Is Crypto Trading Halal or Haram?

Understanding Cryptocurrency

What is Cryptocurrency？

Cryptocurrency is a unique type of digital asset that relies predominantly on a technology called blockchain. A creation of an unknown persona or group named Satoshi Nakamoto, cryptocurrency completely revolutionized the concept of traditional financial and currency systems. Bitcoin, the first and most renowned cryptocurrency, made its debut in 2009.

How does Cryptocurrency Work？

Cryptocurrency operates on a unique blend of several technologies – cryptographic techniques, decentralized systems, and blockchain technology. Let's unpack these, so we get a sense of how this all works.

Starting with cryptographic techniques; this involves complex mathematical problems that a computer needs to solve. Once a problem is solved, a block of transactions is added to an existing series of blocks, creating a chain. Hence, the system is digital and it is secure, since the information in the blocks is not easy to alter or delete.

Taking a step deeper, we encounter blockchain technology. Picture it like a public digital ledger, where all transactions are recorded and confirmed anonymously. It's a chain of blocks where each block contains the numbers and letters of the transaction and these blocks are not controlled by any central authority. This means the blockchain keeps an indelible record of all the transactions ever made in a specific cryptocurrency.

The decentralized system, on the other hand, means that the network is spread out over many computers (or nodes). This makes it less likely to fail and provides a high level of security because its not easy for anyone to cheat the system. Instead of having a single central authority, cryptocurrencies are collectively controlled by network participants.

In essence, blockchain technology, cryptography, and a decentralized system all work hand-in-hand to secure transactions, control the creation of additional units and provide a transparent transaction history. This gives cryptocurrencies like Bitcoin its safety, reliability and trustworthiness in a user-driven, peer-to-peer setting.

Most Common Cryptocurrencies

Bitcoin has been the pioneer, but it's far from being the only player in the cryptocurrency game today. Over time, a flood of other cryptocurrencies, popularly known as 'altcoins', or alternative cryptocurrencies, have entered the digital financial world. These altcoins are formed by modifying Bitcoin's open-source code, each one representing a unique variant that aims to express a specific intent or solve a particular issue.

One of the most popular altcoins, and the second-largest cryptocurrency after Bitcoin, is Ethereum. Launched in 2015, Ethereum is not just a digital currency but also a blockchain-based platform for developing and running smart contracts and distributed applications. Ethereum's native cryptocurrency is called Ether (ETH), and it's used to facilitate transactions on the Ethereum network.

Other notable cryptocurrencies include Ripple (XRP), a digital payment protocol and cryptocurrency ideal for international transactions, and Litecoin (LTC), lauded as silver to Bitcoin's gold and known for its faster block generation rate. There's also Binance Coin (BNB), native to the Binance exchange, and Cardano (ADA), a platform used for the development of decentralized apps and smart contracts, much like Ethereum.

With an ever-growing list of cryptos—currently over 5,000—each brings something unique to the table. These altcoins, along with the original Bitcoin, represent the diverse sphere of cryptocurrencies.

Key Principles of Islamic Finance

To grasp how cryptocurrency fits within Islamic finance, we must trace back to the foundational principles guiding all Muslim monetary matters.

1. Riba (Interest)

In Islam, Riba, or usury, is strictly forbidden. It refers to the act of lending money with interest, which means making a profit out of money itself, not backed by goods or services.

Cryptocurrencies by nature do not accrue interest and therefore they do not violate the principle of Riba.

However, if a person borrows cryptocurrency with an agreement to return more than borrowed, that would be considered Riba.

2. Gharar (Uncertainty)

The principle of Gharar cautions against extreme uncertainty and ambiguity in transactions. In other words, all parties involved in a deal must have clear, comprehensive knowledge of what the contract entails and of the product or service being traded.

The discussion around Gharar is very complex. Some scholars point to the extreme volatility and unpredictability of cryptocurrency values as a form of Gharar.

However, others argue that since the prices of cryptocurrencies are available and transparent for everyone to see, and because people fully understand the risk of price changes before they buy, it doesn't count as Gharar.

3. Maysir (Gambling)

This Islamic principle prohibits any form of gambling or games of chance, which is considered Maysir. This is to prevent harm from addiction and potentially severe financial losses. Investments must be based on analysis and understanding rather than luck or chance.

Cryptocurrency in and of itself is not inherently a game of chance. The argument for it resembling Maysir comes into play with reckless investment and speculative trading, which can indeed seem a lot like gambling, but such behavior can also be associated with any investment activities, not just cryptocurrencies.

4. Takaful (Mutual Guarantee)

Takaful signifies a system of shared responsibility, mutual cooperation, and protection of assets against loss. It's often seen in insurance models, where a common pool is created to guarantee against a specific loss.

