Is Bitcoin Trading Halal or Haram?

Assalaamu Aleikum and welcome to part 2 in our 4 part Is Bitcoin Halal Series. Insha’Allah today we’ll talk about trading bitcoin. We’ll take a look at how the fuqaha (scholars) view bitcoin and what this means when it comes to trading bitcoin.  

Many Muslims are asking the question, is bitcoin trading halal or haram?

As of the making of this blog post, there is still no consensus among the scholars that bitcoin can be classified as money. Therefore, bitcoin cannot be subject to the rules of riba al buyu. So, we can say that, at this time, trading bitcoin is not haram.

Now, some scholars have given fatwas that bitcoin is haram and others say bitcoin is halal. But again, there is no consensus that bitcoin is haram, and in Islam, we always start with the Islamic principle that things are considered permissible until proven otherwise.

I agree with the scholars who say that bitcoin is halal since I believe their argument and understanding of bitcoin is more accurate than those scholars who argue the opposite. Not only do some scholars see bitcoin as halal, but they also see that bitcoin can be classified as money.

And if the scholars reach a consensus that bitcoin can be classified as money, then not only is it permissible to trade bitcoin, but then we must now also apply the rules of riba al buyu when trading bitcoin.

To learn more about trading currency and how bitcoin comes into play. Please watch the video below or read the article below as we discuss what are the rules of trade in Islam.

Video Transcript

Assalamu alaikum and thank you for joining me for today’s blog post here with the Islam a Bitcoin project. Today is the second blog post in our 4 blog post series. Our series is called, Is Bitcoin Halal Series.

Now, in our first blog post of the series we talked about currency. We talked about how does the sharia define money? What is money? What is a currency? And where does bitcoin fall into that? And what do the fuqaha (Islamic scholars) have to say about bitcoin as it relates to money according to the sharia?

Now, if you’ve missed that blog post please do go ahead and check it out. As for today, we are going to step into blog post number two in the series and we’re going to talk about trade.

Now let me just start off by saying that this is not meant to be a fatwa series. I’m not here to give a fatwa. I always say I’m not a mufti. I’m not an alim. I’m not a big time sheikh. I am simply a student of knowledge sharing with you information that I have learned from my teacher in my studies as it relates to Islamic Finance with the hopes of benefiting myself first and foremost and all of you out there as well.

Keep in mind that even though I may share with you information that I have learned from those teachers, scholars, that I’ve taken knowledge from it may be that another scholar out there has a difference of opinion and this is quite normal in Islam.

It is quite normal for the fuqaha to have differences of opinion amongst each other so no need to get into squabbles or some extreme debates over the matter. So, let’s hop in today’s topic of discussion right now. Is trading bitcoin halal or is it haram? what does the sharia have to say about trade as it relates to bitcoin? What do the fuqaha have to say about trade as it relates to bitcoin? Let’s go ahead and take a look at that right now.

Is trading bitcoin halal or haram? So, that’s what we’re going to look at with this blog post. The first thing we’re going to do is take a look at some hadith that the fuqaha normally look at when it comes to trade.

After that we’re going to talk about money and see how does trade come into play when we are talking about money and where does bitcoin fall into that. And after that we’re going to look at some basic principles in Islam when it comes to trade; when it comes to things such as futures, short-selling, binary options and the like. So, without further ado, let’s go ahead and move ahead and hop right into it.

Hadith About Trade and Riba Al Buyu

Okay, there are two hadith that the fuqaha normally look at when it comes to trade and both of them can be found in Muslim. This first one we’re going to look at is Muslim, Hadith number 1587 and this is narrated on the authority of U’bada ibn al-Samit (May Allah be pleased with him) and he said that the messenger of Allah said, (may peace and blessings be upon him).

Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates and salt by salt; like for like and equal for equal, payment being made hand-to-hand. If these classes differ then sell as you wish if payment is made hand-to-hand. (Muslim 1587)

So, right here we can see that there are six items that are mentioned in this hadith and these six items are what the fuqaha look at to derive rulings when it comes to trade and if you see that the messenger of Allah (may peace be upon him) is saying when you’re trading like for like, gold for gold, silver for silver, wheat by wheat and so on, that the trade should be equal for equal and the payment should be made hand-to-hand.

Meaning it should be on the spot trading and then he (pbuh) says, if the classes differ, then sell as you wish so long as the payment is still being made hand-to-hand. And we will take a look at what these classes are as we move along further here in this blog post.

The second hadith that the fuqaha look at his also found in Muslim and this is Hadith number 1584. This one is narrated on the authority of Abu Sa’id al-Khudri (may Allah be pleased with him) and he said that the messenger of Allah (may peace and blessings be upon him) said,

Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, salt by salt, like by like, payment being made hand-to-hand. He who made an addition to it or asked for an addition in fact dealt in riba. The receiver and the giver are equally guilty. (Muslim 1584)

Now we can see here that this hadith also mentions the same six items that we found in the previous hadith. The only addition to this hadith is the introduction of a riba. And what type of riba are we discussing here?

