Since Bitcoin’s inception date of January 3rd, 2009, Muslims around the world have been asking the question, is Bitcoin halal? And in the early days of Bitcoin, more times than not, many scholars gave a blanket ruling that Bitcoin was haram and cited their reasons as to why.

Now, in 2021, some 12 years later, we have come a long way in our understanding of Bitcoin and our scholars have also progressed in their understanding of not only Bitcoin but cryptocurrency as a whole.

So when the recent news came out that Indonesia’s National Ulema Council issued a fatwa saying that Bitcoin and all cryptocurrency is haram, that surprised not only Indonesians, but many Muslims worldwide as Indonesians have not only been steadily increasing in cryptocurrency adoption, but the Indonesian government has also signalled its interest in providing cryptocurrency regulation to make cryptocurrency trading safer for Indonesians.

Let’s discuss the Indonesia Bitcoin ban and what this means for the future of cryptocurrency in Indonesia.

Bitcoin in Indonesia

Indonesia, the largest Muslim country in the world, has seen steady adoption of crypto acquisition and trading with crypto transactions amounting to 370 trillion rupiah (around$26 billion) in the first five months of 2021 alone. Make no mistake about it, Indonesians are serious about crypto.

In fact, we are now seeing that Indonesians have been investing more in cryptocurrency than they have in the stock market and the government has taken notice.

Indonesia’s Minister of Trade, Jerry Samuaga, held an interview with Metro TV News discussing the government’s initiative to create a Crypto Bourse to bring more regulation to cryptocurrency in Indonesia making it safer for Indonesians to transact with crypto.

So how is it that the government is moving forward with crypto adoption, yet the country’s National Ulema Council has completely opposite opinions declaring Bitcoin and all cryptocurrency haram?

Indonesia Bitcoin ban

In 2017 the Central Bank of Indonesia, Bank Indonesia (BI) banned using virtual currency in payment system activities. The message was clear, the Central Bank of Indonesia does not see Bitcoin as legal tender and aims to protect the country’s economy from misuse of virtual currencies.

Still, the government did not ban owning and/or trading cryptocurrencies. It only banned crypto being used in payment systems and does not recognize Bitcoin or virtual currencies as legal tender.

Four years later, in 2021, the Minister of Trade, Jerry Samuaga, has also continued to clarify this and has stated that Bitcoin is not seen as a currency or legal tender in Indonesia, but rather is classified as an asset.

And what of the country’s religious scholars?

Even with the progress in the understanding of cryptocurrencies among scholars worldwide with scholars beginning to have a more nuanced opinion on Bitcoin, crypto, and virtual currencies, the National Ulema Council in Indonesia still holds the opinion that Bitcoin and all cryptocurrencies are haram as they believe that “cryptocurrencies as commodities or digital assets are unlawful for trading because they have elements of uncertainty, wagering and harm.”

According to the National Ulema Council, Bitcoin and cryptocurrency are also seen as haram because:

• Trading them is likened to gambling
• Cryptocurrencies are not physical, tangible assets
• Cryptocurrency values are volatile and fluctuate greatly

However, Asrorun Niam Sholeh, head of religious decrees for the National Ulema Council, made it clear that “if cryptocurrency as a commodity or digital asset can abide by Shariah tenets and can show a clear benefit, then it can be traded.”

5 benefits of cryptocurrency

So are there any benefits with cryptocurrency? Yes, we can list at least five.

1) Easy transactions

Cryptocurrencies such as DASH and Cardano make it easy to conduct transactions such as remittances for extremely low costs.

This can prove most beneficial for those living in countries whose currencies are not as strong as the British Pound Sterling (GBP), US Dollar (USD), Singaporean Dollar (SGD), Brunei Dollar (BND), Jordan Dinar (JOD), Omani Reil (OMR) and others as utilizing cryptocurrencies directly between parties could help save greatly on remittance fees by cutting out expensive third-party vendors.

2) Preservation of wealth

Bitcoin, in particular, is seen as a store of value to hedge against the inflation of fiat currencies worldwide and preservation of wealth is one of the five objectives of the Shariah.

3) Transparency

Cryptocurrencies can run on public blockchains for all to see providing much needed transparency for financial structures such as stock markets and sukuks. I foresee a future where stocks will be represented as digital assets on a blockchain as a way to deliver better transparency for its investors and to prevent the trading volume from exceeding outstanding shares as can happen today.

4) Fraud prevention

Cryptocurrencies such a VeChain provide accountability for goods being produced and traded since they are tied to a blockchain that allows the consumer to validate the authenticity of a product through the entire supply chain of its production.

Utilizing cryptocurrency for fraud prevention can be highly beneficial as it can help prevent counterfeit products from entering the marketplace and harming people while also allowing the tracking of food products to make sure that they are halal.

5) Increase in economic equity

Over the years we have only seen an increase in finance and e-commerce products grow online and access to these markets can be near impossible for those who are unbanked creating wealth inequality worldwide. However, it has been reported that there will come a time when there will be more people that have smartphones than bank accounts.

Smartphones along with cryptocurrency serve as a gateway for many people to now enter the growing finance and e-commerce markets providing economic equity, or at least economic inclusion, to those who are unbanked around the world, particularly in Asian, Middle Eastern, and African countries, allowing them the possibility to participate in the market at low cost in a manner that would have been impossible years ago.

These are five examples, and there are more, of how cryptocurrency can be of benefit to humanity while also being compliant with the Shariah.

The future of cryptocurrency in Indonesia

While fatwas are not necessarily binding, Muslims generally view them with importance and Indonesian Muslims are no different. Do I believe that the ulema of Indonesia will change their view on Bitcoin and cryptocurrency? Yes, I believe they will.

Cryptocurrency is the natural evolution of money, but we must still remember that cryptocurrency is a new technology that is not adopted nor used by the masses worldwide for everyday use. The number of people that are active cryptocurrency users as of 2020 was around 100 million people in a world of billions. This is still small.

And as for how much money all cryptocurrency accounts for worldwide, well, as of the time of when this article is published, that only sits at a mere 7%.

In other words, cryptocurrency is still not mainstream, but in time, as better infrastructure is built throughout cryptocurrency markets focusing on ease of use and government compliance; where we will see better security, faster transaction times, interoperability between blockchains, a better balance between privacy and transparency, better user interface (UI) and user experience (UX) design, along with many countries implementing their own central bank digital currencies, I do believe that we will see more stability in crypto markets, easier and more beneficial use of the technology, and more acceptance by governments and scholars worldwide and this includes Indonesia.

Indonesia is the largest Muslim country in the world with a people naturally inclined to business and technology and who, by and large, hold their Islam with importance. I believe they will find a way to integrate cryptocurrency within their country in a beneficial way while still upholding their Islam.

This is already taking place in Indonesia as we see it in projects like Cardanesia, a Cardano staking pool earning halal yield from Cardano’s proof of stake protocol. Cardanesia’s participation in proof of stake block validation is seen as environmentally friendly and as a way of giving back, some of the income they earn from staking is given as charity to Rumah Zakat.

Insha’Allah I look forward to seeing the opinion of scholars change and look forward to having them participate in the formation of halal financial products, security, and IT infrastructure based on cryptocurrency, blockchain, and digital currencies in a manner that is not only beneficial for the government, but also for the everyday user.

I do believe that this is possible in Indonesia, and in the end, Allah knows best.

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Yield farming is a concept that has gained great popularity in recent years in the DeFi world. It’s an investment strategy with which token holders seek to obtain excellent returns for their money, investing and participating in different DeFi platforms, always with the intention of finding any financial advantage that allows them to maximize profits.

Without a doubt, this is a form of investing that can generate excellent returns if done correctly and has quickly gained a lot of momentum for its application on many platforms within the crypto ecosystem.

