Quora Answer: Is Cryptocurrency Haram in Islam?
The following is my answer to a Quora question: “Is cryptocurrency haram in Islam?”
A cryptocurrency is merely a form of digital asset based on a distributed network. This means the system is decentralised, outside the control of any regulatory authority, except at the points of exchange. None of this makes cryptocurrency inherently haram.
The contention is that there is no underlying physical asset to give it value. Islamic finance has no basis to characterise this, and the fiqh, jurisprudence, has not caught up with developments. However, if we view cryptocurrency as a means of exchange, and not an inherent asset by themselves, this contention can be addressed. In the same vein, cheques and currency developed as means of exchange, not assets in and of themselves. Their value lies in what they represent.
A second objection raised is that cryptocurrencies are inherently volatile. This is a weak argument. All commodities are inherently fragile as well, and so are the derived markets and financial instruments. If volatility is sufficient to make cryptocurrency haram, then much of the basis of Islamic finance would also be volatile. Gold prices are volatile. Are we going to declare gold haram as well? All forms of exchange of value have degrees of volatility due to supply and demand. If the argument is speculation, then what should be declared haram is the speculation, not cryptocurrencies themselves. People use gold for illicit activities. They speculate in gold process as well. It would be illogical for us to declare gold haram.
In summary, there needs to be further discussion on the role of cryptocurrency within the ambit of shari’ah-compliancy. Cryptocurrency is here to stay. It is the next evolution of the financial system as a medium of exchange and transfer of value. Our discussions in fiqh need to examine it closely, and come up with real contentions of how it can be used, or why it is haram. That declaration of its licitness or illicitness within shari’ah needs stronger arguments.