Caveat: This is not a religion promotion post. It is rather an objective look at why the scholars of Islam have been against cryptocurrency and how weak their arguments are.

There are over 1.8 billion Muslims all over the world and this figure constitutes approximately 24% of the world's total population. It is the second-largest religious group just behind Christianity. One interesting thing about the religion, as opposed to other religions of the world, is that it has a say in virtually all the affairs that have to do with human existence. There are guidelines for everything - from how to eat, bathe, talk, to how to relate with fellow Muslims and people of other religions. Little wonder that it also has a guideline on how to trade and carry out transactions.

While these guidelines may not be explicitly spelled out in their various religious books such as the Quran and the Hadith, there are designated authorities whose judgment (fatwas) seem binding on Muslims that wish to remain on the right path. The first point of consultation for matters in Islam is the Quran and then followed by the Hadith - the latter being a compilation of words and actions of the man through whom Islam was reported to have been brought into this world (Prophet Muhammad).

If the matter still remains unclear after consulting the two books, the next point of call is to check what the companions of the Prophet agreed on the topic and if the status quo still remains iffy, the next in line are the descendants of the companions of the Prophet. The last point of call is those that have spent their time studying all the Islamic books and ways of the companions and their descendants and hence, are able to give unbiased judgment on issues of dispute. They are referred to as Islamic scholars.

There is no doubt that cryptocurrency is a controversial product among various people of the world. It has been given a variety of names ranging from being a Ponzi scheme to an outright scam and remains banned by the government of several countries. As expected from a religion that is all-encompassing, cryptocurrency has been analyzed by many Islamic scholars and the loudest opinion is that it is not permissible in the religion. While the subject of cryptocurrency was not directly treated in the Quran, the Hadith, by the companions of the prophet or his descendants, the guidelines for executing trades and transactions were explicitly spelled out and the scholars extrapolated from these to arrive at their opinions on the subject.

Below is a YouTube video of one of the judgments delivered by an Islamic scholar.

The judgment on the subject was backed by a couple of arguments which include:

volatility of crypto
absence of central regulations
the anonymity of transactions which makes it easier to be used for criminal activities
lack of physical backing (the dollar is backed by gold, right?)

Volatility of crypto

Topping the list of the arguments against the permissibility of crypto in Islam is the volatility of cryptos. Religion apart, volatility seems to be the most talked-about attributes of cryptocurrency. Islamic scholars support their volatility argument using bitcoin as an example. They pointed out how the value jumped from barely one USD in 2009 to twenty thousand USD in late 2017 and how the price dipped back to three thousand USD sometimes in 2019. To them, the volatility makes investing in crypto seems like gambling, something that is strictly against the practice of the religion.

However, one thing that scholars fail to realize is that bitcoin is not the only cryptocurrency in the world. There are several cryptos that are more or less stable in value - the stable coins. Fiat money has its volatility too as the purchasing power of fiats keeps decreasing with time due to inflation. At least, with cryptos, users stand the chance of having an increment in the value of their holdings as well as a decrease. If volatility is the main argument against using crypto in Islam, the existence of stable cryptos trumps that argument.

Absence of central regulations

One of the key attributes and prerequisites to being a Muslim is obedience to the authorities irrespective of whether those at the helms of affairs are Muslims or otherwise. The scholars point out that the absence of regulations in the use of cryptos will pave way for several irregularities. There's no customer care to call, no account officers to consult, and if you send your coins to the wrong wallet, there's no one to go to for help. They also pointed out that it is possible for the founders of cryptocurrency to shut down their system, leading to a loss of investor's funds. All these arguments are not entirely true.

All the arguments in this case reek of inadequate understanding of the cryptocurrency subject. With crypto, you are your own bank and the only thing you have to be wary of is sending funds to the wrong wallet address. That most cryptos leverage on the immutability of the blockchain makes everything trustless without any need for doubts. Everything is transparent on the blockchain. If the network is congested and funds don't get delivered as at when due, the funds can at least be seen on the blockchain by anyone as opposed to fiats. Also, most cryptos are decentralized, meaning that no one owns it even though some people found it. Founding a crypto project does not make you an owner in a decentralized system. How can anyone shut down what they don't own?

This is why no person in his right senses should invest in centralized crypto projects. They tick every argument of the Islamic scholars as far as regulation is concerned.

Anonymity of transactions

Islamic scholars argue that anonymity in cryptocurrency transactions has paved ways for criminals to successfully carry out their illegal operations and get paid without traces. Terrorists, drug dealers, hackers, etc. can easily move funds without detection. The counter-argument is, "before the emergence of cryptocurrency, how are these criminal groups getting funded and carrying out transactions without getting caught?" It simply means that criminals will always find a way around any system irrespective of whether it is decentralized, centralized, anonymous, or otherwise. In addition, most cryptocurrencies are not as anonymous as people think. It will take a good understanding of how crypto works to be able to a good judgment of anonymity or otherwise.

Lack of physical backing for cryptos

Islamic scholars argue that the dollar is backed by gold and as such, has a lower chance of failing as a currency. They go further by saying that cryptos are not backed by any physical asset and as such has a high chance of failing as currencies. On the contrary, cryptos are backed by people and mathematical algorithms and as such, will continue to have value for as long as people are willing to use it. By the way, how many of us have seen the supposed gold that serves as a backing for the dollar? Personally, it is more fictitious than it is real.

Closing thoughts

The population of Muslims in the world means that they would be needed if cryptocurrency were to experience mass adoption. This means that an obvious lack of understanding of cryptocurrency by Muslims needs to be addressed and corrected.

Personally, the ease, shorter times, and lower costs of settling international payments using cryptocurrency as opposed to banks top the list of why cryptocurrency should be adopted worldwide.

Thank you all for reading.

Islamic finance: Between permissibility/impermissibility of cryptocurrency