But what are the 4 types of yield farming and is yield farming halal?

Generally speaking, the 4 types of yield farming are as follows: 1) Liquidity Pools, 2) Lending and Borrowing, 3) Staking (proof of stake), and 4) Holding for a Redistribution Fee. As for if yield farming is halal, not all types of yield farming would be considered halal. It depends on the type of yield farming you participate in.

Let’s take a closer look at each of the 4 types of yield farming and let’s see which type of yield farming would be considered halal and if any of the 4 types of yield farming would be considered haram.

What is yield farming?

Yield farming is a formula by which investors try to obtain profits from the storage of cryptocurrencies. With this investment method we have two key factors to consider:

1. Liquidity provider (LP) – A user who brings cryptocurrencies to the market
2. Liquidity reserve (LR) – A smart contract that validates and manages the funds provided by the LP

Basically, in yield farming, LPs obtain rewards in exchange for providing liquidity through their funds, something similar to the interest paid by banks to those who keep money in them for a certain period of time. But one main difference is that in Islam, it is haram to collect bank interest since it is derived from usury, but with yield farming, some types of yield farming are halal. We’ll touch on this more later in this blog post.

How does yield farming work?

In a yield farming system, investors transfer or deposit assets into a smart contract providing liquidity. In exchange for this, the system will offer them a benefit for the immobilization of these assets.

This can be done through specialized platforms that facilitate the whole process, usually on Ethereum ERC-20 tokens, but since there is no single model or a single system to apply this formula, each platform usually applies its own rules, which can be modified from time to time.

What are the 4 types of yield farming?

Here is a list of the main methods of yield farming that you can find in the market. Of course, it is also possible to find some variations of these methods, but in general, they’re as follows:

1. Liquidity pools

A liquidity pool is perhaps the most common form of yield farming. As I already explained, this works with a smart contract that blocks tokens to ensure liquidity on a decentralized exchange platform. The users who provide these tokens are called liquidity providers.

The liquidity pool will hold two tokens in a smart contract to form a trading pair. Suppose there are tokens “A” and tokens “B”. Suppose also that the price of A can be equal to 100 B.

LPs must contribute the same value of A and B to the pool so that someone who deposits an A token will also have to add 100 B to the same contract. So when someone wants to exchange A for B, they can do it based on the funds deposited in the contract, instead of waiting for another user to appear who wants to do the opposite operation – as happens in crypto exchanges.

LPs are then incentivized for their contribution with different types of rewards, which usually are native tokens of the platform that provides the service.

What are the risks of liquidity pools?

Although this activity can be very profitable, it’s important to be aware of the risk of impermanent loss (IL). This means temporary losses of funds due to the high volatility of the trading pair; the higher the volatility, the higher the IL risk.

In this case, the losses are for less money at the time of withdrawal, which means that a liquidity provider can end up with a greater amount of the B token and slightly less of the A token or vice versa. However, IL can be compensated by trade commissions and other additional rewards earned by LPs.

2. Lending and borrowing

The idea behind a lending and borrowing mechanism is very simple: lenders provide funds to borrowers in exchange for a regular interest rate.

In the crypto world, lending and borrowing are carried out through different types of platforms that can be centralized or decentralized.

If we take this to the world of DeFi, both providers and borrowers interact in fully decentralized platforms in which they have total control over their money, thanks to the use of smart contracts that operate mainly on the Ethereum network.

The way this works is very simple: user X sends a certain amount of funds to a lending platform using a smart contract, which will then provide them with earnings in the form of interest, usually in the platform’s native token.

Such a smart contract then becomes a kind of intermediary available to other users of the platform who want to apply for a loan – the money contained in the smart contract. Subsequently, lenders can withdraw their earnings from the platform from time to time in the form of interest in native tokens.

As a general rule, for a user to be able to request a loan in native tokens, he must previously deposit in the form of a guarantee, an amount in another cryptocurrency, equal to or greater than the amount of the loan that he’s going to request.

What are the risks of lending and borrowing?

Although this financial activity is usually quite safe in the DeFi context, there are also a couple of aspects that need to be considered.

First, there is always the possibility that the smart contract used for the operation receives some type of manipulation. This is more likely in the cases of smart contracts provided by third parties.

On the other hand, borrowing APYs on some cryptocurrencies could suddenly go up for some reason, which could lead to the most careless users ending up paying more than expected.

3. Staking (proof of stake)

Staking within the universe of cryptocurrencies involves keeping a certain amount of funds in a wallet in order to obtain yield for keeping this crypto locked up or “staked” on a blockchain.

This action of holding funds in a crypto wallet, also known as staking, serves to support the security and operations of a blockchain network by validating transactions on the network. In return, they are able to generate yield, or rather, earn cryptocurrency, for providing such a service to the network.

This consensus system is known as Proof of Stake (PoS) and is based on the fact that to obtain consensus, users must demonstrate possession of the indicated funds.

The idea is that users block cryptos and from time to time, the network randomly assigns the right to one of them to validate the next block, the probability of being chosen is directly proportional to the amount of frozen funds held on the network.

In this system and unlike what happens in other consensus mechanisms – such as PoW in Bitcoin – the users who act as validators, don’t compete with each other using the computing power of their equipment, but instead, put up a share of assets to certify that they’ll validate transactions in an honest way.

What are the risks of staking?

In the case of staking, you have to consider the risk of keeping a high amount of funds locked on a blockchain for a long period of time. Remember that there can always be attacks on these platforms that end in the partial or total loss of the funds held, something that has already happened on many occasions.

In addition, in some cases, these funds are placed in the hands of third parties, which implies a risk if there is an internal theft attempt on the platform.

4. Holding for a redistribution fee

Some decentralized exchanges facilitate the buying and selling of different crypto assets between users, but they do so through a model called automated market making (AMM).

Users can add their inactive tokens to the liquidity pools available on the platform and earn passive income according to their contribution and at the same time, other members can exchange tokens from these liquidity pools – the profits go to the community of users.

In the case of SushiSwap for example, anyone can provide liquidity through its internal app. When they do, they’ll receive SLP tokens (SushiSwap Liquidity Provider tokens). For example, for a $SUSHI and $ETH pair, the user would receive SUSHI-ETH SLP tokens.

Any user can create a new liquidity pool simply by providing a new pair, and it’ll be the proportion of tokens that the user adds, which will set the price of this new liquidity pool.

Afterward, other users can trade any ERC-20 token and when transacting on SushiSwap Exchange, a fee of 0.3% will be charged and 0.25% of this trade will go back to the users that make up the LP group.

In exchange for maintaining liquidity in these groups, LPs are rewarded with these fees, in addition to a portion of the SUSHI minted daily on the platform. The best part is that users can claim their funds at any time.

What are the risks of holding?

As with any liquidity pool, there is a risk of suffering losses due to IL, but also that the borrowing APY goes up in price or that the platform suffers from theft of funds.

BONUS

5. Hodling

The term “hodling”, also known as “hold on for dear life” in the crypto world, is used to define those who simply hold onto their cryptocurrency as a long-term investment strategy without worrying about the rise and fall in the price of tokens.

This is not a form of yield farming in its most pure essence, but you can also see it that way for your convenience – especially if you don’t have experience with crypto finances.

Hodling is a strategy used by people who don’t have the skills or the time to perform other types of operations, so these people invest in well-established projects for long-term investment.

The objective of hodlers is that, over time, the value of the selected cryptocurrency will increase, so the most common strategy is to invest in the purchase of relatively new cryptocurrencies with very low prices so that, as the value of these assets increases, they can, insha’Allah, make a good profit on such an investment.

This form of “yield farming” has proven to be one of the strategies that has worked best for Bitcoin users.