We are discussing riba al-buyu and riba al-buyu is trade where an increase takes place and where this increase is not permissible. Riba al-buyu is seen as haram. This ruling of riba al-buyu applies to the trade of items that fall within a particular category or class of items. Now, if you remember the two hadith that we just took a look at it mentions six items of trade.

These six items fall into certain classifications and we’ll take a look at this as we move further along in the blog post. But just know that because these items fall into these particular classes the fuqaha will take a look and see if riba al-buyu is the end result when trade is taking place when it comes to these items.

And again, we said that riba al-buyu is haram. So, what we need to do now is also see where does bitcoin come into play as it relates to riba al-buyu, but for now let’s take a look at the six items and have a little discussion on this further.

Six Items of Trade

Now here we see six items of trade mentioned in the Quran and/or hadith and these six items are gold, silver, wheat, barley, dates and salt.

Now as previously mentioned we said that the six items that were discussed, talked about, in hadith fall into two different classes and we can see what these classes are. Right here over to our left we see that we have the class of items that are measured by weight.

That being gold and silver and over to our right we can see items that are measured by volume. That would be wheat, barley, dates and salt and these are the two classifications that all these six items fall in and this is what the fuqaha will take a look at and use this as the foundation of how to make ruling when it comes to trade.

Now out of these items, gold and silver, the items that are measured by weight, these two items are seen as money; money being a medium of exchange. Over history though, sometimes salt was also used as money. But by and large all throughout history even until today gold and silver still rule and they are still seen as money

With that being said, where does the U.S. dollar come into play? Now as a side note, for the sake of this blog post, I’m just referring to the U.S. dollar as the normal paper currency that people know worldwide. In the United States, the U.S. dollar is actually, it is technically a silver coin. It’s a coin.

It’s actually a coin, but nowadays we know the U.S. dollar as this piece of paper and that is what is commonly used and that is what I’m using as an example here today for this blog post. So, the fuqaha took a look at this U.S. dollar and they said, all right, well, what do we do with this U.S. dollar?

This piece of paper is normally used as trade in the marketplace to purchase an object of sale, but it’s not an item that we normally say falls under the category of being measured by volume nor do we say that the piece of cotton paper is something that’s normally measured by weight. So, what do we do with this?

The fuqaha, well, first of all, know that the- a piece of paper would normally be considered a countable item and countable items are things such as books, pens, shoes, an article of clothing, a car, a house and the like.

But the fuqaha said, wait a minute, we’re not going to look at this piece of paper that is called the U.S. dollar, we’re not going to look at this as a countable item because at one point the U.S. dollar was backed by gold and this U.S. dollar is being used as the currency of a government, of a Nation; therefore, because of that, the fuqaha have now shifted the US dollar, the US Federal note, and all [paper] currencies of all governments, they have put them in the category of gold and silver.

That category being items that are measured by weight. They have made an exception for paper currency to fall under this category and the rules of trade would apply to these currencies as such; the same rulings that apply to gold and silver.

How Do We Classify Bitcoin?

Now we introduce bitcoin onto the scene. And most people will ask, “How do we classify bitcoin?” Do we say that bitcoin should be an item that is measured by weight or do we say that bitcoin is an item that is measured by volume? Well, clearly we can see that bitcoin can be used to purchase an object of sale.

We also know that bitcoin is commonly compared to gold. Bitcoin is regularly called digital gold. We also know that, in quite a few countries, bitcoin is legal to use as a form of currency and it is even seen as an asset class and you can invest in it. We can also perform currency exchange with bitcoin. So, with that being said, clearly we can see that bitcoin should be categorized as an item that is measured by weight. 

And if this is indeed what you believe, then you would be…wrong. You would be wrong. Incorrect. In fact, at this time bitcoin does not fall into either of the two categories that scholars look at when it comes to trade which is, items measured by weight or items measured by volume.

Now some of you will say, “Well why not?” Well, that’s because our scholars have not classified bitcoin as money, and I touched upon this in the first blog post of this series, of the Is Bitcoin Halal Series.

We talked about bitcoin and how the fuqaha look at bitcoin whether it’s classified as money. Whether it’s halal or not. You can find all of that out in that blog post so if you missed it please do go and check it out, but know for now, as of now, our scholars have not classified bitcoin as money therefore we cannot say that bitcoin must follow the Islamic rules of trade.

Now with that being said, if we know that the fuqaha have not defined bitcoin as money, if we know that the fuqaha, our scholars, do not place bitcoin in the category of items that are measured by weight, if they do not classify [it] in the category of items measured by volume, then we say that bitcoin is not subject to the guidelines of riba al-buyu. Riba al-buyu applies to items of trade that fall into either of the two categories- items measured by weight or items measured by volume.

