On the permissibility of Bitcoin in Islam

The question of whether Bitcoin is halal (permissible) or haram (forbidden) under Islamic law, Sharia, continues to spark ongoing debate among Muslim scholars and communities. Shariah principles, which emphasise and mandate ethical finance, transparency, and the avoidance of riba (interest), gharar (excessive uncertainty), and maysir (gambling), tends to center the discussion of Bitcoin’s permissibility on its nature as a decentralised money or currency (or not) that is both digital and intangible, and with a value that can fluctuate substantially. This has created quite the spread in legal opinion on the matter.

Some scholars, like Sheikh Abdullah bin Sulaiman al-Manea, argue it is halal, comparing it to gold due to its scarcity and utility as a store of value and medium of exchange, free from interest. Others, such as Mufti Taqi Usmani, deem it haram, citing its volatility, speculative trading, and lack of intrinsic value or backing by a central authority, likening it to gambling.

With Muslims comprising nearly a quarter of the global population, this debate is important to Bitcoin’s ability to continue its global adoption. To arrive at solid legal ground on this matter, Bitcoin’s innovative nature and unique structure must be analysed considering traditional Islamic financial ethics—a highly challenging task—thus far causing a variety of interpretations as scholars weigh its practical and theological implications within the context of ancient scripture.

At CoinShares, we have seen increasing interest in this question from our clients, both in the middle east and in the European private banking sector serving middle eastern clients. With the recent allocation to Bitcoin ETFs by UAE sovereign wealth fund Mubadala (US$440M), we believe it is a good time to do a write-up on the subject, collecting and discussing available findings on the matter into a single article. 

Three sources to understand rules, definitions and terminologies in Sharia

Mufti Muhammad Abu-Bakar explains that Sharia law leans on three main branches of knowledge and understanding when crafting Sharia fatwas. The first one is direct revelation from Allah, codified in Quranic text or the hadith (records of the exemplary behaviour of the final prophet Muhammad). The second source is the Arabic language, its semantics and the limits of its definitions. The third source is urf, which means customary practice among the ummah—the community of Muslims. 

These branches are not equal, and knowledge from revelation will of course outweigh considerations from language or custom. Taken together, these three sources and the legal interpretations based on them and collected over several hundred years, have created a large body of Islamic legal precedence, which is quite similar to the way common law is practiced in the West.

In islamic finance, the original state of things is permissibility

To give readers—who we assume might be only lightly familiar with the topic—as strong a foundation in Sharia as we believe ourselves able to provide, we begin with the philosophical underpinnings of Islamic financial law.

Islamic financial jurisprudence, or fiqh al-muamalat, governs economic transactions under Shariah law, aiming to ensure justice, equity, and ethical conduct. In Islamic finance, as a general principle of fiqh, everything is considered permissible (mubah) by default unless there is explicit evidence from the Quran, Hadith or scholarly consensus (ijma) that forbids it. This concept, known as al-asl fi al-ashya’ al-ibaha ("the original state of things is permissibility"), applies to worldly transactions (muamalat) like trade, contracts, and financial dealings, provided they do not violate Shariah.

In other words, the burden of proof rests on the proponent of impermissibility. Furthermore, logical coherence is strictly necessary, and proofs of impermissibility cannot be logically incoherent with regards to other proofs to the contrary. According to the fatwa on Bitcoin (and bitcoin) by Mu'aawiyah Tucker:

“Contradicting this principle without valid and significant evidence is a more serious matter than adhering to the principle while being ignorant of the correct aspects of prohibition.”

So for example, a new financial tool like Bitcoin, and a new money like bitcoin, both start off as permissible unless strictly proven to conflict with the rules of Sharia.

Core tenants of prohibition include usury, gambling, risk and profit sharing

Some of the core prohibitive principles of Sharia include forbidding riba (literally excess, but commonly understood as usury or interest), which bans exploitative gains from lending, and gharar (excessive uncertainty), which forbids contracts with ambiguous terms or undue risk. Maysir (gambling) is also outlawed, rejecting speculative ventures lacking productive purpose. Transactions must be asset-backed, tied to tangible value like goods or services, and promote risk-sharing between parties, as seen in mudarabah (profit-sharing) and musharakah (partnership) models. 

Wealth circulation is encouraged through zakat (mandatory charity), while hoarding is discouraged. These rules, derived from the Quran, Hadith, and living, ongoing scholarly development and consensus, aim to align finance with moral objectives, fostering a system that prioritises social welfare and prohibits exploitation.

Disagreements on permissibility often boil Down to differing interpretations

As non-scholars, we want to be extremely careful in rendering our findings on this topic. We are acutely aware of our limited background knowledge on the subject, so we do ask for leniency from experts in return for us being humble in our presentation.

We also want to be crystal clear that what we are talking about in this article is only the permissibility of buying, selling and transacting in spot bitcoin, not derivatives of any kind as they require a separate analysis.