For example, if you had invested $1,000 to acquire 1,000 BTC when the price was at $1 during 2011, at the time of publishing this blog post, you would have approximately $60 million in a period of only 10 years!

What are the risks of hodling?

HODLing won’t increase the number of cryptocurrencies you have in your hands. This means that you will only make a profit if the cryptocurrency increases in price in the long term. But remember that the opposite could also happen, with which you would lose money instead of increasing.

Is Yield Farming halal?

Is yield farming halal? When it comes to yield farming, staking, as in Proof of Stake, is generally considered halal, while the other 3 types of yield farming, liquidity pools, lending and borrowing, and yield from redistribution fees would be considered questionable or even haram.

Proof of Stake is generally considered halal as you are earning yield for providing security to the network. This is obviously assuming that the network itself is not dedicated or established for some haram type of activity.

Earning yield from liquidity pools could be halal so long as the pool itself is not being used for haram operations such as loaning money to others to earn interest on the loan. Muslims should strive to not purposely put themselves in situations where they are directly contributing to what is known to be haram.

When it comes to earning yield from lending and borrowing, many scholars would say that this is haram as the objective of most DeFi projects is to establish lending and borrowing contracts that will allow the lender to earn money from interest. However, this may change if lending and borrowing contracts are established under Islamic finance investment tools such as “Murabaha” or other sharia compliant guidelines.

And as for earning yield from redistribution fees, this could also be seen as halal since you are providing a service to the platform so long as the purpose of the platform or DEX is not a lending pool where the goal is to earn interest off of loaning money by way of crypto.

All of this is said by making the assumption that the cryptocurrency you are using for yield farming is already seen as halal by scholars.

Final words

We have now explored the most common types of yield farming strategies, acknowledging that there are many variations in them. If your intention is to enter the world of yield farming, you should first familiarize yourself with the operation of the different platforms that offer this form of investment making sure that they are in harmony with Islamic principles.

Take into account that if you don’t understand what you are doing, you’ll probably lose money. Remember that the most profitable yield farming strategies are also the most complex ones and are recommended for advanced users.

It is not just about buying crypto when Elon Musk makes a comment that boosts its price, but there is a whole range of possibilities to earn much more money out there in a halal way. You just have to be well prepared and do your research.

May Allah guide you to success, Ameen.

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When someone reads about Bitcoin for the first time, one of the most interesting features that grab their attention has to do with security.

The word “cryptocurrency” refers to the fact that there is something cryptographically protected and this, together with other characteristics, results in a system with security that’s incredibly hard to break.

In fact, the Bitcoin blockchain has never suffered a hacker attack in its more than ten years of existence because it is simply too difficult to hack.

However, millions of dollars in bitcoin – around 4 million BTC – have been lost forever, and a good deal of this money has been stolen.

How is this possible when Bitcoin is supposed to be the safest money in the world?

Well, the problem is that there are other factors, many related to human failures, that can put the security of bitcoins at risk. Furthermore, the imagination, skill, and tactics of cybercriminals are almost limitless.

If you are one of the fortunate holders of bitcoin and have already started to worry or be deeply concerned after reading the previous paragraphs, then no need to worry, because today, insha’Allah (God willing), with this guide on The Best Way to Secure Your Bitcoin, you will learn some best practices in securing your bitcoin.

Let’s begin…

1. Use an online vault if in doubt

“Not your keys. Not your bitcoin”. These are the famous words of Andreas Antonopoulos.

When we enter the world of Bitcoin, one of the first lessons we are taught is that we absolutely must not keep our bitcoin on custodial centralized exchanges where the exchange is the holder and manager of the private keys to our bitcoin.

Yet many people, especially those who are new to Bitcoin and crypto as a whole, keep their bitcoin on centralized exchanges even after hearing the famous words of Andreas Antonopoulos because, not only is it convenient and easy, but also because many people do not feel confident enough in securing their own bitcoin.

Ultimately, I absolutely believe that you should take your bitcoin off of centralized exchanges and secure it in a wallet of your choice, but I also understand that in the beginning, everything can be so confusing, and even finding a wallet to store your bitcoin may take some time as you need to find a wallet that you feel confident operating as well as fulfills the needs you have.

So what do I recommend? I recommend, that if you are not confident when it comes to self-custody, then see if the exchange has a vault option to store your crypto such as Coinbase.

So what does the Coinbase vault do? Coinbase’s vault protects your bitcoin by storing them offline in what is called, cold-storage, this protects your bitcoin from online hacks.

Another added security feature of their vault is that in order for you to withdraw your bitcoin, an additional approval verification request is needed not only from the primary email address but also from a different email address to execute the withdrawal and once the approval verification is verified, there is a 48 hour wait time before the bitcoin is released, This added layer of security makes it much harder for a hacker to access your bitcoin on the platform.

In addition to increased protection, users are also able to stake other cryptocurrencies in their vault and receive staking rewards.

If you do not have an account with Coinbase, then please feel free to use my Coinbase referral link and you will receive $10 of free bitcoin once you purchase $100 or more of bitcoin.

Keep small amounts for day-to-day use

Normally, you use a physical wallet to carry small amounts of fiat money when you go shopping, but you don’t keep all your money there, right? The same happens with Bitcoin wallets.

Try to make it common practice to use only the amounts you need for your daily operations and keep the rest of your money in the safest place you can find.

Protecting your online wallet

As I mentioned earlier, most users who are just starting in the world of Bitcoin and cryptocurrencies usually begin using online wallets on platforms such as Coinbase or Binance, both for their ease of use and accessibility. These services make life much easier for less expert users, and getting started can take just a few minutes.

Even with this, online wallets are not the safest option as we’ve already mentioned, since any cybercriminal could easily steal your email address, username, and password, using techniques as simple as phishing – and remember that once your private keys are stolen, you lose your Bitcoins forever.

Use a VPN to mask your IP

Constantly using an online wallet service from the same device and through the same internet connection can be dangerous.

This is because on the different websites that operate with cryptocurrencies – be it exchanges or gaming sites – in which you must login with a username and password, your IP address is always registered and associated with your user profile.

Some cybercriminals could spend some time monitoring these logs with the intention of obtaining the IP addresses and carrying out attacks on an individual level. The best thing you can do to prevent this is to mask your IP address using a trusted Virtual Private Network (VPN) service.

I normally would recommend Express VPN, since it is not only a VPN with high-level encryption, but it also works at the highest possible speed in this type of service and has servers in more than 160 locations around the world. However, at this time, whistleblower Edward Snowden recommends that it is better to not use Express VPN.

Use a Secure Email for Your Online Wallet

Now let’s talk about email addresses. Most people use email – mainly GMail, MSN, or Yahoo! – as the primary access key to all their user accounts on the internet, whether it is platforms to work online, payment gateways, crypto exchanges, social networks, etc.

On top of that, most of the time they only use a single email address to access all these services and for communication, sharing that address with many other people.

These practices are a serious mistake since this is like placing the master key to our finances and our entire digital world, on a silver platter for hackers. And not to mention that free email services only use one layer of protection (HTTPS) to ensure the security of communications.

HTTPS is not enough since there may always be an application that requires permission to use our email, with the risks that this entails. The best practice, in this case, is to use a separate email account with high-level encryption, at least for the most sensitive part of the formula: our money.

Currently, there is a whole series of email services on the market that protect your whole email account with zero access encryption and end-to-end encryption for message transmission. Currently, the most popular option on the market is ProtonMail – and it is also free to use. Check out Protonmail here.

Two-Factor Authentication (2FA)

Another excellent recommendation if you use online wallets is to always add a second level of security to traditional access with username and password through the double authentication factor.

