What is Cryptocurrency - is it halal?

Introduction

Cryptocurrency is essentially a digital currency exchange and digital payments platform that uses blockchain technology. The technological and digital revolution over the last few decades has meant that innovative payment systems have been created and utilised, and cryptocurrency is one of the major breakthrough payment systems for business and personal finance use. Whether or not cryptocurrency is halal or haram is a debate that is ongoing between Islamic scholars.

This article will examine cryptocurrency, Islamic interpretations, and the types of cryptocurrencies available.

Cryptocurrency

Although there are over 2,000 cryptocurrencies on the market now, Bitcoin is probably still the most known form of cryptocurrency in the blockchain market, and was the first cryptocurrency coin to go mainstream but there are other cryptocurrencies entering the market.

For Muslims across the Islamic world, the question arises as to whether crypto payment platforms are deemed to be halal or haram in the eyes of Allah and in accordance with Shariah principles, and whether as a currency it prevents money laundering. Whether or not cryptocurrency is halal or haram depends on the how a specific cryptocurrency aligns with the principles of Islam.

Cryptocurrency - Characteristics

One of the defining aspects of cryptocurrency is that there is no central authority such as a Government that authorises it or records it. Cryptocurrencies operate on decentralised networks using blockchain technology.

Most cryptocurrencies have a limited supply, or at least a capped supply. Transactions are transparent and traceable, but there is also a degree of anonymity of parties. One the main advantages of cryptocurrency is that it offers global accessibility. It can be received anywhere in the world - all you need is an internet connection.

For Muslims, cryptocurrency does tick a lot of the Islamic finances boxes when it comes to transparency and traceability. However, ultimately it is the duty of every Muslim to be seeking knowledge, and this guide will address the use of the cryptocurrency market and its intrinsic value.

This article will consider whether crypto currency is permissible as a form of actual money under Islamic laws and in the Islamic world. We will consider the views of Islamic jurists and scholars on this emergence of what is considered to be new money addressing the question of is cryptocurrency halal.ISLAMIC SCHOLARS INTERPRETATION - IS CRYPTOCURRENCY HALAL?

A comprehensive Islamic law interpretation, one that sparked a massive rise in Muslim investment in Bitcoin and Ethereum in 2018, was provided by Sharia advisor Mufti Muhammad Abu-Bakar (former advisor to Blossom Finance) who looked at the question of is cryptocurrency halal as a money supply. He argued that Bitcoin is permissible under Islamic principles.

Mufti Abu-Bakar considered arguments that crypto itself was speculative when it comes to personal finance, but his view was that all currencies have a speculative element and this did not automatically deem cryptocurrency as haram.

Crypto Currencies

Islamically, if a business does not have an element of appropriate loss probability within its assets is not strictly trading in a Sharia compliant manner. The Grand Mufti of Egypt, Shaykh Shawki Allam believes that cryptocurrency is haram and he is joined by other Shariah scholars from the Middle East and beyond including Shaykh Haitham Al Haddad who see crypto as high risk. Their argument is based on the notion that crypto itself does not hold enough credibility as a currency to be deemed to be halal.

However, many other Sharia scholars believe that crypto itself does confirm to Sharia money rules and Muslims are permitted to invest in crypto.

Islamic scholars who believe that cryptocurrency money and digital assets are halal include Ziyaad Mahomed, Shariah Committee Chairman of HSBC Amanah Malaysia Bhd, and Mufti Faraz Adam. These views lend credence to the notion that Muslims can invest in crypto.

Arguments in favour of crypto being deemed halal include:

• There is often a lack of riba (interest). Crypto operates on decentralised platforms without any central authority. This usually means there is no interest charged or payable.
• Crypto is used as a medium of exchange with a legitimate purpose in financial and economic transactions.
• Technologically, crypto is neutral. Scholars argue that it is the use of the crypto that determines if it is Sharia compliant or not.
• The fact that crypto is generally thought to be scarce means that it is easier to avoid speculation and uncertainty and this aligns with Islamic finance rules.