Without going too deeply into the minute details of fiqh al-muamalat, from what we can gather, there are a series of key issues and definitions upon which the various legal interpretations tend to hinge:

1. Whether bitcoin is māl (an asset, wealth — and as a sub-issue, whether it is tangible or intangible)

2. Whether bitcoin is currency/money, and as a sub-issue, whether bitcoin has intrinsic value

3. Whether bitcoin is excessively uncertain, or more akin to gambling

4. Whether bitcoin facilitates sinful behaviour such as crime

In short, if bitcoin is clearly proven to fulfill either point 3 or 4, it would be haram. If it, on the other hand, fits the definitions of either māl or currency/money, this would be a strong argument that proof of bitcoin being haram has not been adequately demonstrated, and that it then by default is halal.

The disagreements can be summarised in the following table, highlighting the core issues, and with some example arguments for and against:

Without taking a view on any of these points, we offer a few sources and quotes to help guide readers towards their own interpretation, or towards their own view on which fatwas they consider correct.

1.In his 2018 Report analysing Bitcoin from a Sharia perspective, Mufti Muhammad Abu-Bakar states:

“In Shariah, the fundamental requirement for a counter value or consideration is that it has status as māl, meaning property.”

He goes on to explain that the two defining characteristics of māl are whether something is desirable, and whether it can be transferred from one person to another. In other words, all things that can be possessed and are valuable. If the argument is that intellectual property is tangible because it’s ‘written down’ then the counterargument is that bitcoin too is written down. In that sense, a bitcoin is as tangible as any thing that is written digitally as electronic entries into computer memory. This view is supported by Shaykh Taqi Usmani who says that as soon as non-tangible things such as rights and benefits become valuable according to custom, it becomes māl.

2.On the issue of money, Mufti Faraz Adam states:

“The defining feature of money in Islam is that it is nothing but a medium of exchange. It is only that and serves nothing but that. It is not a commodity to trade or rent. It is not an asset like other assets, nor a service like other services.”

In this definition, he leans on the ancient writings on Imam Ibn al-Qayyim and Imam al-Ghazali stating that money is not something sought for itself, but something that is a means to acquire all other assets. Al-Ghazali states that: 

“They are precious in themselves but not desired for themselves.”

From these readings, we can see how some scholars are insistent that money must have some value in and of themselves, some intrinsic value. The problem is that intrinsic value is not well defined. We have touched on this issue a lot in the past, and as far as I am concerned at least, intrinsic value does not strike me as a sensible concept—I believe value is entirely subjective. 

In any case, intrinsic value should not rest on whether a thing is tangible many intangible items are obviously valuable, such as intellectual property. Here we refer to the discussion above on assets being able to be intangible.

Something being money, or currency, in the view of Islamic finance, rests heavily on whether it is used as a medium of exchange—which is seen as the quintessential definitional function—but some scholars also argue it must be used as a store of value and unit of account. In the first and second sense, bitcoin is quite clearly money as many people use it to trade other goods and services as well as to store value. Fewer people use bitcoin to price things, but the number of products priced in bitcoin, while few, is certainly not zero.

3. Then, we look at what has been said with regards to bitcoin being excessively uncertain. Many fatwas declaring Bitcoin as impermissible lean heavily on this interpretation. We need not evidence that the value of bitcoin fluctuates—sometimes rapidly—as this is common knowledge. As far as we can tell, in this instance, whether the uncertainty is excessive is a bit subjective as we see widespread disagreement on this point.

The strongest point made on this issue as far as we can tell is that price volatility of an object is external to the object itself, so it is hard to argue that something is inherently volatile unless it is explicitly designed so, and Bitcoin is not designed to be excessively volatile. And since the price of all things are at the end of the day the result of supply and demand, whether something is excessively volatile compared to other things, must at the end of the day be determined from urf, or custom. Bitcoin’s volatility is currently on the order of some of the largest equities in the world none of which are considered haram, so singling it out for excessive volatility seems inconsistent. In this same sense, we cannot consistently claim that bitcoin is akin to gambling via its volatility without also arguing that gold, silver, or equities such as Tesla or Nvidia are also akin to gambling.

4.Finally we come to the point of whether bitcoin facilitates crime here too we find ourselves in a heavily subjective area of interpretation. Since anything can technically be used for crime, an interpretation of whether Bitcoin facilitates crime boils down to the interpreter’s impression of what Bitcoin is predominantly used for. Several scholars including Shaykh Shawki Allam, Mufti Taqi Usmani are of this opinion, and so are Turkey’s Directorate of Religious affairs. Many lean on the fact that Bitcoin is not approved by legitimate bodies as an official medium of exchange.

But many other interpreters take the stance that there is nothing inherent about Bitcoin causing it to facilitate crime. People can choose to use it for criminal activities, but the opposite is also true. Several scholars also agree on the interpretation that money is largely a matter of convention, and therefore does not require any support from authorities to be used as a medium of exchange. Again, there is much room for interpretation here. No one can disagree that many people, millions even, use bitcoin as a medium of exchange. However, whether that counts as ‘widespread use’ in a world of 8 billion people is a matter of interpretation. 

