Assalaamu Aleikum everyone. As of late, we’ve seen a lot of shake up and talk in Muslim world as it relates to Bitcoin and cryptocurrency as a whole as we’ve seen some prominent scholars say that Bitcoin is haram.
Today we will take a look at Sheikh Assim Al Hakeem’s Bitcoin fatwa (legal opinion based on Islamic law) and see how we should best understand his point of view.
So, here are the 10 reasons why Sheikh Assim Al Hakeem believes that Bitcoin is haram.
- The origin of Bitcoin is unknown and it has sustainability and security issues.
- The price of Bitcoin fluctuates too much.
- Bitcoin is not physical. You cannot hold it and it is not real.
- Bitcoin is a Ponzi scheme and/or is similar to a multi-level marketing scheme.
- People are only using Bitcoin to make fast money.
- Bitcoin is not backed by people or a central bank.
- Bitcoin’s price is inflated and Bitcoin is in a price bubble.
- It is unknown what will happen after all 21 million bitcoins are mined.
- Bitcoin is used for criminal activity.
- There is ambiguity with Bitcoin.
Is our Sheikh correct in his opinion? Please watch the video below. You can skip through sections of the video or you can read the video transcript below as I take a closer look and provide commentary on where I believe our Sheikh has some misunderstandings and slight errors about Bitcoin and hopefully this will also help you have an even better understanding of Bitcoin as well.
Andre Rishi: As-salamu alaykum! And thank you for checking out today’s latest blogpost over here on the Islam and Bitcoin Project. Today, we are going to take a look at the fatwa given by Sheikh Assim al-Hakeem, his fatwa on Bitcoin.
Now, I remember when I started this website about two years ago. I wasn’t able to find any scholar that I can talk to and engage in dialog about Bitcoin, never mind give a fatwa. But in 2017, things are changing and I think that is a really, really good thing.
We now have scholars out there writing research papers on Bitcoin, who are discussing Bitcoin and now, giving fatwa. And that is what brings us here today with our latest blogpost, the fatwa of our brother Sheikh Assim al-Hakeem.
So, my intention today is to play out the video of his fatwa and to offer commentary on his fatwa. Now, I’m going to do so coming from the point of view as a student of knowledge. I am not a mufti. I am not a Sheikh (respected scholar).
I am simply a student of knowledge and that is going to be my approach as we discuss, as I discuss his fatwa here today. My intention is to ask questions in areas that I do not fully comprehend, where I do not fully comprehend his opinion and to also offer information in areas where I see that our dear scholar has sincerely made a mistake or has maybe a sincere misunderstanding of the topic at hand.
Now, let me just say that whether we agree or disagree with the opinions with the fatwas that our Shuyukh (scholars) share with us. It is for us to make sure that we engage with our scholars in a positive, healthy, constructive way and to observe proper adab (etiquette).
It is not for us to badmouth our Sheikh or to talk negatively of our Shuyukh. But rather to engage with them in a way that is healthy. I see too much negativity out there when it comes to how we engage with our scholars and I think that that is just absolutely terrible.
Here at the Islam and Bitcoin Project, the whole purpose of setting up this website was to have students of knowledge, the average and layman and scholars to offer a place where we can have a dialog in a healthy positive way and that is my intention today in offering this commentary.
I would actually love to have Sheikh Assim on the Islam and Bitcoin podcast as a guest. So, if any of you out there know him personally, please share with him this website and let him know that I am extending a warm invitation to have him up here on the podcast as a guest. I think that would awesome. I think it would be great. I think his insight would be very, very helpful.
So, without further delay, let us go ahead and take a look at this video and discuss his fatwa. I will go ahead and include a link to his original video of his fatwa. I will include the link below in the blogpost. Now, let’s start off by saying that the opinion, the fatwa of Sheikh Assim al-Hakeem is that Bitcoin is haram. His fatwa, his opinion, is that Bitcoin is haram and we are going to take a look at that and offer commentary on that right now.
Bitcoin’s Origin, Sustainability and Security
Sheikh Assim al-Hakeem: Brother Lebron says, “I’d like to know the details how Bitcoin tends to be haram according to a point of view despite the fact that cryptocurrency might probably be accepted as a legal tender and a medium of exchange.”
The issue of Bitcoin is a recent one which means that it is not found or discussed by scholars in the past. And, unfortunately with such new events evolving some of them are to some crystal clear and some, to others may require the collaboration of scholars, economists and people involved in such issues to deliberate and to come up with a conclusion.
Basically speaking, Bitcoin is something that is recent and new. And there are a lot of serious concerns when it comes to dealing with it. Whether it is from the origin, where it came from, whether from the aspect of sustainability and security.
Andre Rishi: All right. So, let’s talk about these three points that our Sheikh has mentioned. So, the three points he mentioned were the origin, sustainability and security. And these three concerns, these serious concerns as he has mentioned, they play a part into why he believes that Bitcoin is haram.
So, let’s look at origin. So, his current– his concern about the origin of Bitcoin is that he doesn’t know who is the developer of this currency. So, the question that I would like to ask out Sheikh and also other scholars out there in Islamic Finance is does the sharia stipulate that when it comes to using an object as a medium of exchange that we must know who the creator of that object is?
