No, bitcoin did not just officially become halal
Bitcoin's recent rise cannot be attributed to one Islamic scholar's recent interpretation.
Bitcoin and other cryptocurrencies rose up today, seeing the biggest 24 hour gains since the all-time-highs, and the largest ever 1 hour bitcoin trade volume. After so much sideways movement, punctuated by the occasional sharp drops, people are wondering what just happened.
One of the more compelling theories is deliberate price manipulation for the purposes of liquidating shorts, which reached their own all-time-high immediately before the unnatural-looking price jump.
Is bitcoin halal or haram?
Halal is permissible, haram is forbidden and there's no shortage of opinions on either side.
The recent developments focused on one new paper written by Muhammad Abu Bakar, head of Shariah compliance at Blossom Finance. It should, but apparently doesn't, go without saying that one new opinion doesn't suddenly throw open the doors to billions of new buyers.
Firstly, it's easier to find some arguably more influential voices saying the opposite. For example, the Turkish Directorate of Religious Affairs has previously said that bitcoin is not compatible with religious law. The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has similarly tackled the question, and come back with the answer of "it depends".
This is also the conclusion recently reached by Abu Bakar.
The heart of the matter is the same question regulators all over the world are struggling to answer. Is bitcoin a currency or an asset?
If it's an asset, bitcoin would fall under the "ribawi" category which includes other commodities such as gold and silver. Under traditional religious law, these should be exchanged in equal measure and with immediate transfer of possession, Reuters explains, lest the transaction involve "riba," or usury.
Usury has traditionally been strongly disallowed under both Islamic and Catholic religious law, and the nuances are still a matter of debate among scholars of both religions. As such, there is no hard answer one way or another and it all depends on the circumstances.
Matthew Martin of Blossom Finance points out that blockchain itself is halal, and that bitcoin as a payment network is arguably halal where established monetary systems aren't.
"As a payment network, Bitcoin is halal. In fact, Bitcoin goes beyond what more conventional closed banking networks offer. Unlike conventional bank networks which use private ledgers where there's no guarantee that the originator actually owns the underlying assets, Bitcoin guarantees with mathematical certainty that the originator of the transfer owns the underlying assets. Conventional banks operate using the principle of fractional reserve, which is prohibited in Islam."
But there are grey areas, on both the crypto and fiat side.
"Bitcoin is more halal than any currency in wide circulation today," Martin says, "but probably still falls short of the strict and narrow definition of money in Islam. Modern sovereign currencies are based on debt with usury - this is strictly prohibited in Islam."
According to some popular interpretations, if someone wants bitcoin to be halal then it can be, as long as the buyer knows that it's a currency rather than a speculative asset.
In the end, no one scholar's opinion would be enough to move the dial on bitcoin prices. Formal religious rulings on the Shariah compliance of cryptocurrency is mostly a concern for financial institutions that want to operate on the right side of the law, while individuals can pick a scholarly interpretation that suits their personal needs and beliefs.
Some of these, such as Martin's interpretation of how fiat currencies might technically be prohibited, might simply be too inconvenient to follow. Others might be a little too permissible and easy.
And in the middle, there's a grey area deep and wide enough for anyone to find what they want. Bitcoin certainly wasn't the first time "riba" started chafing, and there have always been suitable answers, such as Islamic home loans and other specialised Islamic financing solutions.
Bitcoin's recent price rise almost certainly had nothing whatsoever to do with Abu Bakar's research paper. One Islamic scholar doesn't have the authority to declare bitcoin halal anymore than one lawyer has the authority to declare ICO tokens not a security. There are peak bodies and industry associations in different countries for that kind of thing.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, NANO
- Ethereum price: Experts believe key indicators paint a negative picture
- China’s aggression to Bitcoin has lead to its worst month in years
- Bitcoin’s better half: Growing number of Australian women investing in crypto
- Ethereum price continues to slide, correcting by 9% overnight
- Bitcoin price drops 5% overnight as usage weakens