Islamic Scholars

As mentioned above, one of the main reasons Islamic jurists and scholars from Muslim countries argue that cryptocurrency is halal, is that the concept of the blockchain and other cryptocurrencies are inherently anti-interest when looked at from a money generation source or perspective. Crypto operates outside of conventional banking systems and interest-based transactions.

Islamic banking laws are also anti-interest so the technology, pricing, and buying and selling of cryptocurrency money is deemed halal by many Islamic scholars who rely on the teachings of Prophet Muhammad PBUH when seeking guidance about permissibility (ultimately, only Allah knows best).

Given that crypto has a finite supply, it is less likely to be subject to inflation. This means it can maintain a fairly stable value - again an important element of Islamic finance.

Crypto Blockchains And Islamic Finance Principles

Blockchains refer to the blocks of technology used to record digital cryptocurrency transactions. Blockchains act as a system of record and the reason this form of technology is so important is that it is virtually impossible to hack, change or cheat the blockchain platform or marketplace.

With the use of blockchain, centralized financial institutions and establishments are not needed as no central control is required. This also means that crypto trading (and the stock market) is more transparent.

According to many Islamic scholars and religious leaders, this addresses the question of is crypto halal within Islamic Finance rules and Islamic law more generally.

As cryptocurrency money is deemed permissible and halal under Islamic Sharia rules this has unlocked the crypto investment market to a global Muslim community with increasing numbers of Muslims with an interest in buying crypto and use it as a form of currency.

In terms of business practices, there are some basic principles (discussed in this article) relating to crypto and cryptocurrency trading that help many Muslims to decide if their entrepreneurial journeys and endeavours are permissible or strictly prohibited.

Consideration And Commercial Value - Is Crypto Halal Or Haram

From the perspective of Islamic contract rules, there must be an element of consideration when answering the question is crypto halal - there must be Mal. Mal refers to possession and effective storage, and cryptocurrencies meet the criteria required as they can be possessed and stored and have commercial value (Mutaqawwam).

Crypto is a real and viable digital asset, its worth and value lies in what is paid for it, and it is capable of being owned and traded commercially so the Shariah requirements are satisfied and the the question of is crypto halal can be answered.

Shacklewell Lane Mosque

The Shacklewell Lane Mosque in East London became one of the first mosques in the UK to accept cryptocurrency donations and Zakat contributions in 2018 during Ramadan. This mosque deemed cryptocurrency halal and permissible and generated a lot of interest on the topic of the permissibility of crypto more generally under Islamic law.

Digital Currencies, Money Laundering And Shariah Law

Islamic finance principles dictates that in order for income, or investing in any product or asset, to be deemed halal it has to meet certain criteria. The principles of Shariah law should be applied to the financial systems we operate in and there has been some discussion amongst Muslim scholars about whether rules devised centuries ago can still be applied to a technologically modern digital financial marketplace.

Whether cryptocurrency is halal or haram centres on the rules of Sharia law.

Is cryptocurrency halal? For many Islamic scholars, the answer quite simply is yes. Shariah principles can be applied to modern crypto analysis and digital currencies as they are based on social justice, accountability and ethics which transcend all forms of financial transactions. As long as there is no illegal activity, then trading or investing in crypto should not be deemed to be contrary to Shariah principles.

Investments, Islamic Banking Law And Illegal Activities

There has been some discussion amongst Muslim scholars around the use of cryptocurrencies for illegal activities such as gambling, drugs, and money laundering. Critics of Bitcoin also argue that it is not legal tender as it is not backed by any central government that assigns its value and maintains regulatory standards, and it is therefore deemed to be speculated trading.

However, Islamically the use of an item that is deemed halal for an unlawful purpose does not make the original item halal. Whether it is halal or haram depends on the multiple factors.

Currency Ownership

Ownership of the currency remains with the owner according to Muslim scholars, and the coins/tokens are kept in an e-wallet. This means that investors can take part in trading as and when they want, retaining control of their assets.