Or even more specific with Bitcoin, does the sharia stipulate that in using this digital token that we must know who the software engineer, who originated the Bitcoin code, is? Is it mandatory? Is it obligatory to know who the originator of the code is?
And the reason why I believe that this is a legitimate question is because even though we do not know who the software engineer is who developed this code. The code itself is open source. Meaning the entire world has access to see this code.
This also means that the multitude of software engineers that are out there in the world can also look at this code and they will be able to determine whether this code is a virus, whether it is malware, whether it is just bad code or whether it can actually do what this engineer says it can do. And these engineers can validate that.
So, that is why I asked the question of, does the sharia stipulate that it’s mandatory to know who the creator or the designer of this code is in order for it to be halal? I think that is something that it would be nice to know.
The second thing our Sheikh touches on is sustainability and I think he has a legitimate concern in regards to sustainability. We do know that Bitcoin and the network consumes a lot of energy, a lot of electricity is used to mine on the network, to maintain the blockchain, to process the transactions.
We do know that a lot of energy is used. So, as, as the blockchain grows, as it collects all this data, all the transactions on– in its ledger. We don’t know how much energy will be consumed in– for this blockchain, 1 year, 3, 5, 10, 20 years down the road.
Now, yes, it’s very possible that maybe at that time, there will be a new technology available that will allow us to capture and disseminate energy in a more efficient form. But as of right now, we don’t know. So, I think the concern of sustainability is a legitimate concern by our Sheikh.
Now, let’s look at the last concern, security. Now, here, is where I would need to ask our Sheikh, what is exactly about security is his concern? And the reason I asked that is because there’s certain attributes of Bitcoin that users see as a form of security.
One is the fact that it is decentralized, meaning that the blockchain, the ledger, is held on multiples nodes, multiples nodes throughout the world. So, this means the data gets protected. The data, the integrity of the data is protected by a multitude of nodes and verified across the network to make sure that everything is accurate. So, this in and of itself is security feature that many people like. So, my question would be what exactly is the concern of safety when it comes to Bitcoin?
Now, we do know that because it is open source that of course, you are going to have a lot of hackers out there that will try to break the code. As of now though, Alhamdulillah, its proven to be– its proven to be sustainable so that speaks volumes for the people working on the code and protecting it.
So, those are the three issues that our Sheikh brings up and that’s my commentary on that. So, let’s move forward from here.
Sheikh Assim al-Hakeem: It is known that it was founded in 2007, 2008 by someone that is unknown. And they say that his name is Satoshi Nakamoto and this person later on who was supposed to be Japanese, the person with that name denied having anything to do with it. Then another person came from Australia or Canada claiming to be the one who founded it. But generally speaking, no one knows where originally it came from.
Not only that, when it started, I think it was like 0.1 cent of a dollar. So, one bitcoin was equal to 0.1 cent, something that is negligible. In a couple of years, it jumped to $35. As of today, if I’m not mistaken, one bitcoin that was 0.1 cent, now is equivalent to $11,000 plus. And this is ridiculous.
Andre Rishi: Ok. So, now, our Sheikh, he is commenting on the price of bitcoin and the price being $11,000 American dollars at that time of him publishing or sharing his fatwa. So, it seems like he is– there is a correlation that he has with the price of bitcoin being US $11,000 to– there’s a correlation between the price and him forming his opinion as to why it is haram. So, he is saying that he believes that the price of $11,000 is ridiculous.
Now, the comment that I would like to make or the dialog that I would love to have with our Sheikh is I think that using, saying that the price being $11,000, using the word ridiculous, I sincerely believe that that is the incorrect word to use.
I think it’s misplaced to use that word. The reason being is because we know why the price of the coin is $11,000. It’s because the users, the investors in this technology, they see certain attributes of this currency or I should say of this technology rather that they actually like.
So, one thing that users of this cryptocurrency like is the fact that it is limited to 21 million bitcoins. The supply of bitcoin is limited. So, this is a feature that people like.
The second feature that people like is that there is a blockchain, or a ledger, a public ledger. Now, yes, there are pros and cons to having a public ledger. There is good and bad to that but people like the fact that there is a public ledger that holds everyone accountable for transactions that are made within the network.
People also like the fact that this public ledger is decentralized and the ledger is maintained by a multitude of nodes all across the world. This is another feature that people absolutely love about this cryptocurrency.
A third aspect or third feature that people like is that they see real world application when it comes to this cryptocurrency being used as a medium of exchange. Now, years ago, when this owner of bitcoin paid someone 10,000 bitcoin to purchase two pizza pies, this– I would say this is probably the moment where the price really began to go up because someone finally was able to find a way to take this digital currency and to use it in the real world to get something tangible, food, pizza.
And when people saw this, I believe this is where the price started going up because this idea of this cryptocurrency actually being used as money became a reality.
So, the reason why that the bitcoin is now priced at $11,000 at that time when he shared his fatwa was because that is what the market was willing to pay for the bitcoin. And they were willing to pay for the bitcoin at this market rate because of all the other attributes that I mentioned.