Although cryptocurrency as a digital asset doesnt directly fulfill the Takaful concept, the underlying blockchain technology has the potential for creating systems of mutual guarantee.

For example, decentralized finance (DeFi) applications built on blockchain platforms could potentially manifest takaful-like principles, such as pooled governance or shared risk.

5. Haq Al Mal (Right of Wealth)

This principle asserts that individuals have the right to accumulate wealth, particularly through risk-taking.

Cryptocurrency trading inherently involves taking a financial risk for possible gains, therefore aligning with this principle. Individuals invest their assets into cryptocurrencies knowing full well the risks involved, in hopes they will increase in value over time.

6. Fairness

Fairness in Islamic finance signifies equal opportunities, transparency, and the prevention of exploitation.

Cryptocurrencies operate on public, transparent blockchain technology which minimizes the chance of fraudulent activities and ensures fairness. All transactions are transparent, verifiable, and tamper-proof due to the blockchain, promoting honest dealings.

Is Crypto Trading Halal or Haram？

Differing viewpoints exist when it comes to the question of whether trading cryptocurrencies is Halal (permissible) or Haram (forbidden). The state of consensus among Islamic scholars is yet to be established due to varying perspectives and interpretations.

Crypto Trading is Halal？

Those who support the viewpoint that trading cryptocurrencies is Halal argue several points. They highlight that cryptocurrencies fulfill the function of money in the digital sphere, they can be used for transactions, and if used appropriately, they can encourage financial inclusion and decentralization, hence potentially bringing about economic justice and equality.

Additionally, given that cryptocurrencies are assets with identifiable value and existence in the digital world, they can be treated as 'mal' or wealth. Since cryptocurrency itself does not involve Riba (interest), Gharar (uncertainty), or Maysir (gambling), the argument goes that it is not inherently Haram.

• Halal Stance: Sheikh Dr. Haitham al-Haddad, Mufti Muhammad Abu Bakar, etc.

