Cryptocurrency’s future in Islamic countries was mostly dubious because of the Sharia law. Some experts have suggested that the use of cryptocurrency is Haram or forbidden as per the religious rules. However, an Islamic scholar recently challenged this view, suggesting that bitcoin is compliant with the law. Following this, bitcoin adoption can now be open to more than 1.6 billion people living in Muslim countries.
Islam has stringent rules about money. The religious laws only adopt currencies that have intrinsic or inherent value, which makes gold the preferred method of payment. If paper currency or digital currency is to become lawful, it should be backed up by a commodity that has a fixed exchange rate. Mufti Muhammad Abu Bakar, a Sharia compliance officer, based in Jakarta and working at Blossom Finance suggests that bitcoin could be Halal in many cases.
The Sharia adviser released a paper that focuses on ‘customary money,’ i.e., the adoption of a certain method of payment as Halal because of a government mandate or because it has become accepted as such by the society.
The paper reads, “In Germany, Bitcoin is recognized as a legal currency and therefore qualifies as Islamic money in Germany. In countries such as the US, Bitcoin lacks official legal monetary status but is accepted for payment at a variety of merchants, and therefore qualifies as Islamic customary money.”
By his definition, a place where the government has defined bitcoin as legal tender, like Japan, is compliant with Sharia law and using cryptos is not Haram there. However, in places where it does not have government support or being used by the people as a mode of payment, it will still be considered Haram.
If Bakar’s paper is to be believed, then the traditional banking system is more Haram than cryptocurrencies. This is because of loans offered at high rates of interest, which is forbidden by law. He said, “Loaning money into existence is completely forbidden and falls under the definition of usury – loaning at high-interest rates.”
His comments reflect the ulterior motives of fractional reserve banking which is being used around the world to create money out of thin air. In blockchain, money cannot be created because a central bank ‘wants to.’ The coins are always in a limited supply, providing more inherent value to them, just like gold.
He said that that using bitcoin as a currency is different from using it as an investment, suggesting, “it is advisable to utilize cryptocurrency networks as a payment system in the cases where cryptocurrency network offer specific benefits and advantages over conventional systems.”
Several Islamic scholars attended a conference to discuss cryptocurrencies this week, which shows that the Islamic banking sector is finally opening up to the world of cryptocurrencies. It also signifies that they don’t have an inherently negative view on the crypto. Following the “Is Bitcoin Halal or Haram: A Sharia Analysis” paper published by Bakar, the prices of bitcoin have surged by over 10 percent in the past 24 hours. The troubled crypto briefly went over $8,000 before it fell back to $7,700.