As mentioned above, the publication of the working paper conducted by Mufti Muhammad Abu Bakr clearly identified that cryptocurrency is permissible under Shariah rules.

For Muslims worldwide this could have huge implications for the payment of Zakat monies that are made to the poor and to charities globally. If Muslims make up 25% of the world's population and hold approximately £1.04 billion in bitcoins, this means that £26 million is due in Zakat contributions. [1]

Medium Of Exchange

Cryptocurrency operates as a medium of exchange across the globe. This means that it can operate in legally diverse and unpredictable environments, often making it more accessible than mainstream finance options. It is a valid form of currency that holds purchasing power.

Although vulnerable to market changes, crypto coins such as Bitcoin and Ethereum are deemed to be a legitimate medium of exchange, available for use in transactions and trading. Although crypto has not yet reached the status of being a globally accepted medium of exchange, it is fair to say that it is on the way to becoming so. Commentators expect crypto to appreciate over the course of time and to store value.

Cryptocurrency Guidelines

The development of Shariah compliant cryptocurrency guidelines provides Muslims with the opportunity for ethical investments. From a financial perspective, Islamic charities could benefit hugely from Zakat and other donations as a result of crypto investment.

Many banks and financial establishments globally are recognising crypto as a financially viable medium of exchange, and this makes it easier for investors to continue to trade, buy and sell cryptocurrency.

With billions of Muslims worldwide, and the growth of crypto, it seems clear that what is perhaps needed is some form of shariah compliant cryptocurrency guidelines for Muslims to follow. This would enable Muslims to assess themselves the validity of cryptocurrency when assessed against Islamic finance rules.

Contracts

In terms of whether contracts relating to crypto are Shariah compliant, given that the contractual relationships in crypto are based on smart contracts using blockchain technology, this means that the process can be made increasingly secure and automated.

This not only reduces administrative complexities, confusion and errors, but also ensures that banks are more likely to accept the contractual relationships created.

In demonstrating Shariah compliance, cryptocurrency is earning legitimacy across the Islamic finance world. Cryptocurrency agencies are springing up across the Muslim world such as One Gram in Dubai, and Hello Gold in Malaysia.

This adds further legitimacy to the rulings that cryptocurrency is halal and can be utilised by Muslims and Islamic financial institutions. Of course, there needs to be ongoing discussion to consider is crypto halal as it operated within a dynamic and changing industry.

As the crypto market continues to evolve more questions will need to be asked, and each crypto coin should be analysed against Islamic finance principles to check for permissibility. However, as things stand right now, crypto is recognised as an asset under Sharia law and this lends it legitimacy. The things to be careful of are making sure that any cryptocurrency you are involved in does not link to any haram things and industries or activities or any form of money laundering.

Whilst there is no central body who can make a final ruling on whether crypto is halal or haram, but as there is no element of interest (riba) and no exorbitant fees relating to crypto the interest from Muslims is growing. Crypto can be used within Islamic finance principles to make ethical investments and wealth management in a Shariah compliant way. This could unlock the cryptocurrency investment market to billions of Muslims worldwide who are looking to enter the crypto market as investors.

As the currency is still in its infancy it is important to keep an eye on all new developments and to assess and analyse changes in the marketSource:
[1] https://www.independent.co.uk/life-style/gadgets-and-tech/news/bitcoin-halal-london-mosque-donations...

The purpose of Debt Consolidation is to reduce your debt and reshuffle it to make it more affordable to pay off.

Debt Consolidation works by combining multiple debts into one manageable pot. For example, if you have numerous debts that have a combined total of £10,000, you can get a single £10,000 loan to pay off those debts. You then would repay the £10,000 loan in one single monthly repayment.

Debt Consolidation can also reduce the interest you need to pay by having all your debt in one pot, at a lower interest rate.

Overdraft loans can take different forms, such as cash advances, business debt, and credit card debt. Keeping track of various debts and the interest required to be paid on them can be exhausting and time-consuming.