Halal Cryptocurrencies
1		Bitcoin	BTC	Known as the original cryptocurrency, it was created in 2009 by an anonymous developer known as Satoshi Nakamoto.
2		Ethereum	ETH	Created in 2015, it has become well known for its smart contracts feature, which allows for the automation of complex financial transactions.
3		Tether	USDT	This is a stablecoin designed to keep a value similar to the U.S. dollar, providing a method of stability in an otherwise volatile market.
4		XRP	XRP	Developed by Ripple Labs, it aims to facilitate faster, affordable, high-volume international transactions.
5		Litecoin	LTC	Inspired by Bitcoin, it offers faster transaction times and a different hashing algorithm.
6		Bitcoin Cash	BCH	A fork from Bitcoin in 2017, it increases block size and aims to be more practical for day-to-day transactions.
7		Cardano	ADA	Known for its research-based approach, it focuses on security, scalability, and sustainability.
8		Polkadot	DOT	It aims to connect different specialized blockchains into one unified network.
9		Chainlink	LINK	It's known for its unique ability to securely connect smart contracts with data from the real world.
10		Binance Coin	BNB	Created by the Binance exchange, it can be used for various purposes within the Binance ecosystem.
11		Stellar	XLM	Designed to be a network facilitating the transfer of any type of currency across borders instantly.
12		USD Coin	USDC	Another stablecoin, pegged to the U.S. dollar, known for its transparency and regulatory compliance.
13		Wrapped Bitcoin	WBTC	This is an ERC-20 token on the Ethereum blockchain that represents Bitcoin.
14		Bitcoin SV	BSV	An acronym for 'Bitcoin Satoshi's Vision,' it is a hard fork of Bitcoin Cash that aims to restore the original Bitcoin protocol.
15		Monero	XMR	Known for providing strong privacy features which obscure transaction details such as sender and receiver.
16		EOS	EOS	Geared towards large-scale applications, it promises to eliminate transaction fees and speed up process time.
17		TRON	TRX	Aiming to create a decentralized Internet and its infrastructure.
18		Nem	XEM	Known for its advanced blockchain called 'Smart Asset System' which supports many business uses.
19		Tezos	XTZ	Tezos is known for its on-chain governance model and proof-of-stake consensus algorithm.
20		Theta	THETA	A purpose-built blockchain for video streaming.
21		Neo	NEO	Often referred to as the 'Chinese Ethereum,' Neo allows developers to build on its blockchain creating decentralized applications.
22		VeChain	VET	Designed to enhance supply chain management and business processes, its goal is to streamline these processes and provide real-time tracking of various business operations.
23		Crypto.com Coin	CRO	The native coin of the Crypto.com Chain, which offers a potential solution to provide immediate transaction confirmations, user control of data, and network fees for minimal costs.
24		Uniswap	UNI	A protocol built on Ethereum for swapping ERC-20 tokens, it's known for its open, secure, and highly efficient automated liquidity provision.
25		UNUS SED LEO	LEO	Benefiting users of the Bitfinex platform by offering them discounted fees, it is one way this exchange attracts and retains customers.
26		Dai	DAI	This is a stablecoin, whose value is pegged to the U.S. dollar, created by MakerDAO on the Ethereum blockchain.
27		Dash	DASH	Created as a fork of Bitcoin, it focuses on privacy and speedy transactions, and it enables self-governance and self-funding via a treasury system.
28		Cosmos	ATOM	A blockchain that aims to solve problems with scalability, usability, and sovereignty faced by the current blockchain ecosystem.
29		Dogecoin	DOGE	Initially introduced as a joke cryptocurrency featuring a Shiba Inu dog from the Doge internet memes, it has gained a wide following.
30		Zcash	ZEC	A privacy-protecting, digital currency built on strong science.
31		Binance USD	BUSD	Another stable coin pegged to the U.S. dollar and launched by one of the largest cryptocurrency exchanges, Binance.
32		IOTA	MIOTA	Focused on providing secure communications and payments between machines on the Internet of Things.
33		Revain	REV	It's a review platform for blockchain and crypto projects, incentivizing authors with its native token for unbiased reviews.
34		Houbi Token	HT	Huobi Token (HT) is an exchange-based token and native currency of the Huobi crypto exchange.
35		Filecoin	FIL	A decentralized storage system that aims to “store humanitys most important information”.
36		Ethereum Classis	ETC	Resulting from a fork of Ethereum, Ethereum Classic focuses on immutability of the blockchain.
37		Solana	SOL	A high-performance blockchain supporting developers around the world creating crypto apps.
38		Zilliqa	ZIL	The first public blockchain designed to implement sharding - allowing for linear scaling as the blockchain grows in size.
39		Decred	DCR	A cryptocurrency with a strong focus on community input, open governance, and funding for sustainable ecosystem growth.
40		Waves	WAVES	An open-source platform and decentralized exchange for Web 3.0 services, offering a wide range of tools for developing and running dApps.
41		Eirond	EGLD	A scalable and user-friendly blockchain platform for distributed apps and enterprise-level businesses.
42		Kusama	KSM	An experimental community research and development network, it's Polkadot's cousin network providing a proving ground for developers.
43		Hedera Hashgraph	HBAR	A decentralized public network where developers can build secure, fair applications with near real-time finality.
44		Horizon	ZEN	A privacy-focused blockchain platform harnessing zero-knowledge technology to enable fully anonymous transactions.
45		Verge	XVG	Aimed at enhancing privacy and security, it prioritizes anonymity and obscuring the IP address of people making transactions.
46		Algorand	ALGO	Focused on the convergence between decentralized and traditional finance, it enables the simple creation of next-generation financial products.
47		Avalanche	AVAX	A platform for creating custom blockchain networks and decentralized applications.
48		Ontology	ONT	A high-performance public blockchain and distributed trust collaboration platform.

※ You can find more detailed info on halal cryptocurrencies at https://www.islamicfinanceguru.com/crypto.

Crypto Trading is Haram？

However, there are those on the other side of the debate who express significant concerns. They point out the exceptionally high volatility, potential for illicit usage, lack of regulation, and the anonymity that cryptocurrencies can provide, which they argue, may contradict the spirit and principles of Islamic finance. Uncertainty, risk, and potential harm to society are main concerns for this group of scholars.

• Halal Stance: Turkey's Diyanet, Egyptian Grand Mufti Shawki Allam, etc.

Halal Cryptocurrencies
1		Aave	AAVE	A decentralized finance protocol that allows people to lend and borrow crypto.
2		Synthetix	SNX	A decentralized finance protocol providing on-chain exposure to a wide variety of crypto and non-crypto assets.
3		Maker	MKR	A governance token for the MakerDAO and Maker Protocol — key components of the decentralized finance ecosystem on the Ethereum blockchain.
4		Celsius	CEL	The native cryptocurrency for the Celsius Network, which offers earning and borrowing services for a multitude of cryptocurrencies.
5		yearn.finance	YFI	A decentralized ecosystem of aggregators responsible for optimizing token lending by algorithmically finding the most profitable lending services.
6		FTX Token	FTT	The native cryptocurrency of the crypto trading platform FTX, it offers various benefits to holders like lower trading fees, additional rebates, and a socialized gains system from the insurance fund.
7		Compound	COMP	An ERC-20 asset that empowers community governance of the Compound protocol, which allows its users to lend or borrow selected cryptocurrencies.
8		SushiSwap	SUSHI	It's part of a decentralized exchange, allowing for the trading of cryptocurrencies. It also provides a governance token, allowing token holders to vote on changes to the protocol.
9		UMA	UMA	A protocol for creating synthetic assets based on the Ethereum (ETH) blockchain. UMA stands for Universal Market Access.