Now, yes, there is a lot of speculation in the marketplace right now. And the speculation is based upon the many people believing that this cryptocurrency has a future. There’s most definitely some improvements that need to be made to Bitcoin, but nonetheless, there are many people who have invested heavily into the infrastructure of cryptocurrency, particularly Bitcoin because they believe there is a future for this.
This is where we are seeing the price of bitcoin comes from. So, to say that the price of bitcoin being at $11,000 is ridiculous, I think that using the word ridiculous, that is a misplaced word. And that’s just my thought on that. Now, let’s move forward.
Bitcoin is Not Tangible
Sheikh Assim al-Hakeem: What is this? This is not something that is physical you can touch. It’s now the coin. It’s not a bank note.
Andre Rishi: All right. So, now our Sheikh is saying that bitcoin is not something that you can physically touch and hold in your hand. So, the next question that we have to ask our Sheikh as well as the scholars of Islamic finance is, does the sharia stipulate that an object that is being used as a medium of exchange, currency, does this object have to be physical?
Meaning, does it have to be an object that you can hold in your hand and touch? So, this is a question that I think we need to ask the Sheikh and other scholars in Islamic finance. Let’s move forward.
Sheikh Assim al-Hakeem: It’s not a deed, it’s not a certificate. It is something that is virtual. It all is dependent on the peer-to-peer, the blockchain and the logarithms that government which is known to only a handful of people who control it and who are anonymous and no one knows who they are.
Andre Rishi: All right. So, our Sheikh was saying there that when it comes to Bitcoin and as he says those who control that he says that these people are anonymous and no one knows who they are. I think here, our scholar just simply made just a mistake that’s all it is, it’s a simple mistake. That’s actually not correct.
Ok. So, here we are taking a look at the BitcoinCore.org website. And you can see right here. Now, what I have done here is I have gone to the page that says, Team. So, this is going to be the page that lets you see who the developers are, that are currently working on the Bitcoin code so here we see we have I believe he pronounces his name Wladimir.
Wladimir, we have Jonas, we have Marco, Peter, Cory, Luke, Gregory and so on down the list we go. But this page actually shows you all the people that are working on the Bitcoin software, the Bitcoin code. So, it’s not anonymous. It’s not like we don’t know who they are.
And if you actually want to see the code, let me hop on over to this website. If any of you are developers out there, software engineers, I’m pretty sure that you are well aware of a site called Github. So, Github is a– it’s a website where software engineers can work on software code together.
It’s– think of it as like it’s like a hub where they all come together and they’re able to work and develop software together no matter where they are in the world. So, this right here, this page I’m on is the Bitcoin page on Github.
Let me see if I click this folder here. Let’s click on this folder and see if I can find some of the developers here working on it. Let me go, let me find Bitcoins go with– let’s try this one here. All right. Ok. So, let me close this out up here.
Ok. Now, right here in Github- Like I said, Github is where you have the source code for Bitcoin. There are multiple aspects of code for Bitcoin that developers can work on. But, if you look right here where it says 24 contributors, here are the, all the people who are working on Bitcoin at the moment.
Now, let me go back over to the Bitcoin Core Team. This is the page that shows you the team. If you see Wladimir, this is his icon that he’s using. If you go back over to Github, we can see the icon here and we can see laanwj that looks like that is the name that he’s using for this icon or his name on Github. So, if we click here, Github.
It’s a way to contact them. Let’s click on that. It opens up another page. See here, we can see this is his Github name. If we go back over to Github and we look at who’s working on the core, what– there are some of the code on Bitcoin. We see his name is right there.
Let’s go back over to the page here and let’s see if we can find Jonas. So, Jonas we should be looking for an icon with a man holding or throwing something. So, I’m going to close this out. Let’s go back over and right here, Jonas. So, we could see Jonas.
He is someone working on the code for Bitcoin. Let’s take a look at let’s say one more. Let’s say, Luke. Let’s look for Luke. Well, so how about Michael– I don’t know, Michael, maybe not. Let’s look for Luke. Let’s look for Luke.
So, go back up here. I don’t see Luke but I do see Michael. There’s Michael. I think Michael goes by fanquake, fanquake. So, let me go back over here and let’s go down here and Michael. Let’s click ion Github so we can see what he goes by, what his name is. Yes, fanquake. So, we found him. Let’s now go see if we can find, is it Luke? Oh, there he is. Luke. Ok, so Luke is right there.
So, in a nutshell, Bitcoin, the code, you know here is you know what they’re working on. You can actually see it right here. It’s for the whole world to see just if you have a Github account, you can sign up and go head over to the website and you can see who’s working on the code right there.
For those of you who don’t know what Github is, here is a video. I’m going to include this link here. It tells you what Github is. And down here, there are a lot of different tutorials as to how to work in Github. I’ll leave that as a link for you in the blogpost.
But needless to say to– for our Sheikh, this is just my way of correcting him on that simple mistake letting him know that we do know who is working on it. And the information of the team working on it is public and you can find that over at Bitcoin Core.
