Op-ed: Examining cryptocurrency from a Shariah perspective

Both Islamic and conventional economics share the same view with regard to the criteria of a valid currency and its perceived economic functions. From both perspectives, despite cryptocurrencies being an innovative mode of payment and a trading instrument, they still do not qualify as being a legal tender, simply because they fail to possess the features of a currency - being a means of exchange, a unit of account, and a store of value.

Although these three features exist in cryptocurrencies to some extent, they are not evident or entrenched to the extent that cryptocurrencies would qualify as becoming valid currencies. It is possible that, in the future, cryptocurrencies may evolve to successfully attain full currency status, or even replace conventional currencies, but this may take some time and require the appropriate governance to regulate them and subject them to scrutiny and control to avoid the high risks and concerns currently associated with dealing in them. According to the Bank of International Settlements - which is considered the central bank for all central banks, “While digital currencies are a revolutionary tool, they remain far too risky to be used as legal tender any time soon”.

With Bitcoin specifically, it has excelled and superseded other cryptocurrencies, but most likely as a speculative trading tool more than anything else. However, Bitcoin is still lacking the necessary characteristics of a valid currency in view of its limited acceptance, some security-related issues, and its high volatility in terms of value. Starting with a value far below US$1, Bitcoin appreciated in 2017 from US$1,000 to US$20,000, and towards the end of the year it lost around 50 percent of its value. In March this year, it reached US$61,259 – after falling to US$4,500 in 2020.

Nevertheless, Bitcoin may have the potential to evolve and acquire the features of a valid global currency if the world authorities recognize it unconditionally and subject it to the necessary regulations and controls.

Generally, to sum up the Shariah stance on cryptocurrencies as I understand it, the following points can be highlighted:

• The concept of money under Shariah is not limited to gold or silver. Instead, Shariah recognizes whatever people use as currency. This means there is no Shariah objection, in principle, to the creation of a new currency, such as a digital currency or a cryptocurrency, as long as it meets the Shariah conditions of a valid currency, and its trading and transactions are subjected to the same Shariah rules as a regular currency.
• From a Shariah perspective, a currency whose value is technical and not intrinsic has to be properly backed by real valuable assets or be supervised by a trustworthy financial authority, in order to protect people dealing in it from possible fraud and excessive fluctuations in its value.
• The recent popularity and success of Bitcoin is due to speculative trading rather than its genuine use as a currency. Most of those who buy it are speculators aiming to make a quick gain from quick trading without taking the risk of holding it for long time. To them, Bitcoin is an investment opportunity that arose rather than a currency to be treated and used as such. If this is the case, then quick-wealth seekers may even desist from trading in it within a single day and turn to a more novel trading instrument, especially given that modern technology has lifted all boundaries for engineering gambling-like investments.

• Trading in cryptocurrencies is highly risky given their high volatility. This makes investing in them a gambling-like business, which in turn calls for Shariah objection. Also, the high volatility of cryptocurrencies and their excessive trading inevitably impact their value and purchasing power, thereby impairing the economic functions of a currency from a Shariah perspective.
• The vulnerability of the cryptocurrencies to possible hacking and digital monopoly is a significant concern from a Shariah perspective, especially given that the average user has limited knowledge about hacking and cyber attacks. Indeed, we know little about the safety of our data on our computers, and the trend has been that hackers will hack or create a bug and then IT scientists come up with some solutions. However, from the time of hacking until the emergence of the counter procedure, many cryptocurrencies can be stolen or lost.

Cryptocurrencies still do not possess the necessary Shariah characteristics of a valid currency, and the high risks associated with their trading give it a gambling nature. It is only if those issues are resolved that the Shariah may recognize them as valid currencies, similar to what it did to paper (fiat) money.


Dr. Abdulazeem Abozaid holds a PhD and Master’s degree in Islamic financial law. He has conducted many workshops and training courses at Islamic banks, financial institutions and universities, has worked in Islamic banks, and has released more than 70 publications in Islamic finance. He is currently an Associate Professor of Islamic Finance at Qatar Foundation’s Hamad Bin Khalifa University.