Shariah Interpretations of Bitcoin

Answered according to Hanafi Fiqh by

This is an overview and my personal conclusion to an ongoing research in respect to Bitcoin. References and detailed analysis can be viewed in my previous papers. After researching the issue of Bitcoin initially and releasing papers on the topic, I have received feedback from several colleagues from the Islamic finance industry, fellow Shariah advisors and practitioners from across the world. I am very grateful for all the support and comments. There are a few Takyīf (Fiqh interpretations) of Bitcoin. I will highlight and analyse the common interpretations below and conclude with what seems to be the strongest interpretation:
Interpretation No.1: Bitcoin is not Māl nor currency
Proponents of this view argue that Bitcoins have no real existence because:

  • They don’t have the features of a currency
  • There is no entity is purchased, stored or traded

They conclude that Bitcoin is not Shariah compliant.
Interpretation No.2: Bitcoin is Māl and not a currency
Scholars of this view argue that Bitcoins do exist, but they are not currencies, instead, they are crypto-assets.
They conclude that the concept of Bitcoin is Shariah compliant and certain types of investments in Bitcoin are Shariah compliant.
Interpretation No.3: Bitcoin is a currency
This group of scholars argue that Bitcoin was established as a peer to peer payment system. As a result, they are established as currencies and used as such, resulting in Isṭilāḥ (social concurrence) from the outset as a currency in Shariah.
They conclude that purchasing Bitcoin is Shariah compliant with certain conditions and in certain trades only.
Analysis of the above views:
Interpretation 1 falls short of analysing the reality. The notion of some ‘thing’ being there even if not tangible has been overlooked. The fact that your money is exchanged into a ‘thing’ which can be used to purchase fiat currencies, items and services negates the assumption that there is nothing there. There is a conversion; something else comes into your ownership and possession and you lose your ownership to your fiat currencies. Thus, there is a reality to this phenomenon.
The existence of something need not be established by pointing to it or physically outlining it; a number of things exist and are accepted among people which are not tangible yet acceptable. For example, emotions, thoughts, oxygen in the atmosphere. The existence of such things is known through their consequences (thamarāt) and features even though there is no defined body. What makes Bitcoin different to these concepts is that the above is not stored nor retrievable in their original state; they are passing, spontaneous things. Whereas, Bitcoins can be accessed when required through one’s wallet. Bitcoins have a form in the guise of digits which represent a value that can be used and exchanged for something of value. 
Interpretation 2 & 3 seem to be more accurate than interpretation 1. To simply negate the existence of Bitcoin is illogical. It is ‘something’. The question of whether it is a currency or not is the key issue.
Analysis of interpretation 2:
These scholars suggest that the existence of Bitcoin is established through its features, use and access through digital wallets. It is not necessary for something to have a physical or visible form. The Tamawwul of a thing (which is not prohibited) by the people is sufficient for something to be acceptable as Māl. Furthermore, the Aṣl (principle) in relation to financial matters is that everything is lawful unless there is a prohibitive evidence. Thus, there is no credible evidence to negate the lawfulness of Bitcoin.
However, this group negate Bitcoin as currencies. They reason that Bitcoins do not have Ta’āmul (wide usage) and Iṣṭilāḥ (social concurrence) as currencies. Thus, they fall short of being currencies.
The issue with this interpretation is that Bitcoins do not really serve any utility or purpose besides monetary purposes. Any assumed value is not being derived from any commodity-like utility per se; rather, it is being potentially derived from its features, its utility as a medium of exchange and obvious speculation. Furthermore, quantifying Ta’āmul and Iṣṭīlāḥ is challenging to say the least in a decentralised system.
The Fuqahā’ state that a grain of wheat will not be Māl without the Tamawwul of people[1]. This shows that although a grain of wheat is existing, it is tangible, visible and storable, the jurists negated it from being Māl unless there is Tamawwul. Tamawwul refers to an inclination to use and derive benefit. Considering this, if Bitcoins were no longer speculated upon and were no longer tradeable in exchanges and stores, would anybody invest in them? It is very unlikely any person would invest in Bitcoin as they would be meaningless digits. Bitcoin does not have any other real utility besides being a medium of exchange. They are merely numbers on a public ledger – to call mere digits an asset seems farfetched.
