Thread by @IkfKirchner

Are cryptocurrencies halal? My article in this month’s volume of Brill’s Journal of Islamic Law and Society explores this question in four steps. A thread. #IslamicBanking #Bitcoin #cryptocurrency #cryptocurrencies #CryptoNews

This is not financial advice. I am not getting paid enough (or rather at all) for this and I am not a Bitcoin millionaire (yet). ;-) This is just an intellectual exercise. Thank you to @GuFinProf, Felicitas Opwis, and @JonathanACBrown for their support in this project.

Now, are cryptocurrencies halal? For those of you with no time who just want to skip ahead - the answer is: It depends. If you want to know what it depends on, keep on reading!

The first section of my article outlines different positions of Muslim scholars on the sharia-compliancy of cryptocurrencies and reveals the competing interests of governments and state legislators, the banking and the business sector, private investors, and religious scholars.

The most frequently discussed concerns are the volatility and speculative nature of cryptocurrencies, security issues, and the lack of intrinsic value.

The second section discusses how cryptocurrencies relate to the legal categories of “tradable property” (māl), money (thaman/naqd), and Islamic bonds (ṣukūk). This classification of cryptocurrencies has far-reaching consequences on the applicable contract of sale laws.

The third section outlines Islamic contract law, the prohibition of contractual uncertainty (gharar) and gambling (maysir), the prohibition of unlawful gain (ribā), the obligation of almsgiving (zakāt), and the challenges that this set of rules poses to the sharia-compliancy.

Finally, the fourth section concludes with an investigation of the sharia-compliancy of four cryptocurrencies -- #Bitcoin, #OneGramCoin, @Steemit, and @NexoFinance -- and what consequences different lines of argument have for their legal status in Islamic law.

In summary, cryptocurrencies may be classified as commodities if their usufruct value is recognized.

They may constitute money and be used as payments if they are regarded as commodities with an intrinsic value or if the intrinsic value is not regarded as a necessary condition and their nominal value is respected.

Cryptocurrencies may also be designed as Islamic bonds (ṣukūk); however, most cryptocurrencies do not currently represent ownership in a real asset, and only those cryptocurrencies that represent the ownership of a service may fall within this category.

Ṣukūk may offer the most versatile framework to introduce and further develop sharia-compliant cryptocurrencies.

Cryptocurrencies are not only difficult to classify in Islamic law but also challenge current understandings of Islamic contract law: Trading cryptocurrencies may promote gharar (contractual uncertainty) because their future existence is not guaranteed.

At the same time, cryptocurrencies may be regarded as eliminating gharar since they are incorruptible and decentralized and are regulated by the market.

The high volatility of cryptocurrencies may be considered a temporary problem that will stabilize over time or it may be considered a flaw inherent of cryptocurrencies that promotes maysir (gambling) and renders them illegal according to sharia law.

As the case study illustrates, the business models of some cryptocurrencies also violate the prohibition of ribā (unlawful gain) by paying dividends or rewards to their users.

Kirchner, Irene K. F. " Are Cryptocurrencies ḥalāl? On the Sharia-Compliancy of Blockchain-Based Fintech", Islamic Law and Society 28, 1-2 (2020): 76-112, doi: doi.org/10.1163/156851…