This process is used to verify your identity when accessing a web service, and it is already a common option in most of the web services out there. This is something of great importance since today, 99% of passwords are stolen through phishing attacks, no matter how long and complex they may be.

By adding a second layer of security using 2FA, you can prevent someone who has stolen your password from accessing your account, as they would need a second password provided through an alternative route – such as a mobile phone. Many websites allow you to do this by SMS, Google Authenticator, Authy, or by email, so it is basically a free method.

In addition to this, using 2FA is quite simple, since once you have configured and synchronized this option with the online service you are using, after entering the password, the system will ask you for a unique code through the alternative route you have chosen, either SMS, email, Authy, or Google Authenticator.

In this way, if someone steals your password, they won’t be able to move your bitcoin, since they will need that second security code provided by your 2FA app. This system greatly increases the level of general protection.

However, nothing is perfect; remember that this is a software security layer, and a cybercriminal could devise a way to intercept the second security code. Now, at this point comes another recommendation.

Use hardware-based 2FA

Universal Second Factor (U2F) is an open technology developed under the guidelines of the Fast Identity Online Alliance (FIDO) and used in hardware devices to reduce the dependence on passwords in user accounts on the internet.

These are devices similar to a USB key that come in different shapes and sizes and that serve as a second layer of 2FA security.

In this case, the second layer of security is not provided by a code sent to your phone via SMS, email, Authy, or Google Authenticator, but instead, the process is performed internally on the device itself.

The advantage of this is that it’s practically impossible for a cybercriminal to intercept any code since everything is done at the hardware level.

Right now, the most popular device among those available on the market is without a doubt, YubiKey by Yubico.

The best thing about YubiKey is that it’s compatible with a wide variety of online services such as cloud-based systems, password managers, email platforms, social media, game development tools, crypto exchanges, and even offline computers. Check out YubiKey products here.

2. Keep control of your keys

Although this is very basic advice, this is probably the best practice to protect your bitcoin. As we said at the beginning, everything on the internet is liable to be hacked, both by external and internal agents. So it is best to always distrust – you should analyze very well the service and/or storage method you’re going to use before sending your precious cryptocurrencies there.

Keep control of your private keys! Once you move off of custodial wallets move to wallets where you get to hold the private keys

Many of the big bitcoin thefts that have occurred in the past have occurred on sites that are reputable and trusted by users – Binance hack and Liquid hack – so it is best not to keep your funds for too long in the hands of other people.

The best option: Keep your Bitcoins off the network

The following method, although it is somewhat more complex than the others, can add a very large layer of security to your bitcoins. It’s as simple as storing your cryptocurrencies in a place disconnected from the internet. This is what we know as cold storage.

When you use an online wallet, you are authorizing your service provider to “protect” your private keys. This makes your life easier by getting rid of all the technicalities behind such work, but it also makes the service more attractive to cybercriminals.

An offline wallet is the opposite; you have to take care of the tedious technicalities, but in return, you gain full control over your private keys. There are different types of offline wallets:

Software Wallets

Software wallets are programs that you can install on your device, be it your PC, smartphone, and even a USB key. These applications store your private keys on the device without the need for an internet connection.

Later, when you need to do a transaction, you must use an internet connection. This process requires a bit more technical knowledge and is a more tedious process, but it also provides a much higher level of security.

An excellent and reputable software wallet is the Electrum Bitcoin wallet.

Hardware Wallets

Hardware wallets are physical devices similar to a USB key or an external hard drive that generate and store pairs of private and public keys. These devices usually come with an application that you must install on your PC or smartphone.

When you need to make a transaction with your cryptocurrencies, you must synchronize your hardware wallet with the application, generally through a wireless connection such as Bluetooth.

The transaction will be signed and approved in the hardware wallet and registered in the application, but the private keys will never leave the wallet.

All this provides a very high level of security, really difficult for any attacker to pass. This is the reason why these devices are so popular with Bitcoin enthusiasts and the crypto world in general, with Ledger, Trezor, and KeepKey being the top three options on the market right now.

Visit the Ledger website here

Visit the Trezor website here

Visit the KeepKey website here

Update your software frequently

The programs that work as wallets to be used on your smartphone or PC can present flaws and security breaches. Cybercriminals can exploit these weak points to access your private keys and steal your cryptocurrencies.

It’s also important to ensure that all the software on your computer or mobile phone is up-to-date and free of malware of any kind. It doesn’t matter if you use a web wallet, as your operating system could be infected or out of date, and even the browser could have a malicious extension that you aren’t aware of.

There are many programs on the web that seem innocuous and that when installed on any of your devices, can activate or update themselves automatically and infect your computer to steal your private keys.

Encrypt your private keys

Cryptocurrency wallet programs typically create your private keys automatically. The problem is that not all wallets follow good practices when carrying out this process, so there is a risk of a security breach.

Once they have been created, these keys are saved on your device in plain text format or in another type of database file, and it’s at this point where the encryption of these files plays an important role.

Some wallets incorporate a process to encrypt the private key with a password or PIN that they ask for when sending money. This means that if someone steals your private keys, they must know that password or PIN in order to access your bitcoins. Whenever possible, the best practice is to use a complex password to encrypt your keys.

Preferably, you should use complex text that is difficult to generate by brute force – a 200 character alphanumeric text with enough weird characters should work quite well.

Make backup copies

If you use some type of offline wallet, it’s always convenient that you make several backup copies, encrypt and store them in a safe place. Then you can save these copies in cloud storage services, USB keys, external hard drives, etc.

This is especially important when you aren’t using a Hierarchical Deterministic (HD) wallet, in which case you’ll need to back up more often than usual.

Having backups is important for all your data and files, but even more so for your money – you don’t want to let what happened to James Howells, who inadvertently threw away a fortune in bitcoins, happen to you.

On the other hand, although periodically backing up your wallet is a very healthy practice to protect your Bitcoins, it can also be very tedious to do everything manually or semi-manually. How about doing it automatically then?

You can do this with Backblaze, a cloud-based backup service that is very well suited to users with little experience thanks to its ease of use.

The service allows continuous and automatic backup of any content you specify, uses high-level encryption to protect backed-up files, and employs various optimization techniques to increase download and upload speeds. All for a small monthly. Check out Backblaze here.

Use multi-signature addresses

This is undoubtedly one of the best security methods to protect your bitcoins due to its low complexity for novice users and the high level of security it provides.

As you already know, in the world of Bitcoin and other cryptocurrencies, there is what is known as a simple address, which has a private key associated with it. This is what gives you ownership of your Bitcoins.

But in the case of multi-signature addresses, several private keys can be associated with each other to sign and validate a transaction.

This means that, if you have your bitcoins associated with a multi-signature address of let’s say, three private keys, in order to make use of your cryptocurrencies, you must have access to these three keys; otherwise, you won’t be able to use your digital currencies.

Best of all, you can configure this as it best suits you, since you can create a multi-signature address with three private keys, but that only requires access to two private keys to authorize a bitcoin transaction.

To give you an example, you can manage one of the keys from your mobile phone, another from your PC, and another from some other device.

This method would force a criminal to have access to all these devices in order to steal your Bitcoins. The problem is that you’ll have to be very careful not to lose your access to such devices…

The solution for this is to create backup copies of the private keys, so if you’ve read the previous two sections, you already know how to do it without complicating your life. Another option is to use hardware wallets that are capable of managing multi-signature addresses. Ledger and Trezor offer multi-signature options.

3. Paper Wallets

A paper wallet is basically key pairs printed on paper in the form of a QR code. These paper wallets can be created on websites such as bitaddress.org and their operation is quite simple; you must scan the public key using a wallet software application and send it to another user when you want to receive some BTC.

In case you want to send bitcoins, you just scan your private key, and so the transaction is signed and approved.