Bitcoin is a Ponzi Scheme
Sheikh Assim al-Hakeem: You cannot complain about it. You cannot pretend that there is justice or injustice. There’s no one to talk to. So, it is as if you are throwing your money in a vacuum not knowing whether it will increase or decrease but most people don’t care because all that they’re looking for is quick profit and gain.
You remember the pyramid schemes and the networking schemes that have been in the past and still ongoing today selling you a commodity that costs in the market a single Euro, they sell it to you for 200 Euros claiming that there is only 5000 pieces in the world of it.
And then, after you pay that huge amount of money, you qualify to market it to others and you will get a percentage whenever someone enlists in the same Ponzi scheme. It is all bogus. It is all a hoax and they consume people’s money through that. Man by nature likes quick profit.
Andre Rishi: Ok. So, here our Sheikh is comparing Bitcoin to a Ponzi scheme as well as comparing it to a multilevel marketing scheme. And I think this comparison is actually not accurate. Bitcoin– the way Bitcoin works is you cannot purchase like a membership of Bitcoin.
There is no such thing that you purchase a certain amount of bitcoin and you have to hold on to that amount and you have to invite somebody else to purchase bitcoin and then they purchase a membership of Bitcoin and you get a kickback from Bitcoin for inviting somebody else. It doesn’t work that way. There is nothing in the source code of Bitcoin that works that way.
There is no minimum amount to purchase. There is no length of time that you have to hold the currency. You are not required to have anyone else become a member or purchase it. It just simply does not work that way.
You could purchase $10,000 worth of bitcoin or $10 worth of bitcoin or $5 worth of bitcoin. You can purchase $5 today and get rid of it tomorrow. Completely up to you. There is no one that is going to police you and say, “Hey, you purchased that yesterday, you can’t just sell it. You have to hold it or you can only sell half of it.” No one is going to police you in regards to what you do with the bitcoin that you have.
So, to say that it is a multilevel marketing scheme is incorrect. You do not purchase bitcoin and sit back and then all of a sudden someone just gives you bitcoin out of thin air or just for nothing just because you bought some bitcoin. It just does not work that way.
Now, what we can say is, is that because of Bitcoin, there are other systems in the ecosystem of Bitcoin that can be Ponzi schemes. I do think that there are companies out there that are interacting in the ecosystem of Bitcoin and they are scams.
I’ve already made a blogpost on cloud mining. I do think that cloud mining is more or less a Ponzi scheme. I don’t have a way to prove that 100% but it is highly likely that cloud mining is a Ponzi scheme where you give them your money and they will mine bitcoin for you and you get a little bit of bitcoin back.
For all you know, you could be getting back the same amount of money you put in and it’s just a smaller percentage. They don’t give you the whole thing back. Allahu Alam, Allah knows best. But to say that Bitcoin in and of itself is a Ponzi scheme, that in and of itself is not accurate.
Now, I will say, I will say because it sounds like what the Sheikh is very concerned about is people losing their money. So, what I will say is it is very possible that those people who have held their bitcoin for a long time and seeing the price go up to $11,000, $12,000, $15,000 it is very possible that those people dump all the bitcoin on the market and sell it all thus crashing the price.
That is something that absolutely beyond the shadow of a doubt can happen. It can happen. But even if it did it will still not change the fact that there are 21 million bitcoin that will be mined. It will not change the fact that they will still be a blockchain that will be recording the transactions in the blockchain on the ledger.
It will not change the fact that there will be a multitude of nodes out there maintaining the integrity of the ledger on the blockchain. It still will not change the fact that it is now already been proven that bitcoin can be used as a medium of exchange no matter how difficult that may be.
So, even if you have a massive amount of people dump all their bitcoins, those bitcoins will still exist on the network. And if the price went from $11,000 of bitcoin and it went down to $100 worth of bitcoin, I am pretty sure that you will still see people out there who will purchase bitcoin and continue the project from there. Allah knows best. But this is what I do see happening.
Making Fast Money with Bitcoin
Sheikh Assim al-Hakeem: If someone with a long beard comes to me and says “Sheikh, give me money and I invest it for you and I’ll give you revenue that is beyond imagination and you will sustain a happy life.” I will trust him. Not because of his beard but because of the gain and the quick profit that I may make out of it. Bitcoin is something like this.
And there are I think a lot of similar virtual currencies. They are virtual. You cannot touch them. And Ethereum and so many 60, some make them up to 100 and they are on the rise. And it’s not logical, the fluctuation of the price.
Andre Rishi: Ok. So, I’ll go ahead and stop it right there. So, I think one thing that the Sheikh is really trying to drive home and I think he does make a good point is that there are people out there investing in bitcoin simply again to make a quick buck.
And they’re not taking their time to do their homework. And as I mentioned before, this is not what Islam teaches. We should investigate and do our homework and research before we invest in a thing.
So, moving on from there, he now talks about Altcoins or what we call alternative cryptocurrencies saying that there are a lot of these on the rise and the price of these cryptocurrencies, the price, the fluctuation of the price is illogical.
Again, when it goes back to the pricing, again, it really has to do with what the market is willing to pay for these cryptocurrencies, for these Altcoins or these alternative cryptocurrencies.
