Halal defines what is permissible under Islamic Law known as “Shariah”. Halal Investments are financial products which are deemed adherent to Shariah. Interest is strictly forbidden in Islam. Holy Quran states:
O ye who believe! Devour not interest, doubled and multiplied; but fear Allâh; that ye may (really) prosper.
So to understand if Cryptocurrency investments are halal (allowed) under Shariah we need to look a little closer on what investments are halal (permitted) and which is haram (forbidden).
First of all, let look at investing in companies, and we will split them into three categories, so it is understandable what is halal and haram.
Shares based on permissible work, such as companies that deal with transportation, shipping, manufacturing clothing, tools, office supplies, furniture, medical equipment, real estate, and so on, and do not engage in any haraam practices or transactions. Such as cheating, lending or borrowing on the basis of riba (interest); instead, they follow Islamic rulings in all their transactions and dealings.
These types of companies are called “clean” companies, and it is halal to buy and sell shares in.
Shares based on prohibited types of work, such as companies that deal with tourism, hotels that promote and aid in immoral actions, breweries, riba-based banks, commercial insurance companies, companies that print and distribute indecent magazines, and so on. It is not halal to buy shares or invest in this type of company, and it is not permissible to advertise or promote them.
Concerning these types of companies, there is no confusion about the ruling and the matter is quite apparent.
Companies whose field of work is basically permissible, but they engage in some haraam practices or transactions, such as transportation companies which for example have interest-bearing accounts in the bank, or if they are financed by riba-based loans from banks or people in the form of stocks.
These types of companies are called “mixed” companies. The contemporary scholars differed concerning the ruling on them, but the correct view is that it is haraam to buy shares in them, invest in them or promote them.
That is because the shareholder is a partner in the company based on the number of shares he holds, so he is a partner to every transaction into which the company enters, such as riba or other haraam transactions.
Concerning the prohibition on promoting these companies, that is because of what that involves of co-operating in sin and transgression, helping to spread haraam and causing people to fall into it. Allah, says
“Help you one another in Al‑Birr and At‑Taqwa (virtue, righteousness and piety); but do not help one another in sin and transgression.”
There are a lot more in the Muslim way of trading stocks, but this is a fundamental view of understanding what is halal and haraam when a good Muslim is investing.
To better understand if cryptocurrencies are halal let take a look at what comes closest which is Forex trading and for Muslims, there are a couple of rules that need to be upheld to stay within what is allowed.
There may not be RIBA allowed
Taking interest is strictly forbidden in Islam, and there is no room for a ‘grey’ area in the matter. Hence, any currency trade transaction that involves ANY type of exploitation is not allowed in Islam. For example, when you are dealing with the same kind of currency (e.g. dollar for dollar), the exchange needs to be of equal amounts (e.g. 1 dollar for 1 dollar). You cannot trade the same currency for different values (e.g. 1 dollar for 3 dollars) because that falls in the domain of riba.
The contract and trade must take place in the same sitting
You may trade one type of currency for another (e.g. dollars for rupees), as long as you make sure that the exchange is made in the same meeting as when the contract is signed.
You need to uphold the hand-to-hand concept without delay
Buying and selling in the currency market are allowed but the exchange must be carried out at the earliest, and any delays should be avoided. If there is a delay, the transaction may fall under the umbrella of riba, which is prohibited. Moreover, according to the Islamic Fiqh Council, under the ‘hand-to-hand’ clause, the exchange in currencies which happen over the phone or the internet are only permissible if the exchange results in immediate transfer of funds from the seller’s account to the buyer’s account or if the buyer or his agent takes immediate possession of the respective cheque payment.
Narrated by ‘Ubaadah ibn al-Saamit (may Allah be pleased with him) who said: The Messenger of Allah (peace be upon him) said: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, same for same, hand to hand. If the types are different, then sell however you like, so long as it is hand to hand.” (Muslim 1587)
It is not many rules, but in most western countries it is difficult due to the way our system is put together. But it shows us that cryptocurrencies might be halal so let’s look at cryptocurrencies to determine if it is halal or haraam.
The adoption of cryptocurrency has been a pressing issue for Muslims around the world. Currency without intrinsic value is forbidden to Muslims, as is lending money with interest rates. This practice is known as usury. As the rest of the world began to adopt the new digital currency, Muslims were forbidden to stake their claim in the crypto space – until now. An Islamic scholar named Mufti Muhammad Abu Bakar published a paper addressing the issue, writing.
“In Germany, Bitcoin is recognised as a legal currency and therefore qualifies as Islamic money in Germany. In countries such as the US, Bitcoin lacks official legal monetary status but is accepted for payment at a variety of merchants, and therefore qualifies as Islamic customary money.”
With such expression from the Muslim communities, we might see the start of massive adoption in Muslim world’s. Since Muslims account for nearly one-quarter of the earth’s population. If adopted by more Islamic scholars, the decision could open the market to many new investors previously avoiding the commodity.
But Muslims still need to adhere to the Sharia when investing in cryptocurrencies. So if we return to the rules for FOREX trading. Let’s take them one by one first Riba (interest) none of that when you store it in your wallet. If you use exchanges like Coinbase, you can take possession as soon as payment is cleared and using something like local bitcoin you need to ensure that the deal is agreed upon at the same meeting as the agreement is put through. And trading at face value is the only option at exchanges like coinbase.
If you want to know more about investing as a good Muslim I recommend the book I am in the middle of reading called “OPENING THE DOOR TO A WEALTHIER LIFE: A Muslim’s good to mastering money” not that I am a Muslim, but it holds some good ideas on common sense investment.
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