So, what do I think about bitcoin?
In this article, I’ll try to answer the question of whether I think Bitcoin in particular and cryptocurrencies, in general, are Halal or Haram.
Rather than explain bitcoin in my own words, I’ll simply refer you to one of the thousands of perfectly good explanatory articles that have been made on the topic.
With exception to rituals of worship, the default for everything in Islam is permissibility. So I will start at this point. i.e. Bitcoin is a completely permissible form of money. Now, let’s examine whether or not some aspect of Bitcoin runs afoul of Islamic principles and therefore causes us to think that it is prohibited.
Here a larger question suggests itself which is: Does Islam place any restrictions on what is or isn’t permissible to use as money?
Some have made the claim that money in Islam has to have intrinsic value and therefore because bitcoin does not have intrinsic value it should be avoided.
Many people accept the claim that Halal money should have intrinsic value without knowing if there is any evidence from the Quran or the life of the Prophet that can justify this claim.
I would like to examine what is often used as “evidence” to back the “Halal money should have intrinsic value” claim to see if it holds any merit.
Let’s start with the hadith from Allah’s Messenger (PBUH) :
“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, equal for equal, with exchange happening from hand-to-hand [without delay]. If the types differ, sell as you wish provided that exchange is made hand-to-hand [without delay] “.
To understand the reasoning behind this hadith one must understand that the items mentioned in the hadith were all used as money at the time of the Prophet peace be upon him, restrictions were added to their exchange in order to prevent lenders from disguising interest-bearing loans as normal trades in the mentioned items. For example, someone could say I am trading 1Kg of dates for 2Kg of dates to be delivered to me after a month. Basically what happened here is that a loan in the amount of 1Kg of dates [a form of money at the time] was borrowed and the loan of 1Kg was returned as 2Kg after a month i.e. 1Kg to cover the principal and another 1Kg as interest.
Being the shrewd legislator that the Prophet Muhammad peace be upon him was, he closed this loophole by declaring that exchanges in these items which were used as money has to happen simultaneously (which is what is meant by the phrase “hand-to-hand”) and it has to be for equal quantities and equal qualities which is what is meant by “like for like” and “equal for equal”.
Unfortunately, some have attempted to extrapolate much more meaning from this hadith.
Namely, sheik Imran Hossein makes the argument that: “In this hadith, there is a definition of money, because if you look at the commonality between all the items mentioned in the hadith you’ll notice that they all have intrinsic value.”
There are many problems with the sheik’s approach not least of which is the claim that Gold and Silver have intrinsic value.
The concept of value refers roughly to the usefulness of an item. Some items may be considered useful only because they have a market value. So for example, I may own a painting which I don’t have any use for, but I can still consider it valuable if I know that this particular painting has a market value. So I know that I will be able to exchange it for something else if I so choose.
Items that have intrinsic value are items with usefulness that is independent of any market value considerations.
A painting that I have no use for and do not enjoy has no intrinsic value to me. This is because the value I assign to such a painting is entirely dependent on its market value.
On the other hand, a pound of apples that I have in the fridge has intrinsic value because the apples are useful to me irrespective of their market value. I can eat the apples if I so choose.
Now the question is, does the average person have any use for Gold or Silver or is the value we assign to them primarily dependent on their market value? I think most people would agree that absent their market value, the average person can extract very little usefulness from Gold or Silver. You may say that Gold and Silver can be worn as adornment but I would argue that the primary reason people wear them is because they have a market value and serve as a symbol of wealth. Without their market value, Gold and Silver are simply shiny metals that few would find any use for. Accordingly, the claim that Gold, Silver, Wheat, Barley, Dates, and Salt all have a common trait which is that they all have intrinsic value is false because Gold and Silver do not.
Not to mention the fact that the hadith never actually attempts to define money. Simply trying to find a common trait between the items mentioned in the hadith in order to extrapolate a definition for Halal money seems to me like a flawed approach. After all, there are many other commonalities between the mentioned items; for example, none of the items are sheep. Can we comfortably say that sheep are haram to be used as money?
There is simply no credible evidence to back the claim that Halal money needs to have intrinsic value. None whatsoever. There is evidence to the contrary which is that Gold and Silver were clearly permitted for use as money during the time of the prophet peace be upon him and as we discussed, neither Gold nor Silver has intrinsic value separate from their market values. Accordingly, the claim that Halal money should have intrinsic value can be comfortably classified as false.
There is another claim that sheik Imran Hossein makes which suggests that Gold and Silver money somehow have a preferred status in Islam. I’d also like to examine the evidence behind this claim to see if it withstands critical interrogation.
Sheik Imran argues that because Dinars (which are made of Gold) and Dirhams (which are made of Silver) are mentioned in the Quran, the mere mention of these items in the Quran should cause us to regard Gold and Silver money as preferred in Islam.
However, if the mere mention of Gold and Silver in the Quran are cause for the sheik to regard them as the preferred money of Islam, why does the sheik not regard horses and camels as Islam’s preferred modes of transportation? After all, they too are mentioned.
The conclusion of the sheik regarding Gold and Silver ignores the actual content of the Quranic verses in which Dinars and Dirhams are mentioned.