You may have various debts from different providers, but these debts are first paid in full before monthly repayments are made to a single provider. This way you are only accountable to one provider, keeping things simpler and straightforward.

For example, Sarah has a credit card with Santander, an overdraft with Barclays, and an asset finance loan she’s taken against a product. Consolidating these debts into a single loan allows Sarah to gradually chip away at her debts to one single provider.

Another example would be Ahmed, who takes out two business loans with the same provider. He now wants a third to invest further into his business. Just like Sarah, Ahmed can consolidate the loans he has already taken into one, straightforward loan from a single provider.

WHAT ELSE CAN DEBT CONSOLIDATION BE USED FOR?

Examples of different types of debt a consolidated loan can be used to combine:

• Credit card debt (consolidated loans help reduce the impact of the high APR - annual percentage rate - charges most credit cards have).
• Personal loan debt (these are often used to fund a car purchase, a holiday, or home improvements).
• Overdraft (most banks charge high-interest rates on overdrafts which can lead to substantial debts that can be financially crippling).
• A Store Card (like credit cards, store cards often have high APRs and fees, despite initially offering front-end discounts).
• Payday Loans (loans which can be paid directly into your bank account but have high-interest rates attached that can make repayment difficult).
• Bailiff debt (such as unpaid Council Tax bills, parking fines, court fines and county court, high court or family court judgments).

How Debt Consolidation Works

First, you’ll need to establish the total sum of your existing debts.

You can then take out a loan which will cover the total cost of the outstanding debt. When you’re looking for a new provider for a debt-consolidating loan, you will want to find a loan that works with your budget.

The idea is to create straightforwardness, simplicity, and manageability by consolidating your debts. So when choosing a new loan provider you’ll want to pick a loan repayment plan which is manageable within a reasonable time frame you know you can pay the loan back in.

Like any other loan, a debt consolidation loan is available in two forms:

AN UNSECURED LOAN
This is a personal loan that does not require an asset, such as your home, to act as security for the loan.

A SECURED LOAN
This is a loan in which you attach an asset, like your home or a car, as security. In the instance where you are unable to repay the agreed-upon loan, the loan provider can repossess the asset put forward by you as a security, where they can then sell it and recoup the loan by another means.

The Pros And Cons Of Debt Consolidation

BOOSTING YOUR CREDIT SCORE
Keeping to a single monthly repayment consistently will improve your credit score, giving you greater financial flexibility into the future. Alternatively, your credit score may be at risk if you cannot meet the monthly repayments.

LOWER OVERALL INTEREST RATES
Debt consolidation loans often have lower APRs than alternatives like payday loans, or credit cards.

EASIER DEBT TRACKING
Managing one repayment a month is much easier than several at a time.

YOUR ASSETS MAY BE AT RISK
If you choose a secured loan any asset you use as security for that loan will be at risk. This could be your home, car, or any asset the loan provider can reasonably be expected to sell should you be unable to meet the monthly loan repayments.

Ways To Consolidate Debt

O% INTEREST, BALANCE-TRANSFER CREDIT CARD
Balance-transfer credit cards are designed to let you move existing debt from one credit card - or several - to another card from a different provider. The purpose of this is to pay less interest on the transferred money. By doing this you will be able to clear your debt faster, because all of your repayments will be going towards paying off your debt, instead of being used to cover the interest.

When you receive a balance-transfer credit card you pay off the balance on your existing credit card using the new credit card. You then make repayments on your new balance transfer card to pay off the debt.

By using a 0% balance transfer card, you won’t be charged interest on the transferred balance for the duration of the interest-free period.

A DEBT CONSOLIDATION LOAN
A debt consolidation loan can help you gain greater control over your finances. Debt consolidation loans often offer terms between one and five years. In general, longer loan terms require you to borrow a more significant amount of money, so they may not be available if your consolidation loan is less than £10,000.