The advantage of this is that being a cold storage method, your bitcoins remain totally offline and safe.

The problem is that this carries with it the risk of using paper: they can be lost, they can be burned, someone could steal it. This means that you’ll need to be extremely careful with this method.

Conclusion

Bitcoin and other cryptocurrencies can be a very lucrative investment. However, you should never lose sight of the security factor, especially if you own large amounts of bitcoin.

Before converting your assets in bitcoin to fiat money, for example, you must make sure that you have taken all the necessary security measures. Only in this case, can you use this cryptocurrency with total peace of mind.

All the tips and technologies already mentioned will help you increase the overall security of your bitcoin. Remember that the more security measures you apply, the more difficult it will be for thieves to access your precious digital assets.

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Right now, the main problem with Bitcoin is scalability; that is, the number of transactions per second that the network can process simultaneously. For several years now, the Bitcoin development community has been working on various proposals to improve the network’s ability to support a greater number of transactions, but for various reasons, it hasn’t been an easy task.

However, it seems that the wait has come closer to an end since one of these solutions is about to be implemented: the Lightning Network, the technology that could lead Bitcoin to its definitive adoption by the masses.

If you are a Bitcoin enthusiast, I invite you to read this post, Bitcoin and the Lightning Network, to the end, so that you may learn about the benefits that this new technology will bring to the most famous cryptocurrency insha’Allah (God willing).

What is the Lightning Network?

The Lightning Network (LN) is a communication protocol that enables peer-to-peer transactions outside the Bitcoin (BTC) network in a much more efficient way. This means that the LN offers the possibility of carrying out transactions without them being immediately registered in the Bitcoin blockchain, which brings the benefit of instant transactions and very low commissions.

For this, the LN has its own nodes and software, so its operation is independent of the Bitcoin blockchain. However, the LN does need to constantly communicate with the latter, for which it must make use of certain types of “special transactions.” In addition to this, the LN can also be integrated into other blockchains, such as Litecoin.

The authors of this proposal are Joseph Poon and Thaddeus Dryja, who wrote a whitepaper on the LN that you can find on the Web, have been developing this technology together with several private companies.

Why was the Lightning Network created?

As already mentioned, the main problem with Bitcoin and other cryptocurrencies is scalability. Actually, Bitcoin supports between 4-7 transactions per second and Ethereum between 12-20 transactions. If we compare this with the average of 1,700 transactions per second that the VISA Network can process, then you can see the big problem that the lack of scalability represents.

This lack of ability to process a large number of transactions makes cryptocurrencies like Bitcoin and Ethereum an inappropriate solution for day-to-day use – like making quick purchases in a store, for example. In fact, on many occasions, both Bitcoin and Ethereum have seen how their networks suffer saturation and traffic congestion from trying to handle a volume of transactions greater than their capacity.

When there is a sharp increase in network use, the cost of transaction fees rises, as excess transactions accumulate like a queue in the mempool, a space where all transactions wait to be confirmed by the Bitcoin miners. At this point, miners prioritize transactions with higher commission payments (transaction fees) to obtain higher profits, so those users who want their transactions processed quickly will have to pay more in transaction fees.

The Lightning Network was created to avoid these “bottlenecks,” by streamlining transactions and dramatically lowering commissions.

What should the Lightning Network do?

First of all, in order to function correctly, the LN requires the non-malleability of transactions, or what is the same, the information of any single transaction cannot be modified during the verification or generation process. Bitcoin added this feature with SegWit and reinforced it with Taproot, laying the foundations for new scalability solutions and serving as the basis for the development of the LN and its “payment channels”, the essence of how the LN works, and which we’ll discuss in more detail now.

Lightning Network payment channels

The payment channels in the LN are actually multi-signature transactions that are generated outside the Bitcoin network and in which at least one of the parties must make a transfer of funds.

To open a channel, it’ll be necessary to use the private key of each one of the parties and from that point on, any transaction carried out will be signed by both parties. This allows establishing a consensus or trust between the parties to carry out transactions.

Once a payment channel has been opened, it’s possible to carry out as many transactions as desired before closing the channel, being able to keep it open for a specified period of time – the time it takes for the next block to be generated on the Bitcoin blockchain.

When the channel is finally closed, all transactions carried out will be broadcast to the network, validated, and included in a block on the Bitcoin blockchain.

Payment channels interconnected under the Lightning Network

Although using a payment channel works well for transactions between two users, for an online business, it’s more practical to create a single payment channel for many customers. In this sense, the Lightning Network allows several payment channels to be interconnected that can be crossed with each other.

This interconnection between two or more channels requires that there be a common user between them. This feature would allow you to send funds to other users outside of your payment channels, through a user that is common to the different channels involved. All of this is possible thanks to different algorithms that facilitate the connection between users through the shortest possible route.

At this point, something that I must highlight is that, unlike what happens in the Bitcoin network, the more users generate payment channels in the Lightning Network, the faster and more effective the transactions will be, since scalability increases.

How will the Lightning Network improve Bitcoin?

Scalability

Since the generation of blocks in the Bitcoin blockchain happens every ten minutes and each block can only accommodate a certain number of transactions, the block space then becomes a scarce resource by which those users who want their transactions validated before others users, will have to pay more fees. This is good for miners, but not for ordinary network users.

The Lightning Network reduces commissions (transaction fees) to just two: one to create the payment channel and one to close it. All transactions generated within this channel, whether they are one, two, or hundreds, do not pay commissions.

When the channel is closed, the ending balances are posted to the blockchain. This allows to make more efficient use of the space of the blocks and in addition, it’s possible to open as many channels as necessary.

Micropayments

The idea behind the LN is to be able to perform microtransactions with great ease; that is, day-to-day operations, whether it be grocery shopping or putting gas in your car. For this, the Lightning Network allows payments from 1 satoshi (0.00000001 BTC) to a maximum of 0.16777215 BTC for a single payment channel.

This is different from what happens in the Bitcoin blockchain, which establishes a minimum per transaction of 546 satoshis (0.00000546 BTC), something necessary to prevent “dusting” attacks on the network.

Privacy

Something very remarkable about the LN is its ability to offer users high levels of privacy. Although it’s possible to see who opens and closes a payment channel, users have the option to decide whether the channel is private or not. In the case of choosing a private channel, only the participating users will be able to know the transactions carried out within that channel.

Instant payments

As mentioned before, in the Bitcoin network, miners choose the transactions that they’re going to validate according to fees, or what is the same, the higher the commission, the faster they validate a transaction.

In the Lightning Network, validations are instantaneous and without commissions; once a transaction is made in a payment channel, it’s closed, registered in the blockchain, and disseminated on the network, so the payment of validation fees is omitted.

Atomic Swap

Although work is already underway to change this, at present, it’s not possible to make an exchange between Bitcoin and other cryptocurrencies without a trusted third party within the Bitcoin network. Through the LN, these exchanges could be made instantly and without intermediaries. Although at the moment it’s not possible yet, this possibility is already being experimented with.

Pros and cons of the Lightning Network

PROS

1. Solves Bitcoin’s scalability problem – Theoretically, the LN has the capacity to support up to almost 1 million transactions per second
2. Transactions are made almost instantaneously
3. High levels of security and privacy – Off-network transactions are almost untraceable
4. Offers the ability to make micropayments and automated payments
5. It can be integrated into other networks – In fact, it’s already operational inside Litecoin
6. Reduces the number of transactions on the Bitcoin network – This makes it more efficient
7. Atomic Swap – Possible exchange of cryptocurrencies between different blockchains
8. Decrease the amount of transaction fees – You only pay for opening and closing a payment channel

CONS

1. It’ still in development phase – The developers themselves recommend at the moment, not to transfer large amounts of BTC
2. The liquidity of each channel is limited to the amount of Bitcoin that the parties have
3. It requires trust between parties – There is a risk that one of the parties commits fraud, something that doesn’t happen on the Bitcoin network

How will this affect the future adoption and growth of Bitcoin?

