.

💡Risk

Risk in Islamic finance involves uncertainty that is not excessive or akin to gambling. The video distinguishes between acceptable and unacceptable risks, with Bitcoin's risk being considered acceptable. The speaker notes that Islamic finance encourages risk-sharing in investments, and Bitcoin's risk due to its volatility is not inherently impermissible as long as the terms of trade are clear and Sharia-compliant.

💡Decentralization

Decentralization refers to the distribution of control and decision-making away from a central authority. Bitcoin operates on a decentralized network, meaning no single entity controls it. The video discusses how this decentralization aligns with Islamic finance, which traditionally favored government oversight of currency but can now accommodate decentralized systems like Bitcoin due to technological advancements.

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