FEES AND CHARGES FOR DEBT CONSOLIDATION LOANS
It’s important to be aware of some of the high fees some companies charge for arranging a loan. You should read the small print carefully for any extra fees or charges before you sign anything. Check to see if there are any costs associated with paying off the existing loans early. This could cancel out any savings you make. Avoid paying a fee for a company to arrange the loan on your behalf, that is, unless you’re receiving advice and you’re sure it's worth the cost.

IF YOU CHOOSE A DEBT CONSOLIDATION LOAN

Get advice before you make a final decision. If you choose to go ahead with a consolidation loan, it may be worth talking with an independent financial adviser who might be able to find the most suitable product for your needs. Avoid just looking at the annual percentage rate (APR), or the annual percentage rate of charge (APRC) for secured loans. The APR is the interest you’ll be charged, and the APRC will include the extra costs such as an arrangement fee.

Qardus does not provide financial advice.

For Muslims living in the UK, they are bound by the rules and laws relating to inheritance tax and wills. These rules are not based on Sharia law or Islam but are the rules of the country in which you reside. Whilst Sharia rules include provisions relating to managing the estate on the death of someone, the rules in the UK are more stringent and need to be understood.

Islamic Sharia law states that Muslims need to ensure that their assets are distributed according to Islamic rules on their death. Sharia rules outline how assets should be divided amongst surviving relatives.

For Muslims living in Muslim countries, the laws relating to inheritance and intestacy are based on Sharia rules so this makes things easier when it comes to the division of assets. However, for Muslims living in non-Muslim countries such as the UK, if they die without a will then their assets will be distributed in accordance with the domestic laws and not Sharia law.

WHAT IS INHERITANCE TAX?

Inheritance tax is essentially a tax applied on the estate of someone who dies. This tax is paid on the property and assets of the deceased above the inheritance tax threshold.

The aim of inheritance tax is to generate revenue for the government and to implement broader policies. For those wanting specific information about their tax liability they should speak to professionals who are experts in the field of tax and estate planning/ decision making.

HOW MUCH IS TAX FREE ON INHERITANCE?

Currently, in the UK inheritance tax is charged on 40% on all assets that exceed what is known as the nil rate band of £325,000.

No inheritance tax is payable on the first £325,000 of the estate. Above that, 40% inheritance tax is charged. This amount is lower if leaving your home to direct descendants.

ARE MUSLIMS EXEMPT FROM INHERITANCE TAX?

Muslims in the UK are not exempt from paying inheritance tax. However, there are some rules in the UK tax regime that can accommodate cultural or religious practices. These include:

• Charitable donations: zakat and sadqa payments and charitable bequests in wills made to qualifying charities can benefit from exemptions.
• Spouse exemptions: Normally, the transfer of assets between spousal beneficiaries is exempt from inheritance tax.
• Business relief: there are also some exemptions and reliefs that apply to businesses and agricultural assets.

DO MUSLIMS IN THE UK PAY INHERITANCE TAX?

Yes, Muslims in the UK are subject to the laws and rules relating to inheritance tax.

Inheritance tax in the UK is not based on religion but on the actual value of the estate and the rules of the country you live in.

HOW TO LEGALLY AVOID PAYING INHERITANCE TAX?

There are some strategies you can use legally to reduce your inheritance tax bill.

• Create a tax efficient Islamic will
• Effectively utilise the nil rate band
• Speak to professionals and experts for advice on managing your assets
• Use the spouse exemption
• Invest in business or agricultural property
• Set up tax efficient trusts
• Make use of charitable donations
• Gift your assets in a tax efficient way

Always speak to Sharia tax experts when planning your will and estate distribution.

WHO IS EXEMPT FROM PAYING INHERITANCE TAX IN THE UK?

There are some people and assets that are exempt from inheritance tax including spouses and direct dependents. The general rule is that if your estate exceeds the £325,000 threshold you need to start thinking about estate planning.

Exemptions under the tax rules are subject to conditions and criteria, so always speak to experts before making any decision.

WHAT ARE THE RULES ABOUT INHERITANCE IN ISLAM?