I could summarize this answer with the following three factors:

1. Instant transactions
2. Lower fees
3. Interoperability

The Lightning Network will bring a whole world of possibilities for Bitcoin insha’Allah, and even for other cryptocurrencies; it’ll not only increase the speed of transactions on the network and decrease the fees to be paid, but it’ll also help expand the use of Bitcoin among those who would normally find it too expensive to transact on the Bitcoin network.

This will be possible thanks to the possibility of cross-chain cryptocurrency exchanges, something that will especially and more immediately, allow greater interoperability between Bitcoin and Litecoin – increasing the popularity of both crypto assets.

Conclusion

The Lightning Network is a technology still under development and experimentation whose main objective is to increase the scalability of the Bitcoin network. However, its potential is really great, as it’ll allow small payments to be made instantly, efficiently, and cheaply, while the Bitcoin network will continue to be used for larger transactions.

The other great solution of the Lightning Network will be its ability to transfer cryptocurrencies between blockchains with different consensuses, something that will reduce the need to use centralized crypto exchanges, which greatly reduces the privacy of our transactions.

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Since the appearance of Bitcoin in 2009, the entire crypto ecosystem has been experiencing a constant explosion of ideas to take advantage of all the possibilities offered by its base technology, blockchain. One of the best examples of this are Bitcoin ATMs.

So what is a Bitcoin ATM? A Bitcoin ATM is like any other ATM (Automated Teller Machine) but instead of depositing and withdrawing cash like a bank ATM, you can buy or sell Bitcoin instead and it is not connected to a bank.

Although it’s not such a new idea – the first Bitcoin ATM was launched in 2013 – nowadays, they’re increasingly relevant in society, with a number close to 20K ATMs already distributed around the world.

These Bitcoin ATMs represent a more accessible, fast, and practical way for anyone to make effective use of their cryptocurrencies.

Even so, there are still many people who don’t know about their existence or have never tried to use one of these devices, perhaps due to some fear related to this technology.

For this last reason, in this article, we’re going to explain everything that you, dear reader, should know about Bitcoin ATMs so that you can get the most out of your cryptos in your day-to-day life.

What are Bitcoin ATMs?

Again, a Bitcoin ATM is like any other ATM where you can withdraw or deposit money, either using a credit/debit card or cash; the difference is that with a Bitcoin ATM, you can only operate with Bitcoin and cash, and sometimes other cryptocurrencies as well.

These Bitcoin ATMs use blockchain technology to perform operations as if they were a crypto exchange so that their users can buy and sell Bitcoin in a much faster and more practical way.

However, it’s important to clarify that this technology is not standardized and each ATM has its own features. In this way, some only allow you to buy Bitcoin, while others allow you to buy and sell as well – bidirectional ATMs.

How to use Bitcoin ATMs

First, it’s important to remember that Bitcoin ATMs are not linked to any bank. Remember that one of the main characteristics of Bitcoin and most cryptocurrencies is decentralization, that is, there is no central body that regulates them.

This means that Bitcoin ATMs are developed by private companies that make these products available to the public, in exchange for charging commissions for each transaction. This also means that not all ATMs work in the same way, even though they all serve the same purpose.

Another very important point to clarify is that with some Bitcoin ATMs, in order to buy and sell Bitcoin, you will first need to have a user account registered with the ATM provider. This is done through the provider’s website.

Other Bitcoin ATM providers will not require you to create an account on their website, rather, they will ask for your phone number as a means of KYC in order to send you an SMS for verification before you buy or sell.

Here is a short list of some Bitcoin ATM providers:

• Lamassu
• General Bytes
• CoinUnited
• BCB ATM
• Genesis
• Shitcoins
• LocalCoin
• Coinsfera

What do you need to use a Bitcoin ATM?

The first thing you’ll need to perform your operations on a Bitcoin ATM is to have a digital wallet or hot wallet. We recommend you to use a wallet you can download to your smartphone in the form of an app for iOS or Android.

This is because Bitcoin ATMs need to scan your wallet address through the QR code that these apps provide.

In addition to the QR code, in many cases, you’ll also need to verify your identity with your email address and your wallet password, while in others you may need your ID document or mobile phone number.

Bitcoin ATMs request these identification elements to verify that the wallet owner is the one who is actually doing the operation. Once this simple step is completed, the rest is even much easier.

All you have to do is select the type of operation you need at the ATM, buy or sell and that’s it!

Most ATMs will allow you to only buy and sell Bitcoin, but there are some models that will allow you to exchange your Bitcoin for some other cryptocurrency such as Ether or Litecoin, for example.

TIP: Remember that the operation of a Bitcoin ATM will vary depending a lot on the features that the model or brand has to offer by the manufacturer.

1.- How to buy cryptocurrency at a Bitcoin ATM

Although most Bitcoin ATM models require you to perform the steps below, they may vary in number or order, depending on the ATM model.

1. Select the option “Buy Bitcoin”
2. Using the ATM barcode reader, scan the QR code provided by your Bitcoin wallet app
3. Verify your identity, either with your email, SMS security code or personal ID – this varies by provider.
4. Indicate the amount of Bitcoin you want to buy
5. Deposit the indicated amount of fiat money at the ATM
6. Verify that you received your coins in your Bitcoin wallet to confirm and end the transaction

TIP: Nowadays, many people wonder whether is possible to pay with another alternative means for buying operations at a Bitcoin ATM such as using a credit or debit card. Unfortunately, nowadays it’s only possible to use cash to carry out buying operations on these machines.

2.- How to sell cryptocurrency at a Bitcoin ATM

As with the purchase, the process of selling Bitcoin also varies between ATM operators.

1. Select the option “Sell Bitcoin”
2. Verify your identity, either with your email, SMS security code, or personal ID – this varies by provider
3. Indicate the amount of Bitcoin you want to sell
4. Send the Bitcoins to the machine from your wallet or app on your phone using the ATM QR code
5. Withdraw the cash from the ATM

TIP: In case you want to exchange Bitcoin for another cryptocurrency, it’s convenient that you have a wallet that supports several of these, such as ZenGo, Exodus, Atomic Wallet, or any other trusted wallet that you prefer.

Do Bitcoin ATMs require ID?

Bitcoin ATM providers have adopted various security measures to verify the identity of their customers and keep criminals out.

In addition to the identity verification methods already mentioned, such as email verification and two-factor authentication, in many ATMs, there is a second layer of security that usually consists of a government-issued identification card, similar to a driver’s license. In this case, the user must scan such card through the ATM to complete their transaction.

But usually, this information is requested when you are seeking to buy or sell a value of Bitcoin or other cryptocurrencies. If you are purchasing a small amount, usually around $100 USD, then the ATM will normally ask for a phone number or email only.

These requirements are part of the “Know Your Customer” (KYC) and “AntiMoney Laundering” (AML) procedures, required by law – in the US – that is necessary to collect and maintain a record of users and the transactions they perform.

This is because Bitcoin ATMs are classified as a money services business (MSB) by the United States Department of the Treasury.

However, this type of procedure may not be applicable in other countries, depending on the provider of the Bitcoin ATMs.

How much are Bitcoin ATM fees?

Currently, the average fee for operations with Bitcoin ATMs is between 8% and 10% for the purchase, and between 5% and 7% for the sale. However, it’s important that you do your research in this regard, since some companies that provide these ATMs may charge fees of up to 20% or even higher.

Another aspect to keep in mind is that the Bitcoin blockchain also has its own fees related to the activity of miners. These fees tend to vary constantly, depending on how congested the network is.

