Is Bitcoin Halal or Haram, or Jaiz in Islam? Is This Crypto Also Jaiz?

A conference in Abu Dhabi confirmed that ‘Bitcoin is the most Islamic form of money ever invented.’

Bitcoin remains the most fair, trusted, and immutable way to transact value online without the need for traditional intermediaries. But what does ‘Jaiz Money’ constitute in Islam?

A popular hadith by Prophet Muhammad says, “Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.”

While many experts misinterpret these holy words, Harris Irfan, CEO of Cordoba Capital Markets, points to the symbolism involved. He says, in essence, the hadith implies that anything that can be exchanged at its spot value can be considered good money.

But Is Bitcoin Halal or Haram?

Fiat remains the sole medium for most economic exchanges in the world. However, fiat itself is based on the process of riba (interest). Fiat money is infused with interest, which is unacceptable in Islam. However, since fiat money remains so prevalent, people don’t realize its nature. Banks create money via fractional reserves and credit creation, which can be considered not permissible in Islam.

But that doesn’t hold true in the case of Bitcoin, the largest crypto in the world. Even new cryptocurrencies like Caiz are setting up their economic ecosystems on Islamic principles.

Arguments exist both in favor of and against Bitcoin. While many scholars support Bitcoin as a fair and transparent currency, others raise concerns about its volatility and speculative nature. While Mufti Muhammad Abu-Bakar sees it as permissible or jaiz, as Bitcoin is considered a medium of payment, available on currency exchanges, and accepted by a number of shops and platforms, Sheikh Haitham al-Haddad, a prominent Islamic scholar, cautions that Bitcoin’s unpredictable price fluctuations could resemble gambling (maysir), making it potentially haram under certain interpretations.

But even modern fiat currencies are no longer pegged to government reserves. Bitcoin presents an alternative monetary system that aligns with key Islamic financial principles. Let’s discuss how.

The terms halal (lawful) and haram (forbidden) are broad concepts in Islam that apply to all aspects of life, including food, behavior, business, and ethics. In Islamic finance, jaiz (permissible) is specifically used to indicate whether a transaction complies with Islamic principles, such as avoiding riba (interest), gharar (excessive uncertainty), and haram activities (like gambling or alcohol-related businesses). With this understanding, let’s analyze Bitcoin’s position in Islamic finance.

Bitcoin: The Digital Gold Islam Approves Of

Bitcoin remains the first-ever decentralized currency that’s true to Islam’s economic and financial teachings. Being based on blockchain, Bitcoin doesn’t need any credit creation or other interest-based mechanisms to operate, unlike fiat. In fact, Bitcoin has a limited supply of 21 million tokens.

Bitcoin is mined. This means miners or node operators solve complex mathematical calculations to verify transactions, and in return, they win Bitcoin rewards. This process of transaction verification is called proof of work consensus. Every four years, a halving event reduces the number of Bitcoin rewards. The Bitcoin mining schedule will carry on till 2140, when the last Bitcoin will be mined. This makes Bitcoin a highly deflationary and scarce asset. Bitcoin, unlike fiat, will grow in value over time. In just 15 years, Bitcoin touched an all-time high of $108k. Also, since all Bitcoin transactions are available for public scrutiny, it is regarded as the fairest, most honest, and legitimate currency.

Bitcoin does not require any central authority like a bank or institution to look over the transactions. Instead, it is based on a transparent public ledger which verifies and records transactions using a proof of work mechanism and block consensus to approve transactions and avoid double counting. There’s no speculative effort involved.

Bitcoin empowers individuals, promoting financial freedom, fostering equity, and eliminating middlemen. In third-world countries where home currencies are facing acute volatility, Bitcoin is turning out to be the ultimate inflation hedge for the citizens. Anyone with just an internet connection can own Bitcoin.

How Can The Islamic World Benefit From Bitcoin Adoption?

Hedge Against Inflation: Egypt, Libya, and other Muslim-majority countries suffer from severe inflationary pressures. Wealth creation becomes native to the rich while the common people earn and spend in the inflated currency in these countries. Inflation acts as a double-edged sword depleting the little wealth citizens of these countries are able to generate.

Financial Inclusion: A large strata of the Muslim populace remains unbanked. With Bitcoin adoption, these people can preserve their wealth over time against inflation and censorship from governments. The people need not rely on traditional banks for economic transactions.

The Digital Gold for Islamic Finance: Bitcoin shares many of its attributes to gold, which is also historically the most accepted form of money in Islamic societies. It facilitates faster, cheaper, and the most secure cross-border transactions.

The fact that the majority of Muslim countries witness large volumes of remittances and cross-border transactions further strengthens the case for Bitcoin.

Other Cryptocurrencies Creating Opportunities For Islam-Compliant Finance

A significant portion of the Muslim population remains unbanked, according to World Bank data, due to various factors—including religious concerns about interest, which is prohibited under Islamic law. To address this, we need more effective solutions like Bitcoin that align with Islamic principles. While Bitcoin remains the flagship cryptocurrency upholding the Islamic values, projects like Caiz are delivering Sharia-compliant financial services.

Caiz (pronounced, Jaa-iz) is the first Fiqh-compliant financial ecosystem based on blockchain technology. Its transactions remain decentralized, transparent, fast, and cost effective, but its compliance and security is controlled centrally to keep the Islamic principles in place. Caiz has a suite of products, including:

• Caiz Coin, the native token of the Caiz ecosystem

• Caiz Stable, stablecoin pegged to USD, Gold, Euro, etc.

• Caiz Chain, the native blockchain based on IFBA (Islamic Federated Byzantine Agreement)

• Caiz Wallet, native digital wallet

• Caiz Earn, Sharia-compliant hybrid liquidity provision program where users can earn rewards ethically.

Caiz promotes riba-free financial services such as lending and credit. And since transactions are backed by real-world assets and stablecoins, they are risk-free, emphasize fair-profit sharing, and in tune with Islamic values.

Experts call Bitcoin the next revolution that can address economic disparities, ensure fair distribution of wealth, and decentralize wealth creation in many Islamic societies. Bitcoin and Caiz can open up ethical investment opportunities and empower the global Muslim community via innovative financial products and services in line with Islamic values.

As Bitcoin sees wider adoption and emerges as an alternative, discussions must continue to shape the future of Islamic digital finance.