Now, with that being said, yes, there are some people out there who are developing Altcoins for the purpose of scamming people, scamming people. But again, this is why, as Muslims, we are supposed to do our homework and investigate before we invest in any particular cryptocurrency that is out there.
With that being said there are also other cryptocurrencies out there, other Altcoins, that actually are legitimate. And the reason why people are willing to pay the price that they do for some of these alternative cryptocurrencies is because after doing their homework they see the value in these currencies.
Now, these currencies are mostly just a spin-off of Bitcoin really but they– what they do is these cryptocurrencies or some of them, the Altcoins have certain features built-in where they are improving upon Bitcoin.
So, they may see that Bitcoin has some areas that need improvement and it does. So, some of these cryptocurrencies say, “Well, I’m going to build in this feature that improves upon Bitcoin.” So, if you look at Litecoin, Litecoin says, “Well, if Bitcoin takes 10 minutes to confirm a transaction, I’m going to do it in two-and-a-half minutes.”
If you look at Dash, Dash will say, “Well, the Bitcoin network only pays the miners, once a coin is mined, and we’re going to change that up. So, instead of just paying the miners, we’re going to make sure that the payout from mining the coin goes partially to the miners, partially to those who maintain the network, those who maintain a node. And also, partially, this will fund the treasury so that we do not have to seek outside donations and I think this is good.” So, this is what Dash does.
So, the pricing again of what people are willing to pay that the fluctuation of the price of Altcoins is again based on the market and what people are willing to pay. So, I think to simply take a broad brush and to completely paint over all Altcoins and saying that they are no good, and in essence I’m interpreting or understanding that he means that these other Altcoins are no good as well, meaning they just like Bitcoin, they’re no good.
When I believe that this is actually not accurate and we can’t take a broad brush and paint over the whole lot. What we must do is examine each individual Altcoin, alternative cryptocurrency to verify or validate the currency.
Bitcoin is Not Backed by a Central Bank
Sheikh Assim al-Hakeem: Now, is it a currency or a commodity? This is something we still have to look into because it is not a currency. It’s not backed by people. It’s not backed by government. It’s not backed by central banks or normal banks. So, you cannot say it’s a currency because no one deals with it except a handful of people.
Andre Rishi: Ok. So, now, let’s discuss this section here. So, the Sheikh, what he is saying in his formulation, his opinion as to why Bitcoin is haram is because it is not backed by a government. It is not backed by a bank, a central bank, a normal bank. And it is not backed by people. So, let’s explore this.
Now, one thing that I have learned with my studies in Islamic finance is that the scholars do consider a currency legitimate if it is backed by a government. So, I most certainly have learned that. And I believe the reason why scholars are looking for a currency to be backed by a government is because there is the assumption that if something goes wrong, whatever that is, then the government will be able to protect the currency holder.
I’m going to assume that our Sheikh when he mentions that bitcoin is not backed by a central bank or a regular bank that he is also implying the same assumption that if bitcoin was backed by a bank then there is the assumption that if something went wrong, the bank will protect the bitcoin holder.
So, for example, in the United States, if you have your money in a bank, if someone comes into the bank and steals money from the bank, the bank does ensure or does protect the money holder, the person who put money in the bank up to a certain amount.
So, I believe that the fuqaha, our scholars, are looking for some type of protection and this is why they are looking for a currency to be backed by a government or a bank.
Now, one question that I think that arises, that I would like to ask our Sheikh as well as the other scholars of Islamic Finance is, does the sharia stipulate that in order for a currency to be considered legitimate, to be considered halal, that currency must be backed by a central bank or a regular bank? So, this is a question that I think we– this is a question that should be asked to see if this is what the sharia stipulates.
Now, let’s talk about governments and central banks. Part of the reason why Bitcoin came to fruition is because people wanted to find a way to have a currency that the everyday person can use that was not interfered with by a government or a bank.
Because the originators of many of these cryptocurrencies or many people worldwide saw that certain governments were corrupt. Or that the banking system is corrupt. So, we now have real world scenarios where governments are shutting down banks and preventing its citizens from withdrawing their full deposit from the bank.
We also have it where other countries are not only shutting down their banks but they are stealing the deposit money, stealing money from its citizens. We also see laws are being created that would now make it legal for banks to steal the money from its citizens. So, the real question now becomes, “How safe is your money in the bank?”
Same thing in the United States, our Federal Reserve Bank as it prints currency even though this currency is you can argue to some degree backed by banks in the United States. The printing of the currency where there is no limit to printing the currency is a form of theft because the holder of the currency loses purchasing power, the dollar that the person holds loses– they lose the purchasing power of that dollar when that bank continuously inflates the money supplied.
There is no limit to the money supply. So, this is a form of theft. This is in part reason why the creators or the developers of Bitcoin wanted to move away from having a currency linked to a government or linked to a central bank.
You look at countries like Venezuela. So, Venezuela has gone through massive inflation with their currency so much so where again, it has devastated the purchasing power of their currency so much so where the people of Venezuela were using cryptocurrency, I believe actually Dash. Dash was being used as a way for the people to hold on to some type of value, some type of purchasing power with a currency that would be considered legitimate and they turn to Dash.
