Due to the entry of Iranians into the digital currency market, and despite the fact that a specific legal protocol has not yet been determined for them by the authorities, the issue of whether or not digital currencies are halal has been discussed by many people in recent years.
This has worried many Muslims about investing in digital currencies because they cannot be sure whether the profits and rewards of their investment are considered haram (forbidden) or halal (permissible) according to Islamic law.
Despite the majority of our country’s Muslim population, a clear consensus on the Islamic view of digital currency can be an advantage, so many people are looking for clarification on whether digital currency is halal from an Islamic point of view and in accordance with Sharia or not.
What is cryptocurrency?
Cryptocurrency is a form of virtual currency that is based on blockchain technology. Cryptocurrency is a digital asset and the vast majority of digital currencies are based on decentralized networks. This means that currencies exist outside of centralized structures such as governments and banks.
Blockchain makes it virtually impossible for the system to duplicate, hack or cheat and acts as a centralized currency ledger. Digital assets like Bitcoin are still relatively new assets in global financial markets.
How does cryptocurrency work?
All crypto coins are virtual coins that exist in the crypto market and have no physical form. Real proof of legal ownership of digital money is recorded in blockchain technology. Blockchain acts as a public record that records the digital growth of coins and the value of each coin.
Cryptocurrency works by recording transactions in a ledger and creating blocks. The ledger is available 24/7 and cannot be changed or overwritten. Cryptocurrency is nearly impossible to counterfeit, and all computers storing blockchain technology must agree to an exact version of the ledger. When anyone buys a digital currency like Bitcoin, they have a private key that provides them with a code that authorizes digital currency transactions.
The development of Sharia-compliant digital currency guidelines provides an opportunity for Muslims to make ethical investments.
Islam’s view on the history of money
The history of money from an Islamic perspective can be traced back to the beginning of Islam. According to Islam and Sharia, money is used for exchange rather than speculation or exploitation. This is one of the reasons why riba is strictly prohibited in Islam, because it is considered profiting from money. The Islamic view of money and business is based on the principles of social justice and non-exploitation.
Shariah laws related to money say that in order to use money as a medium of exchange, it must be safe, stable and effective. The reason some Muslims are conflicted about the legitimacy of Bitcoin and whether it is Sharia-compliant or not is that when the Quran was written, there was obviously no mention of digital currencies, as the technology was not at the advanced stage it is today. This means that the legality of cryptocurrency is open to judgment and interpretation by researchers.
The views of scholars and religious authorities about digital currency
Considering the novelty of the digital currency market, many people may not be aware of it from the point of view of taqlid authorities and scholars, which we intend to explain in the following:
- Ayatollah Khamenei
His opinion about the legality of digital currency transactions is that the decision to buy and sell and produce digital currency should be in accordance with the laws of the Islamic Republic.
- Ayatollah Makarem Shirazi
They have not considered the transaction of digital currency as permissible due to the uncertainties surrounding it and the lack of a certain mining origin for these currencies, as well as their lack of approval by many governments.
- Ayatollah Safi Golpayegani
They have explicitly considered the rule of digital currency transactions to be haram.
- Ayatollah Nouri Hamdani
They have described entering into such transactions as problematic.
- Ayatollah Vahid Khorasani
Ayatollah Khorasani also announced the Sharia ruling of digital currency and declared such transactions invalid.
- Ayatollah Shabiri Zanjani
He deals in digital currency with the condition that if this transaction is against the law and in some form of economic corruption, there is a problem in its trading.
From a financial perspective, Islamic charities can benefit from zakat and other donations as a result of investing in crypto.
Sharia or non-Sharia types of digital currencies
Since the introduction of Bitcoin in 2009, many other digital currencies have been launched. These are designed to meet different needs or complement other digital currencies.
Some of these newer cryptocurrencies are created to deliver specific results.
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Bitcoin was launched in January 2009. In the last 3 years, there has been an unstable growth. In 2018, it lost 72.6% of its value. In 2019, it returned with a growth of 87.2% and in 2020, it increased its value by 302.8%.
Ethereum was launched in July 2015. In the last 4 years, it has experienced very volatile fluctuations. In 2017, it grew 9,159.4%, fell 82.7% in 2018, and lost another 8.0% in 2019, before growing 464.1% in 2020.
Litecoin was launched in October 2011. In 2017 Litecoin grew by 12366.7%, in 2018 it lost 93.3% and in 2019 it doubled. In 2020, it grew by 2.0%.
XRP was first launched in September 2012. It grew by 308.9% in 2017, fell by 117.7% in 2018, and lost another 55.0% in 2019, before a modest 13.6% growth in 2020.
They are seen as digital assets rather than currency. Since the market has established a favorable price point for these coins and changes in value are through transactional demand, such as stock trading, many Islamic jurists consider this permissible. Some disagree with this view.
In general, one of the objections made by jurists to digital currency transactions is that it is gambling. Since it is not clear whether the profits of the miners are due to the consumed resources or not, it will probably take the form of gambling.
On the other hand, on the basis of jurisprudence, the principle of “harmless” and “harmless” in Islam, which states that none of the parties to the transaction should suffer any loss, is also relevant.
The debate over Bitcoin and other forms of digital currency will continue for years to come.
What seems clear is that, conceptually, Bitcoin and digital currency in general are not impermissible under Sharia law. The growth of Islamic cryptocurrency exchanges and coins means that there is more transparency and regulation than ever before for Muslims looking to invest in digital currencies.