Bitcoin falls into neither therefore riba al-buyu does not apply.

Now in time this may change, but again, as of now, as of the making of this blog post, we can say that we cannot enforce the Islamic rule of trade upon bitcoin because again, one, it’s not classified as money and two, it does not fall into either class mentioned by our scholars.

So, is trading bitcoin halal or haram? As of the making of this blog post, we can say that as of today, there is no consensus amongst the fuqaha that trading bitcoin is haram. And now that we’ve taken a further look at the rules of trade, we can now see that the fuqaha do not classify bitcoin as being an item that is measured by weight or an item that is measured by volume; therefore, we can say that the rules of trade do not apply to bitcoin.

We can take it a step further and say the rules of riba al-buyu, they also do not apply to bitcoin. So again, is trading bitcoin halal or haram? We can say that, with certainty, as of the making of this blog post today, that there is no mashoor (popular) opinion, there is no consensus, no popular consensus or ruling that bitcoin, trading bitcoin in and of itself is haram.

Now let’s take a look at some basic rules of trade that apply to currency since many of you out there are involved in currency trading.

Hand to Hand (Spot) Trading

Know that hand-to-hand trading or trading within the same sittings, many times called spot trading, according to the fuqaha, this is permissible; not only permissible, but it is actually a requirement when it comes to currency trading because currency falls under the category of items that are measured by weight.

Now when it comes to the time period that is allowed for trading hand-to-hand, for spot trading, for trading in the same sitting, the fuqaha say, up to 48 hours is allowed to conduct the trade. If it falls within that time period it is considered a halal trade and a person may say, “Why are we given 48 hours? Why are we given so much time?”

The reason being is because the fuqaha realize that nowadays people live all over the world and we have people that live in different countries exchanging currency with one another and it might be that the person who lives in England is conducting trade with someone who lives in Saudi.

And it might be that the person in England, when they initiate the trade, the bank is open, but for the person in Saudi the bank is closed, or it might be vice versa- the person who initiates the trade in Saudi the bank may be open there, but in England, the other person who has the bank account in England, that they’re conducting trade with, the bank there is closed.

So, the fuqaha realize that time must be allowed for business hours to be open where the trade can be conducted.

They also realize that trade nowadays is done over the internet and different software applications are used to conduct trade and it might be that the software application will say that, your trade will be complete in 45 minutes, or it might be complete in one hour or it may take 15 minutes to complete.

So, the fuqaha realizing this say, well, you are given up to 48 hours to conduct your trade and this will be categorized and classified still as hand-to-hand trading; trading that is done within the same sitting or what is also called spot trading.

Short Selling and Futures Trading

Now when it comes to short selling the fuqaha say that short selling is haram. They say that it is haram. Why? Because many people who engage in short-selling, when it comes to currency, the trade is being conducted while the person does not have complete or full possession of the currency and the fuqaha say that you can only trade what you have when it comes to currency trading.

You must be in full possession of the currency before you can actually trade it and many times when it comes to short selling this is not the case; therefore, the fuqaha say that short-selling is haram.

Now what about futures trading? This is the same thing. You are initiating a trade now but the completion of the trade will not take place until a future date. It might be one month from now. It might be 6 months from now. It might be one year from now.

You’re conducting currency trade where, again, the trade- you will exchange the item of the currency far out, in a far future date. The fuqaha say that this is considered haram. You cannot do this. You cannot do this.

Again, the trade must be conducted hand-to-hand, spot trading, in the same sitting and you are given an allowance of up to 48 hours to conduct that trade and doing so within the 48 hours is deemed permissible. 

Binary Options

Now what about binary options? Now, I’m not going to explain in detail what binary options is. As a matter of fact, I’m going to share with you a link to a video (The Truth About Binary Options) that does an excellent job of explaining what binary options is but know that binary options basically is a form of gambling.

Binary options is basically a form of gambling and gambling is haram; therefore we say that binary options is haram because it is like gambling. Now if some of you out there can prove to me or show me that binary options is not gambling then please do leave comments in the comments section of this blog post but from everything that I have seen binary options is gambling and gambling is seen as haram.

Conclusion

And that will do it for today when it comes to bitcoin and trading bitcoin and what the sharia has to say about trade as it relates to bitcoin. Insha’Allah I was able to bring some clarity to the matter.

Hopefully you leave here today with a better understanding of how digital currency, how bitcoin works as it relates to the sharia in particular when it comes to trade. So now we’ve talked about currency and we’ve talked about trade and the third topic that we’re going to get into is bitcoin mining. Is bitcoin mining halal? Is it haram?

What are some things that you may want to think of and pay attention to if indeed you are thinking of stepping into bitcoin mining. We’re going to discuss that in our third blog post that will be coming up soon enough insha’Allah.

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