So, I think these are some concerns and some– these are topics that must now I believe enter the realm of discussion with our scholars in regards to seeing whether or not the legitimacy of a currency is dependent upon it being backed by a government or being backed by a bank.
Now, let’s talk about cryptocurrency not being backed by people or Bitcoin not being backed by people. Our Sheikh mentioned this that, “Hey, look, this bitcoin is not backed by anyone.” This is actually not correct. It’s actually not accurate.
The cryptocurrency right now, bitcoin is backed by people who run nodes. These people who actually run nodes and they are able to– they are able to run nodes which maintain the ledger. They maintain the integrity of the ledger so bitcoin is being backed by people who run nodes.
So, the question that we now– a new question that I think with this new virtual currency that now must be asked of our scholars is at what point do we consider people in a decentralized manner, with a multitude of nodes across the world being able to maintain a ledger, at what point do we consider this a legitimate form of backing a currency?
So, this is a new question that must be asked of our scholars. Now, yes, the concern will still be that if a person– because the currency is backed in a decentralized manner, it’s not backed by a government, it’s not backed by a central bank, again the reason being is that the bitcoin is a currency that wants to move away from central banks, move away from governments per se.
Now, with that being said, it means that the responsibility of protecting one’s currency falls upon the holder or the owner of the currency. So, someone steals your wallet, you can’t go to any government to you know get your bitcoin back.
If you lose your hard drive that has all your cryptocurrency or maybe you keep it on a flash drive. If you lose that, there’s no recourse for you. It is simply gone. If you forget the seed, the seed to your wallet and you don’t remember that you’ve lost your wallet and guess what? All your bitcoin is gone. So, these are some risks that are definitely prevalent with Bitcoin. And right the fuqaha are concerned and rightly so.
But I do think that these questions, these are new questions that now arise and I think our scholars now must consider as we move towards digital currency, digital tokens, virtual currencies, cryptocurrencies because I believe that cryptocurrencies are here to stay.
Now, whether Bitcoin will be here in another 20 years, Allahu Alam, Allahu Alam, Allah knows best. But I do think that cryptocurrency is pretty much here to stay so long as we have the internet and some form of power that powers an internet then cryptocurrency is pretty much here to stay and I think these are questions that now we must ask our scholars.
Now, one other thing that I want to touch on is that at the end he mentions that this currency is only being used by a handful of people therefore we can’t really say that this is a legitimate currency. The question that I would post to our scholars again, with this new form of technology is, at what point do we say that when a group of people all over the world are using a particular currency within the marketplace to buy goods and services and yes there are some people who use it for haram.
But by and large, there are people out there who are getting paid their salary in bitcoin. They are purchasing groceries in bitcoin. They are paying the utility bills in bitcoin. They are paying their travel expenses in bitcoin. They are using bitcoin for a numerous amount of activities in the marketplace that are considered halal.
So, the question that we now have to ask our scholars at what do we point do we say that this community of people that the currency is considered legitimate because a community of people all over the world are using it regardless of whether the currency is recognized by a government or backed by a central bank.
At what point does the sharia stipulates or say that this currency is actually considered halal? So, this is a legitimate question that our scholars I think must now look at because of this technology that is upon us.
Bitcoin Price Bubble
Sheikh Assim al-Hakeem: Country-wise, only I think Germany, Japan maybe Austria allow it because there is benefit to them from it. Taxations, monitoring, etcetera. And the biggest loophole in it that the price goes way up and can also come way down. So, it’s like a bubble waiting to be inflated.
Andre Rishi: Ok. So, in regards to the price and it being a bubble. I do think that he has a legitimate point in regards to, again there’s a lot of speculation in the marketplace and I think we will see, bitcoin at one point it hit about– I think it just might have hit about $20,000 for one bitcoin on some trading platforms.
I do think that it’s going to correct itself at the time of making this blogpost. The Futures Trading has just been introduced so I am going to– I’m going to assume that that will inflate the price of bitcoin and then it will sort of re-adjust and re-correct itself and come back down.
That’s what I’m thinking it’ll do. So, he is right in regards to there being calling it a bubble of some sort. I do think because of the speculation the price is inflated, that’s a little bit higher than the market, than it really– than the market really wants to pay for it.
In regards to countries, I have already discussed the countries that accept Bitcoin and it’s more than just the three that he mentioned. So, here is the article that I spoke of written by our sister Palwasha, These Are the top countries Where Bitcoin Is Legal & Illegal written back in March of 2017.
It’s a great read, great article. It might need an update since it was written back in March but still great information in it as you see here, she has listed countries where Bitcoin is banned, countries where Bitcoin is legal and officially accepted as well as countries where Bitcoin is legal but officially not accepted. So again, it’s a good read. I will go ahead and include a link to this article in this blogpost as well.
Only 21 Million Bitcoins
Sheikh Assim al-Hakeem: And can also come way down. So, it’s like a bubble waiting to be inflated. And this is what will happen soon. Now, we all know that there is only a limit for the bitcoins- that is 21 million of it and once they reach the 21 million what will happen?