Are Bitcoin ATMs safe?

Normally, Bitcoin users are concerned about privacy and security, as these are factors inherent to Bitcoin.

Although using Bitcoin itself provides high levels of privacy and security, these levels can be altered when the services of a third party are used to perform exchange operations. The same happens with ATMs.

Regarding privacy, as we mentioned earlier, with ATMs as with traditional crypto exchanges, some ATMs require you to perform a user registration prior to using the service, so that some of your data will be registered on the provider’s platform. However, this will also depend a lot on the provider itself.

In terms of security against attacks and robbery attempts – whether digital or physical – this aspect is not very different from using an online crypto exchange or a traditional ATM. Everything will depend on the security features given by the provider and the location of the ATM itself.

How to find Bitcoin ATMs

One of the best ways to locate a Bitcoin ATM near you is to use an online tool that keeps track of ATM kiosks around the world. One of the best options currently is CoinATMRadar. According to the platform, there are almost 19,000 ATMs installed around the world.

Using this tool is very easy since you only have to use the “Bitcoin ATM Near Me” option, which will allow you to do the most specific search and access an ATM machine much more quickly where you can buy or sell any cryptocurrency of your choice, not only Bitcoin.

In addition, CoinATMRadar contains detailed information on most of these machines, including the address and phone numbers of the providers.

Conclusion

Bitcoin ATMs are undoubtedly one of the most important instruments in the adaptation of the masses to the daily use of cryptocurrencies.

It’s a relatively new technology that is quite accessible and easy to use, and that also offers some advantages over the use of traditional crypto exchanges, but with similar levels of security and privacy.

Perhaps, the only disadvantage is that the fees to pay for each transaction are a little higher, but it’s well worth weighing this with the convenience of being able to make a much faster and practical exchange.

And in the end, Allah knows best.

Is cryptocurrency legal in your country? Want to know the legality of cryptocurrency in other Muslim countries? With the expansive growth of cryptocurrency worldwide, many governments are now developing laws to deal with the use of cryptocurrencies by their citizens.

Below you will find a list of Muslim countries along with the legal ruling of cryptocurrency by their governments.

Bitcoin Legality in Africa

Bitcoin Legality in Asia

Bitcoin Legality in Europe

Bitcoin Legality in the Middle East

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With the unstoppable rise in the price of Bitcoin, the rest of altcoins following in its footsteps, the growing institutional interest in the industry, and the recent IPO of Coinbase, it’s normal that more and more people want to ride the wave started by Satoshi Nakamoto more than ten years ago.

However, the sudden rises and falls in the price of cryptocurrencies, as well as the cyberattacks and scams that some exchanges have suffered in the past, are factors that still intimidate many people.

Even with all this, along with the technical advances the industry has experienced in terms of security, ease of use, and even regulation, makes it more and more attractive to carry out buying and selling operations using crypto exchanges.

As I understand our needs and fears, I decided to make this list of the best places to buy bitcoin and altcoins with the peace of mind that a serious and quality platform can offer you.

1. Coinbase

Coinbase started in 2012 by selling bitcoin directly to its users, but it added new services over time. The exchange has had an unstoppable growth and is now one of the largest and strongest platforms within the US, with a base of 30 million users. The platform is also easy to use and is available in many countries, yet many people complain about its terrible customer support.

Click on the link to get $10 of free bitcoin when you sign up with Coinbase.

Supported countries

Coinbase is available in more than 100 countries.

Security

The exchange has never suffered cyberattacks and thefts on its system and it offers an offline storage guarantee on most user funds. You’ll need to go through KYC and AML procedures when registering.

Fees

Although Coinbase fees are among the most competitive on the market, it’s difficult to set a fixed amount for them, as they vary based on some factors:

• A basic flat fee – 1.49% standard buys | 3.99% CC buys (these fees may vary)

Ease of use

Coinbase’s interface is made to attract someone who is new or at a beginner level to the world of cryptocurrencies, something that’s evident by its easy to understand and user-friendly design.

Wallet service

The platform offers an online wallet in which it keeps 2% of users’ funds, and the rest is stored in an offline wallet. Private keys are owned by the company.

Customer support

There is a high percentage of complaints from dissatisfied users on the internet on this factor.

Additional help

Only basic online help and FAQ on the use of the platform.

Additional benefits

Coinbase offers you the possibility to participate in staking activities to earn some rewards on your cryptos. They also provide FDIC insurance on your crypto of up to USD $250,000 per customer who have their crypto stored online on their platform.

2. Coinbase Pro

Coinbase Pro is Coinbase’s professional platform for more experienced cryptocurrency users. It’s a version of Coinbase with a richer interface with advanced options, ideal for experienced crypto traders who want to obtain a higher return on their crypto investments.

They offer a smaller amount of cryptocurrencies to trade compared to other platforms, yet we can highlight their incredibly low fees and variety of security options.

Supported countries

Coinbase Pro offers its service in more than 100 countries, including the US.

Security

The exchange has never suffered direct cyberattacks, although in the past it suffered from some flash crashes from which it managed to recover.

The platform offers security features such as 2-factor authentication (2FA), SSL encryption, and fund insurance for up to $250K.

Coinbase users who want to use Coinbase Pro don’t need to pass additional verification procedures.

Fees

Fees vary from 0% to 0.5% in a maker-taker scheme and according to the volume of your transactions.

You qualify as a maker if you place an order that immediately matches an order previously placed in the order book.

On the other hand, you qualify as a taker if you place an order that only partially qualifies with another.

Although this variable scheme is confusing for many people, its advantage is that it considerably reduces the fees for transactions.

Ease of use

The exchange is focused on expert users.

Wallet service

The same as with Coinbase.

Customer support

Yes, but it doesn’t stand out for being neither the fastest nor the most attentive.

Additional help

Only basic online help and FAQ on the use of the platform.

Additional benefits

Same as Coinbase, you have the possibility to participate in staking activities to earn some rewards on your cryptos. You can also earn referral commissions.

3. Binance

With only four years of existence, Binance has quickly become one of the largest exchanges in the world with more than 200 cryptos available in a large number of countries worldwide. They offer a wide variety of deposit and withdrawal options, super-competitive fees, the capacity to process 1.4 million transactions per second and an interface suitable for all types of users,. These are just some of the reasons for their stunning growth.

Supported countries

The platform is available in a large number of countries, including the United States – through Binance.us

Security

Binance has suffered a hack in the past, but the company has responded seriously to its users at all times. This significantly increases confidence in the company.

The platform also complies with the security standards for these type of services such as 2FA, a multi-tier system architecture, and cold storage.

Fees

One of the lowest in the market, just 0.1% for each transaction.

Ease of use

The exchange’s interface is of medium complexity, which makes it suitable for both novice and veteran users.

Wallet service

Binance is primarily an exchange and it only works as a wallet for certain investment options.

Customer support

Although it doesn’t stand out for being the best in the world, the support team responds. Communication is done via online tickets and email.

Additional help

There is only basic online help about using the platform.

Additional benefits

Binance offers several options on which the user can obtain additional profits, such as staking, savings, loans, and smart pooling, among others. Some of the ways to earn additional profit may not be Islamically permissible depending on how the crypto is classified.

4. Gemini

Gemini is an exchange founded by the Winklevoss twins, famous Bitcoin millionaires. This exchange is characterized by its accessibility and ease of use. Although its fees are a little higher than those of other exchanges, the platform makes up for it with a system rich in options for advanced trading, a variety of cryptocurrencies (33 different cryptos), and many advanced security options.

Supported countries

The exchange supports about 50 countries, including the US. Its philosophy is reaching as many users as possible.