Interpretations are trending towards greater acceptance

While there are still disagreements on the matter within the community of Muslim scholars, the trend is one of movement towards greater acceptance. Many of the major fatwas against Bitcoin’s permissibility are now more than 5 - 7 years old, and were given during a time when general knowledge about the workings of Bitcoin was less advanced than it is now.

To us it seems like only a matter of time until the community arrives at consensus, and if the current trend holds up, we find it likely that consensus ends up falling on permissibility. We find the more recent rulings to be increasingly impressive in terms of knowledge of the protocol and network and Bitcoin’s increasing usage and public profile also weakens arguments that it is primarily used for sinful behaviour.

Until consensus is achieved however, we encourage interested readers to look at the various rulings in detail and make up their own mind within the confines of their own beliefs and understanding. We attach a plethora of sources and meta-sources below, and welcome comments and clarifications by readers possessing more knowledge on the subject than we do.

Sources

Fatwas and Rulings Deeming Bitcoin Haram or Impermissible

• Grand Mufti of Egypt (Shaykh Shawki Allam) via Dar al-Ifta: Rules trading Bitcoin as haram due to uncertainty, fraud risk, and economic harm.

• Grand Mufti of Egypt (Shaykh Shawki Allam) via Dar al-Ifta: Reiterates haram status for Bitcoin dealings, citing lack of regulation and potential for money laundering.

• Turkish Directorate of Religious Affairs: Considers Bitcoin inappropriate (implying haram) due to speculation, illegal uses, and lack of state supervision.

• Shaykh Haitham al-Haddad via Dorar.net: Declares Bitcoin haram as it lacks real value, stability, and backing.

• Mufti Taqi Usmani analysis: Views Bitcoin as haram due to speculation, lack of intrinsic value, and imaginary nature.

• Shaykh Assim al-Hakeem opinion: Considers Bitcoin haram due to anonymity enabling illegal activities like money laundering.

• Indonesian Ulema Council (MUI) via ResearchGate: Declares cryptocurrency haram as currency due to gharar and dharar (harm).

• SSRN Paper on Cryptocurrencies: Concludes Bitcoin is forbidden in Islam as it incorporates riba and gambling elements.

• HIM Journals Analysis: Views crypto transactions as haram due to high risk and prohibited aspects.

• Journal of Business and Economics Management (PDF): Critiques Bitcoin as haram using Usul al-Fiqh principles.

Fatwas and Rulings Deeming Bitcoin Halal or Permissible

• Fiqh Council of North America: Rules Bitcoin halal as a fiat-like currency, permissible for trading, investment, and mining with conditions like spot trades and zakat.

• IslamQA Fatwa on Crypto Dealing: Permits dealing in cryptocurrency if exchanges are immediate and free of infractions.

• IslamQA Fatwa on Bitcoin Trading: Notes the ruling is unclear but advises caution; implies potential permissibility once nature is known.

• IslamQA Fatwa on Crypto with Robots: Permits using tools for crypto trading if conditions are met.

• Mufti Muhammad Abu-Bakar Report: Concludes Bitcoin permissible as valuable and exchangeable, with caution on volatility.

• Blossom Finance Analysis: Working paper deeming Bitcoin sharia-compliant under certain views.

• International Islamic Fiqh Academy: Discusses cryptocurrencies on blockchain; implies permissibility in principle with conditions.

• IslamWeb Fatwa on Electronic Currencies: Permits dealing but notes sharia issues with mining companies like Bitcoin.

• IslamWeb Fatwa on Virtual Currency: Permits Bitcoin as a virtual currency if accepted by parties.

Analytical or Mixed Views (Discussing Both Sides)

• Islamic Finance Guru Summary of Scholars: Lists fatwas from scholars like Shaykh Shawki Allam (haram) and Mufti Muhammad Abu-Bakar (halal).

• Darul Fiqh Interpretations: Analyzes Bitcoin as potentially non-māl, māl but not currency, or currency; concludes compliant under some views (Mufti Faraz Adam).

• Funding Souq Blog on Islamic View: Discusses permissibility in principle, citing Mufti Faraz Adam.

• AIMS Education Summary of Opinions: Compiles views from scholars like Mufti Taqi Usmani (haram) and notes majority caution.

• Islamic Law Blog on Egypt's Dar al-Ifta: Analyzes Dar al-Ifta's haram ruling but discusses broader context.

• Amanah Advisors on Money Characteristics: Supports Bitcoin as potentially halal if meeting sharia criteria (Mufti Faraz Adam).

• Meta Madeenah Statement: Analyzes Bitcoin's limited supply; implies permissibility in some contexts.

• Afinance.org (Mufti Faraz Adam): General resource on sharia compliance, supporting Bitcoin as currency under conditions.