Andre Rishi: All right. So, let’s talk about this what will happen once we reach 21 million bitcoins being mined? Here’s an article that touches on that, 80% of all Bitcoins Will Have Been Mined In a year From Now . This article was written in February of 2017.
So, in February of 2018, 80% of all bitcoins will be mined. So, when will that happen? When will all 21 million bitcoins be mined? If you scroll down your article here, we will see that, let’s see– let’s see 21 million BTC bitcoin are to be generated by 2140, so in the year 2140 is when all 21 million bitcoins should be mined and that in case you, you’re bad at math, that will be in about approximately 122 years from now. So, we still have a little bit of time before that happens.
But what will happen once all 21 million bitcoins will be mined? Well, what will happen is the bitcoin will be in circulation and the miners who no longer will be mining bitcoin will simply earn fees by maintaining the blockchain, by maintaining the ledger.
So, so far this is what will happen once all 21 million bitcoins will be mined but keep in mind that is 122 years away so things can change. But as it stands right now, the miners will simply earn fees off of maintaining the block chain.
Bitcoin Used for Criminal Activity
Sheikh Assim al-Hakeem: Also, we also know that it remains anonymous when you deal with it so it’s only a code that you’re given. No one can trace it which means that it’s an open gate for money laundering, drug money, haram money, you can just put it there and no one can trace you.
And this is Subhan Allah probably why all hackers when they do cybercrimes and they demand a ransom, the ransom has to be paid in bitcoin. So, the Pirate of the Caribbean, the Disney movie that was hacked and they demanded ransom for it in bitcoin.
Also, any cyber attack, any virus attack or threat can threaten your wealth and can take this currency, so called currency, down to the ground.
Andre Rishi: All right. So, another concern that our Sheikh has is that he says the Bitcoin is anonymous and because it’s anonymous, it is therefore used for a multitude of criminal activity such as money laundering, purchasing drugs and other criminal activities that are haram. And because of this and saying that a bitcoin is untraceable, it is anonymous. This is another reason why he leans toward the opinion that Bitcoin is haram.
Well, we must understand and this is where I respectfully will correct our Sheikh, I’ll let him know that Bitcoin is actually not anonymous. The transactions are not anonymous. If someone is able to have the bitcoin address and they’re able to trace that to an item that was purchased, you can therefore trace a whole series of transactions that that person has had all by linking it to that one bitcoin address.
And here we have an article that was written in March of 2016. The title of the article, Why criminals can’t hide behind Bitcoin. And we see here that the Federal Bureau of Investigation, the FBI that is based here in the United States was able to successfully– successfully capture or successfully arrest Ross Ulbricht and that is the 31-year-old American who created the haram website called Silk Road.
But again, the FBI, law enforcement, were able to trace bitcoin on the block chain using the address that was used for those transactions.
If we look at another article, we can see here Denmark Traces Bitcoin Transactions to Convict Drug Dealers. Again, law enforcement showing us that they are using the blockchain, using the addresses on the blockchain to trace criminal activities. So, bitcoin, in and of itself is actually not anonymous. This article was written in 2017. I will go ahead and put the link in the blogpost for this article as well.
Now, let’s take– let’s expand this out because if what we’re saying is that a currency, if a currency that is being used is able to successfully be used for money laundering, purchasing drugs and criminal activity, this is a reason to mark or to say that this currency is haram, well then we now have to look at banks, central banks.
Here is an article written in December of 2012: HSBC to pay US$1.9 Billion– $1.9 Billion fine in money-laundering case. And what was HSBC laundering? It says here, the money was used to launder a river of drug money flowing out of Mexico, out of Mexico, right?
So, HSBC, this is a major bank on the world stage. I remember when this came out and I was shocked when I heard this. $1.9 Billion fine from money laundering.
Now, here is another article written in November of 2017 and who do we have again, HSBC. HSBC ‘ignored money laundering warning’ in [this time] South Africa. So, we see that this bank is repetitive in money laundering activities and this is just one bank of many banks throughout the world, throughout the world.
So again, if we’re going to say that a currency that can be used anonymously for money laundering, for criminal activities that this deems the currency as haram, well, now we have to look at central banks, major banks throughout the world.
And we also have to look at fiat currency. The truth being told is, if someone really wanted to launder money and I’m not saying that you should, it is haram, don’t do it. But if you really wanted to launder money, what you would use in all honesty, it would be fiat currency.
So, here in the United States if I’m holding a $1 bill, a $5 bill, a $10 bill and I spend that at a store to purchase milk, bread, there’s no way to trace that currency. There’s no way to trace it. It’s not recorded in any public ledger. It’s not recorded in any blockchain.
So, you can argue that the best money to use is fiat currency, paper dollars using what we call in the United States, cash. Cash. All right? But again, I’m not saying that you should money launder. I’m not saying that at all.
Now, another concern that our Sheikh had was in regards to cyber attacks. And I think he has a very legitimate concern. Cyber attacks can most certainly rob you of your cryptocurrency wealth. They most certainly can.
Here we see that at this article, it says here that Bitcoin exchange collapses after second cyber attack in a year. This article is written in December of 2017. This happened to a South Korean digital currency exchange. They had to close down because of cyber attack.