Islam sets out some clear provisions when it comes to inheritance and death. The first step is to ensure you have a legally valid will in place.Islam sets out the order or priority when it comes to the distribution of funds. The order of payments is as follows:

• funeral costs and expenses
• Outstanding debts
• Bequests to be honoured (but not where the value exceeds one third of the value of the estate/remaining assets
• distribution of remaining assets to family

Whilst Islam predetermines how our estate is divided on our death, it is still important to ensure we have a will in place.

WHAT HAPPENS IF YOU HAVE MORE THAN ONE WIFE?

In the UK as the inheritance tax rules are not based on religion, this means that if Islamically you have more than one wife the tax rules will be applied as per UK laws.

Only the legal marriage (as per UK rules) will be recognised for the purposes of determining inheritance tax responsibilities and liabilities.

CAN HALF-BROTHERS INHERIT IN ISLAM?

The rights of the half brothers inheritance depends on many factors including the presence of other heirs in the family, and the proportion of shares (see above) and order or priority.

Half brothers and sisters can inherit if there are no full brothers and sisters.

RIGHTS OF DAUGHTERS IN ISLAM?

Islam focuses on the equality of gender when it comes to inheritance rights. Daughters are entitled to inherit from parents who are deceased alongside other relatives.

Islam states that daughters are allocated a share in accordance with the principles outlined below.

As primary heirs, daughters will take priority over distant relatives.

The Division Of Jewellery In Islam

When it comes to jewellery, Islam provides guidelines for the distribution of the estate of the deceased and these guidelines include jewellery. Those distributing the estate should be mindful of the fixed shares for the different categories of heirs as stipulated by Islamic rules.

Jewellery is considered part of the estate of the deceased and is subject to Islamic rules of asset division. Of course, the deceased can leave specific bequests in their will when it comes to jewellery and it is expected that the other heirs honour the wishes of the deceased and consent to the bequests.

Islamic Rules Relating To Wills And And Payment To Heirs

Sharia law states that you can distribute up to one third of your estate however you want to on your death. This applies as long as the third share is passed on to someone that is not already entitled to a fixed share of the estate.How is the remaining inheritance divided in Islam?The remaining two thirds of the estate on death should be distributed as follows:

• the surviving wife is entitled to receive one eighth of the husband's estate. If there are no children from the marriage then the wife receives one quarter of the estate.
• the surviving husband will be entitled to a quarter of his deceased wife's estate. If there are no children of the marriage then the husband received one half.
• depending on what the entitlement of the surviving spouse is, the mother of the deceased is entitled to one sixth of the estate. This figure is one third in the event that the deceased had no children.
• If the deceased's father is alive, then the mother is entitled to one quarter of the estate (where there are no children).
• If the deceased does not have a spouse, children or father, then the mother will inherit one half of the estate.
• If the deceased leaves behind no children, the father of the deceased will receive the surplus after distribution.
• If the deceased leaves behind one (or more) son, then the father is entitled to one sixth of the estate (but no entitlement to any surplus).
• If the deceased is survived by a spouse and daughters, then the father of the deceased will receive one sixth of the estate. In addition, the father will receive one sixth of any remaining surplus once the division of the estate has completed.
• surviving children are entitled to the surplus of the estate once the remaining spouse and parents have received their share.
• male grandchildren and children are entitled to over 50% of the estate when compared to the female children and grandchildren.
• If there are two plus surviving daughters then they will share two thirds of the estate equally between themselves (as long as there are no other surviving relatives).

CAN YOU REFUSE INHERITANCE IN ISLAM?

The simple answer to this is yes, you can refuse inheritance. However, any voluntary refusal should be made after careful consideration.

WHICH COUNTRIES HAVE NO INHERITANCE TAX?

There are many countries across the globe that do not have inheritance tax regimes. These include:

• UAE
• Saudi Arabia
• Qatar
• Oman
• Bahrain
• Monaco
• Brunei
• Slovakia