What Islamic Authorities Say About Crypto Trading？

Islamic authorities have different views on crypto trading, reflecting the wider debate among scholars.

1. AAOIFI (Not Issued Definitive Rulings)

As an international standard-setting body for Islamic finance, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has not issued specific guidelines for trading in cryptocurrencies, although they have stressed the general principles of avoiding excessive uncertainty (gharar) and activities tantamount to gambling (maysir).

2. Turkey's Diyanet (Haram)

Turkey's highest religious authority, the Directorate of Religious Affairs (Diyanet), originally declared in 2017 that due to their association with illegal activities and lack of oversight, cryptocurrencies were not compatible with Islam.

3. MUIS (Not Issued Definitive Rulings)

Majlis Ugama Islam Singapura (MUIS) has advised that while the principles of cryptocurrency align with Islamic finance in some ways, the significant risks, such as volatile values and potential association with unlawful activities, could make cryptocurrency trading against the teachings of Islam.

4. Blockchain Council (Not Issued Definitive Rulings)

An online platform that offers guidance on various aspects of blockchain technology suggests that if cryptocurrencies are used in a manner that is socially responsible, transparent, and avoids gharar (uncertainty) and maysir (gambling), they could be seen as halal.

What Scholars Say About Crypto Trading？

1. Sheikh Dr. Haitham al-Haddad (Halal)

A judge on the board of the Islamic Council of Europe describes cryptocurrencies as Halal unless explicitly prohibited. He argues that Bitcoin and similar cryptocurrencies fulfill the criteria of wealth in Islam, as they are valuable objects recognized and approved by large groups of people, thus making them suitable for zakat, or the practice of charitable giving by Muslims.

2. Mufti Muhammad Abu Bakar (Halal)

A Shariah advisor and compliance officer at Blossom Finance in Jakarta, Indonesia, published a paper exploring the functionalities of Bitcoin according to Shariah. His findings suggest that Bitcoin can potentially be Halal and be used lawfully for trading in some instances.

3. Egyptian Grand Mufti Shawki Allam (Haram)

In early 2018, he issued a fatwa indicating that cryptocurrency trading is forbidden due to its potential for fraud, risk, harm, and association with illegal activities.

Conclusion

In conclusion, the intersection of cryptocurrency and Islamic finance is a complex and evolving field. With the digital world rapidly ingraining itself into all aspects of life, it's crucial for Muslims to understand the implications of cryptocurrency trading in light of their faith.

While there are several opinions and interpretations among scholars and authorities, it's clear that the halal status of a cryptocurrency is largely determined by its adherence to fundamental Islamic financial principles such as transparency, intrinsic value, and valid use. Furthermore, the cryptocurrency's involvement in speculative trading and whether it adheres to Islamic law broadly also plays a role.

As such, Muslims are urged to seek advice from knowledgeable Islamic finance advisors or scholars for a definitive, personalized ruling based on their specific circumstances. As the saying goes, knowledge is the key. And in this case, it could very well unlock a new world of halal digital financial practices for Muslims worldwide.

Crypto Trading FAQs

1. How does cryptocurrency align with the principles of Islamic finance？

Cryptocurrency can fit with Islamic finance rules if it's used in the right way, like no gambling, and anything about it is open and clear.

2. Can cryptocurrency investments be considered halal？

Yes, they can be, but it depends on a lot of things, like how it's used and what it's used for.

3. What are some examples of 'halal' cryptocurrencies？

Some permissible or 'halal' cryptocurrencies include Bitcoin, Ethereum, Litecoin, and more.

4. Why do scholars have differing views on the halal status of cryptocurrency trading？

Different scholars see cryptocurrency in different ways, and since it's so new, there isn't a clear answer for everyone yet.

5. What factors are considered to determine if a cryptocurrency is halal or haram？

A few things to look at could be how it's made, how it's used, and if it follows important Islamic rules about money.

6. What precautions should I (Muslim investor) take if I'm interested in cryptocurrency investment？

Things to remember can be to check everything is clear and not hidden, avoid gambling-like activities, and always ask a knowledgeable person or scholar if unsure.