The first verse cited by the sheikh is:
وَمِنْ أَهْلِ الْكِتَابِ مَنْ إِن تَأْمَنْهُ بِقِنطَارٍ يُؤَدِّهِ إِلَيْكَ وَمِنْهُم مَّنْ إِن تَأْمَنْهُ بِدِينَارٍ لَّا يُؤَدِّهِ إِلَيْكَ إِلَّا مَا دُمْتَ عَلَيْهِ قَائِمًا ذَٰلِكَ بِأَنَّهُمْ قَالُوا لَيْسَ عَلَيْنَا فِي الْأُمِّيِّينَ سَبِيلٌ وَيَقُولُونَ عَلَى اللَّهِ الْكَذِبَ وَهُمْ يَعْلَمُونَ
And among the People of the Scripture are those who, if you entrust with a great amount [of wealth], will return it to you. And among them are those who, if you entrust him with a Dinar [a single Gold coin], he will not return it to you unless you are constantly standing over him [demanding it]. That is because they say, “There is no blame upon us concerning the unlearned.” And they speak untruth about Allah while they know [otherwise].
(Holy Quran 3: 75)
And the second verse:
وَشَرَوْهُ بِثَمَنٍ بَخْسٍ دَرَاهِمَ مَعْدُودَةٍ وَكَانُوا فِيهِ مِنَ الزَّاهِدِينَ
And they sold him [referring to Yusuf may peace be upon him] for a small price – a few Dirhams [Silver coins] – and they were, concerning him, content with little.
(Holy Quran 12: 20)
The first verse is making the point that when it comes to trustworthiness people of the scripture were all commanded to be trustworthy with everyone regardless of who they were dealing with and to claim otherwise is a lie against Allah while the second verse is relaying a story that happened at a time when Silver coins were used and simply mentions that they were used while relaying the story.
Nowhere in these verses is there any suggestion or even hint that Muslims should use Gold or Silver as money.
There is no evidence in the Quran or the life of the prophet peace be upon him that suggests that Gold or Silver money have any preferred status in Islam any more than there is evidence that horses and camels are preferred modes of transportation.
I suppose some of the confusion here comes from the fact that many are conflating the idea of having intrinsic value with the idea of serving as a reliable store of value.
Money should be a reliable store of value but this is completely unrelated to whether or not it has intrinsic value. For money to be a reliable store of value it simply needs to represent the same amount of goods and services over time.
Many who rightly want to combat the devaluation of money over time think that if we somehow just stop using paper money or we use things that have intrinsic value or we use Gold or Silver that the devaluation of our money over time will stop. While I share with the goal of having money that serves as a proper store of value, changing the material that our money is made from is not the solution. The devaluation of our money, commonly known as inflation, is caused when more money is introduced into the economy than can be justified by the amount of goods and services that were produced during the same period. If the ratio of the amount of money to the amount of goods and services in an economy increases, a single unit of money will represent a smaller amount of goods and services, this is what causes inflation and it will happen regardless of what money is made of.
So to combat inflation, rather than focusing on what we make our money from, we should be focusing on designing a monetary system wherein money is introduced into the economy at a rate that is consistently in proportion with the amount of goods and services that are being produced.
Using interest-bearing debt in order to create money in our economy, as most economies do today, will inevitably cause inflation. Using Gold and Silver while maintaining our system of creating money through interest-bearing debt will only exacerbate our problems because nations will start to fight over Gold and Silver as they did in the past.
The natural limitation on the amount of gold and silver available is a horrible way of regulating the money supply because it is unrelated to economic output. Additionally, if not enough money is created, deflation will happen which means money will go up in value. What’s wrong if money goes up in value you ask? Well, what are you going to do if you know that the dollar in your pocket is increasing in value? Are you going to spend it? Probably not. When deflation occurs, people stop spending their money which causes the economy to slow down and eventually stop.
We need money that can be produced whenever needed with a supply that isn’t controlled by any government or entity that may have interests contrary to the goal of preserving the value of money.
Bitcoin has an advantage over money managed by central banks because it’s creation is decentralized and no one entity controls its supply. However, the supply of bitcoin is limited which can potentially cause deflation if it is adopted as money and its creation isn’t in any way related to economic output which makes it an unreliable store of value.
If we can somehow tie the production of Bitcoin or some other cryptocurrency to economic output we will have taken a huge step towards creating money that is truly Islamic; one that maintains its value over time so that people’s savings aren’t stolen from and also is convenient to use when transferring or exchanging goods and services.
In summary, I find there is nothing inherently wrong with using bitcoin (or any other cryptocurrency) as a means of exchange between two parties. Bitcoin will only be used as money if it can demonstrate a consistent ability to act as a store of value but this has not happened yet. Today, bitcoin is simply a non-productive investment asset with a price that is primarily determined by other people’s perception of it. In this respect, it is very similar to Gold and Silver.
While it is absolutely true that purposely devaluing money is a form of theft which Islam absolutely prohibits, there is no truth to the claim that Islam prefers Gold or Silver or money with intrinsic value. There is no evidence in either the Quran or the Sunnah that supports this claim.
To create money that is truly in line with Islamic values we should strive to solve the issue of regulating the money supply so that it expands at a rate that is always in constant proportion with economic output and stop wasting our time with this baseless notion that Islam cares about what material money is made of.
If you have any comments or feedback I’d love to hear from you in the comments section below!