So, our Sheikh is correct in saying that cyber attacks are a concern. But I will take it one step further and say, cyber attacks are not something that is unique only to Bitcoin. If we take a look at an article here, this one written in April 2017, One in three cyber attacks in banks are successful . One in three, that’s one-third. That sets pretty darn high. So, we see here that banks are under cyber attacks.
Let’s take a look at another article. And this one in February of 2015, Hackers hit 100 banks in ‘unprecedented’ $1 Billion Cyber Heist. That is a lot of money. If you scroll down here, I have it highlighted, the banks that were mainly hit were in Russia but it also took place– those cyber attacks happen to banks in Japan, the Netherlands, Switzerland, the United States and other countries it says, other countries.
If we take a look at another article this one written in September of 2012, Major Banks hit with biggest cyberattacks in history. Let’s take a look at another article, this one in January of 2017. Cyber Attacks and Bank Failures: Risks You Should Know.
The opening paragraph, let me just read the first sentence here. “Fears of a major cyber attack on banks have been rising since hackers successfully stole nearly $100 million form Bangladesh’s central bank.” So, we can see here that cyber attacks happening, they happen across the board in the financial industry regardless of whether it’s a cryptocurrency such as bitcoin or Altcoins or fiat currency, central bank’s private banks, cyber attacks happen all the time.
So, if we are going to say that one of the reasons why we should deem Bitcoin as haram because of cyber attacks being successfully launched against it then that means we also have to take a look at fiat currencies and central banks and regular banks that are out there as well.
Sheikh Assim al-Hakeem: So, there is a lot of ambiguity. If I have dollars and you have Euros, we would like to exchange, this is permissible in Islam with one condition and that is that it has to be hand to hand. It has to be physical.
I cannot say, “Ok, I accept this transaction. I’ll give you the money after half an hour.” This is haram. The transaction is void. It has to be simultaneous, give and take. In virtual currencies, you don’t have this. The transfer is not simultaneous. And you don’t have anything physical to hold on to.
So, this kind of ambiguity makes Bitcoin haram in my opinion. And Muslims should not get involved in such dubious transactions simply to make a quick buck, to make a quick profit. This is not an Islamic concept.
And one of the reasons of a lot of transactions being prohibited in Islam is the concept of gharar, ambiguity. That there might be some sort of deceit or ambiguity in knowing the end result of this transaction Allah Azawajal knows best.
Andre Rishi: Ok. So, the final argument of our Sheikh is that of ambiguity and I think he has a very legitimate point that he’s making. So, when it comes to trade, when we are trading currencies, trade should be done hand to hand.
Spot trading is what it’s called. And that can be difficult to do with bitcoin in particular because even though when you initiate the trade, you can initiate sending of the coins, right? The sending of your bitcoin with the transaction but the transaction is not confirmed for a rock bottom minimum of 10 minutes.
So, you have to wait 10 minutes before you can confirm that the transaction has truly taken place. So, this is an area of uncertainty if it comes to trading cryptocurrencies. But let’s take a look at some of the developments that are being used that tackle this issue.
Now, let’s take a look at the lightning network. One of the things that our Sheikh was mentioning is that when it comes to currency trade. Currency trade needs to be hand to hand trading or what we call spot trading taking place in the moment between two people.
The issue that we have with Bitcoin is that when you initiate a transaction with Bitcoin it takes up to a minimum of 10 minutes, I should say not up to but at least a minimum of 10 minutes before the transaction is confirmed on the blockchain and this can cause an issue when it comes to trade.
So, what the developers of Bitcoin are working on now is a new technology, a new addition to the code called the Lightning Network that in essence will allow instantaneous Bitcoin transactions. So, this would allow for a spot trading.
I’m going to include a link to this article, What is the Bitcoin “Lightning Network?” This article is found on Investopedia. I will include the link here for you to review this article and I will also include a link to the Lightning Network website. We can also learn about this new addition, this new update that is looking to be featured on Bitcoin sometime, hopefully in the near future.
Here is even a video that you can look at when it comes to learning about the Lightning Network. But this is an answer to all those people who have issues with transactions not taking place instantaneously on the Bitcoin network.
So, this in the future will answer that question in regards to the legitimacy of bitcoin being used for spot trading. And now, what we will do is we will see if other, we will see if other Altcoins will also follow suit and incorporate something of– that you would also call the Lightning Network on their cryptocurrency, on their platform.
And that is going to do it for my commentary on Sheikh Assim al-Hakeem’s fatwa on Bitcoin. I do want to commend our sheikh and all the shuyukh out there who are beginning to now have dialogue on Bitcoin.
I hope I was able to be of benefit to all of you out there checking out the blog post as well as to our sheikh. And I hope I was able to correct him in areas where I see that he had either a simple misunderstanding or a simple mistake. We all make mistakes, humdulilah.
Let’s continue the dialogue and the discussion. I would love to hear from you; your thoughts on his fatwa and that of the other scholars out there. Please do leave your comments down below. And remember this is a fatwa.
Fatwas are not legally binding in the sharia. They are legal opinions so you can choose to either follow the fatwa or not.
Again, please do leave your comments down below I would love to hear from you.