Is Bitcoin and Blockchain Halal?

Knowledge • 2020/05/26 • by Remitano

Is blockchain and bitcoin halal? The general perception is that

Yes, blockchain is halal.

Yes, bitcoin is halal as it has elements of Islamic money.

But what does it mean for something to be "halal" and why does it matter? In this article, we'll cover:

An overview of the Islamic economy
How to be Sharia-compliant
How the Islamic world views Bitcoin and blockchain

Before we go any further, first let us understand what blockchain and bitcoin are. Feel free to skip to the next part if you're already an expert on the matter. In a nutshell:

Blockchain is a digital system of records known for its "immutability", i.e. it is unchangeable and cannot be modified after the records are first made. When a set of records cannot be changed, there is greater trust in the integrity.
Bitcoin is a type of cryptocurrency, i.e. it is a digital currency known for its autonomy and security. Its nearly impossible for Bitcoins to be stolen, seized or traced by any authority. Bitcoin was the very first cryptocurrency to be created and it remains the most widely used digital currency to date.

If you'd like to learn more about blockchain or bitcoin, check out the other articles on our Forum.

Blockchain and Why The Islamic Economy Matters

So why does the Islamic economy matter? And why should the cryptocurrency industry care?

Undoubtedly blockchain is halal, given the many ways that entities and individuals in the Muslim-majority countries have adopted blockchain technologies. Blockchain, at its core, is a new form of digital technology, and what matters is what it is used for. For example:

Malaysian telco Telekom Malaysia has adopted blockchain technology that does not require a password for authentication for its enterprise and public sector solutions
The Korea Institute of Halal Industry encourages Korean manufactures to gain their verifiable halal certification through the Verify Halal blockchain.
Malaysia's southern Johor state is working with a local startup to build a state-wide halal certification blockchain system to drive the growth of the state's halal supply chain and Islamic-oriented economic sectors

No unified ruling for or against wether Bitcoin in Halal

According to Dr Mohamad Akram Laldin of the International Sharia Research Academy, a research institution established by the Central Bank of Malaysia, there is no global body to recommend or enforce standards for Islamic finance, and as such, there remain differing views on whether cryptocurrencies such as Bitcoin are halal.

He says that while governments seem ambivalent towards cryptocurrencies, many are still keen to benefit from such new technologies. Dr Mohamad Akram added that the first hurdle for blockchain and bitcoin is awareness since regulators and scholars are unlikely to embrace such concepts unless they first understand them.

Bitcoin is halal as it meets the definition of Islamic money

A study led by Mufti Muhammad Abu Bakar, internal Shariah advisor to Indonesian Shariah-compliant microfinance startup Blossom Finance, found that Bitcoin is generally acceptable under the principles of Shariah law as it is an asset that is not only valued by a global marketplace but is also accepted as a mode of payment by a wide variety of merchants and individuals around the world. For instance, he said, since bitcoin is recognised as a legal currency in Germany, it therefore also qualifies as Islamic money in that country.

A view presented by Dr Charles W. Evans in the Journal of Islamic Banking and Finance concluded that "while Bitcoin might not be perfect, one could argue that it is less bad than current alternatives." In his view, Bitcoin shines as it

allows its users to "transact as equals" in the global marketplace --- bypassing many layers of intermediaries such as banks and money transmitters who aim to extract markups that would otherwise belong to the users
operates according to the Islamic principle of musharakah, which encourages risk-sharing and cost-sharing since Bitcoin miners operate as partners in a distributed network, sharing the costs and benefits of maintaining the system
is created at a predictable and decelerating rate, with a hard upper limit of 21 million units --- unlike fiat money (conventional currencies such as the Ringgit Malaysia) which are "born of riba" and can "inflate without end", thus allowing financial institutions and individuals to over-optimise and over-leverage, subsequently leading to crises such as the 2008 financial crash

Bitcoin is halal as it is Sharia-Compliant Currency

Dr Mohd Daud Bakar, chairman of the Central Bank of Malaysia's Shariah Advisory Council, went so far as to say that he believes that the concept of a Shariah-compliant cryptocurrency or a "halal coin" would be "the best ever form of currency" from a shariah perspective.

However, he believes that such a currency would be most effective if it were to be developed by the Organisation of Islamic Cooperation and adopted by all 57 of its Muslim-majority member countries. Only then, he said, would a halal coin become a reality.

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