Analysis of interpretation 3:
Does a currency have to have alternative utility besides a medium of exchange? Mufti Taqi Uthmani clearly states that “Money has no intrinsic utility, it is only a medium of exchange” (An Introduction to Islamic Finance). If something is adopted as a currency which has other utilities, the other utilities are not considered when exchanging this currency for another currency – the other utilities are considered ma’dūm (non-existent).
For anything to be considered as Māl, it must have desirability and storability. Bitcoin possesses features which gives it desirability. For example, the blockchain technology behind Bitcoin, the replacement of trusted party intermediations with the proof-of-work protocol, decentralisation, limited supply and borderless payments with less transactional fees make Bitcoin desirable (some of these features are diminishing). This has resulted in a demand for Bitcoin. In respect to storability, Bitcoins are encoded within the blockchain and are entries on a public ledger. Your ownership is reflected by your Bitcoin address being credited with a balance. Considering that Bitcoins are merely digits and entries on a public ledger, there is no evidence or premise indicating to them being unlawful.  Hence, Bitcoins have Taqawwum. In terms of Thamaniyyah, Bitcoin was created as peer to peer payment systems. As a result, they are established as currencies.
It can be argued that Bitcoin was launched as media of exchanges and as currencies. They are introduced as currencies and are usable as currencies. The blockchain provides a system for this currency. The fact that people are using them as investments does not negate their currency feature. It just gives them similarity to investing in foreign currencies. Indeed, Bitcoin has features which make them unique. If in future they ceased to be used as a medium of exchange and nor was there any speculative increase in their price, would Bitcoin hold any value among people? Would people have Tamawwul of Bitcoin and use of them? Bitcoin would be meaningless digits. Therefore, at present, they have some monetary use and people have assigned ‘a value’ to these Bitcoins. A ‘value’ is envisaged by the people as they purchase, sell, accept and exchange the form of Bitcoins for the underpinning notional value. The value of things can be manipulated, exploited and speculated. These are external issues which require regulation and control.
The philosophy of value has to also be reconsidered. The technological developments in the last century have reshaped and redefined our way of life. For example, value is represented today by mere digits on a bank app which are backed by the government. Society gives value to digits displayed in their bank balances because of the system and acceptability of these digits among people. If an alternative system was created which gave a certain degree of trust, security, ease of use and similar features, why can’t the digits on that system be considered to be digits representing value? A system which is acceptable among people is sufficient to establish a currency in Shariah.
Value is a concept; something people have social concurrence on. Value is something which attracts Mayl (inclination). This value is a meaning, a notion underpinning cryptocurrency digits. The value in Bitcoin is there due to the practices and inclinations of the people. The digits shown as a balance in digital wallets and on the public ledgers represent a value in the minds of people. People have an economic inclination to it and have economic benefit from these Bitcoin. There is no other tangible gain from Bitcoin. Thus, the most plausible Takyīf seems to be that Bitcoin is a currency. All other issues with regards to volatility, laundering, black markets etc. are all external matters which need controls and regulation to address them.
My conclusion:
Hence, my personal view and opinion is that Bitcoins are in the ruling of a currency. They will be a currency as long as people use and exchange them. As a result, Zakat will be compulsory on Bitcoin due to their monetary nature and Thamaniyyah.  
The above view does not incorporate Bitcoin futures and derivatives. Nor are contracts of differences in Bitcoin included in the above analysis. These will be addressed separately. In addition, we will be releasing a research on the issue of Forex and the trading of Bitcoin soon with the permission of Allah.
And Allah alone knows best
Mufti Faraz Adam
Amanah Finance Consultancy /

[1]  (فما يكون مباح الانتفاع بدون تمول الناس لا يكون مالا كحبة حنطة (عمدة الرعاية ج 5 ص 8 ط دار الكتب

This answer was collected from, which is operated under the supervision of Mufti Faraz ibn Adam al-Mahmudi, the student of world renowned Mufti Ebrahim Desai (Hafizahullah).

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