Security

Gemini excels in this regard. Its system is quite robust in terms of security options as they adhere to a security philosophy of:

• Defend against external threats
• Protect against human error
• Guard against misuse from insider access

In addition to that, the exchange offers insurance that covers losses from hacks, and most of the funds are kept in cold storage.

Fees

The fees vary between 0.5% and 3.99%, depending on the interface you use (beginner or advanced).

Ease of use

It’s an exchange suitable for all types of users as it offers two interfaces: one for beginners (direct trading) and the other for expert users (advanced charting, order tracking and block trading).

Wallet service

The exchange offers an online custodial wallet – insured against losses – that you can use for your day-to-day operations. It also has its corresponding mobile app.

Customer support

This aspect is a bit above average, since it’s quite responsive and it’s possible to contact them by email, phone, and tickets. It also offers a lot of online help with solutions to common questions.

Additional help

Another noteworthy aspect, since the platform offers an extensive knowledge base through:

• Quick knowledge guides
• Crypto glossaries
• Webinars

Additional benefits

No.

5. CEX IO

CEX.io is a well-established exchange with more than 7 years of operation behind it and a very good reputation. The exchange is established in the UK and offers a brokerage service and a trading platform, but also places a high priority on security. Although CEX.io doesn’t offer a wide variety of cryptocurrencies, it makes up for this failure with several attractive investment options that have made it a favorite of many people.

Supported countries

CEX.io has a global presence, although there are restrictions for certain forms of payment in some countries.

Security

The company complies with the regulations in all the countries in which it’s available. The platform requires several levels of KYC verification for new users, has a robust monitoring system and other additional security options (cold storage, 2fA, PCI DSS, etc.).

Fees

The fees are variable according to the type of operation:

• Card deposits: $2.99
• Withdrawals: from 0.3% to $25, depending on the withdrawal method.
• Trading: they vary according to your position (taker or maker), from 0.00% to 0.25%.

Ease of use

CEX.io offers a friendly interface for any type of user, and it’s possible to use it as a brokerage or as a direct trading platform.

Wallet service

CEX.io is not an online wallet service, but it stores most funds in cold storage for security reasons.

Customer support

It’s possible to contact support through live chat, social media and phone. The service is available 24/7 and works quite well.

Additional help

The platform has a blog and a YouTube channel with information about the operation of the exchange and cryptocurrencies in general.

Additional benefits

Staking on the platform is possible.

6. Coinmama

Coinmama is a trusted and veteran platform in the industry that’s ideal for those who want to buy cryptocurrencies without complications and without the fear of losing their investment due to security problems. This is because when you buy or sell cryptocurrencies through Coinmama, you’re working directly with the company behind the exchange, without intermediaries. This offers additional advantages that other exchanges don’t offer.

Supported countries

Coinmama is currently available in almost 200 countries, including the US – although not in all states.

Security

Coinmama is a well-established and reputable platform in the industry since 2013.

The exchange doesn’t store any type of financial information, nor the funds of its users on the platform. This feature reduces the number of vulnerable points to the risks of external attacks or scams.

Fees

The fees on the platform are usually somewhat lower than on other sites, and are generally presented as follows:

• Purchases: 3.90%
• Sales: 0.90%
• D/C card transactions: 5%

Ease of use

Coinmama works well for all types of user, but it’s especially suitable for beginners or those who want simplicity and speed in their operations.

Wallet service

The platform doesn’t offer a wallet service, so you must have an external wallet to withdraw your funds.

Customer support

The company offers one of the best customer services in the sector, available 24/7 and with attention via email, phone, social media and chat bot.

Additional help

Coinmama offers a complete and accessible compilation of tutorials and online help about the operation of the exchange, but also about cryptocurrencies in general.

Additional benefits

Coinmama has a tiered benefits program for all its users that offers significant discounts on fees.

7. Kraken

Kraken – If you already have some experience with other cryptocurrency exchanges and want to go to a more advanced and sophisticated level with an exchange that offers:

• A large number of options for your trading operations
• More options to increase the profitability of your money
• And a very high level of security

Then Kraken is for you.

Supported countries

Kraken has a global reach and only about ten countries are not supported by the platform. It’s also available for US residents.

Security

The platform also stands out for offering a wide variety of advanced security options. It keeps its servers in constant custody and stores 99% of funds offline.

Fees

Kraken has a variable maker-taker fee scheme (ranging from 0% to 0.26%) based on the volume of transactions during a certain period.

Users of the Instant Buy feature pay a 3.75% fee.

Ease of use

As we said at the beginning, Kraken is more suitable for advanced and experienced users in the world of crypto trading.

Wallet service

Kraken works solely as an exchange and trading service.

Customer support

It’s available 24/7, 365 days a year through live chat, so the attention you receive is usually quite fast.

Additional help

Kraken offers a good number of options for users to educate themselves mainly on advanced and specific topics about the assets of their interest through:

• Online crypto guides
• Video lessons
• Podcasts

Additional benefits

Kraken also offers staking in case you wish to earn returns for persistently keeping your funds on the platform.

Conclusion

As more people enter the market and buy cryptocurrency, we can see even more scammers seeking to steal their money. It becomes even more important that you are able to purchase crypto in a safe way. Whether you are a beginner to buying crypto or an experienced crypto trader, I highly recommend only purchasing crypto from reputable platforms.

Some of our scholars such as, Dr. Mohd Daud Bakar, who hold the view that Bitcoin and cryptocurrency are halal, recommend only purchasing cryptocurrencies from reputable and regulated crypto exchanges.

And in the end, Allah knows best.

Everything evolves, even money…

Until a few years ago, we only knew two forms of money: our local currency and foreign currencies such as the euro, the British pound, or the yen. The rest of the equation was completed by the ways of using it, whether it was cash, transfers, or even checks.

Everything changed when Bitcoin (BTC) arrived, and what is Bitcoin? Bitcoin is a decentralized digital currency that runs on cryptographic software called a blockchain that keeps a public and unalterable record of all transactions.

Bitcoin appeared as an alternative and solution to traditional money and its problems, as described by its mysterious creator, Satoshi Nakamoto.

Bitcoin started slowly and more than ten years later, we’re all surprised when we see on the news that a Bitcoin is worth more than $50K and that it has already surpassed gold as an international store of value.

And you wonder:

What is Bitcoin and how does it work?
What can I do with Bitcoin?
Is Bitcoin legal?

For these and other questions, I decided to create this Ultimate Beginner’s Guide to Bitcoin and Cryptocurrencies, to clarify your doubts once and for all, forever.

Let’s get started.

What is Bitcoin and how does it work?

Bitcoin is a digital currency, decentralized and supported by cryptography-based software.

That means that you can use bitcoin to pay for goods and services directly (peer-to-peer or P2P), without an intermediary – such as your bank’s electronic platform.

On the other hand, “trust” in Bitcoin is based on a cryptographic security system that prevents fraudulent operations with the currency, instead of relying on the trust offered by governments or banking institutions.

“Basically, each bitcoin is a file stored on your device – smartphone or computer – that runs on cryptographic software (blockchain) that keeps a public and unalterable record of all transactions.”

What can you do with Bitcoin?

With each day, Bitcoin and the rest of the cryptocurrencies are more and more integrated into the economy and society.

Many people already see cryptocurrencies as something normal and have become used to using them as part of their day-to-day needs for different purposes. Let’s look at the main uses of Bitcoin today.

1. Paying for goods and services

The first time Bitcoin was used was to pay for a product: two pizzas at the Papa John’s restaurant chain. 10,000 bitcoin were paid – about $30 at that time.

It doesn’t matter if it’s a pizza or a piano that’s more than 200 years old, Bitcoin is increasingly accepted as a form of payment for buying and selling, forming part of many eCommerce platforms in different categories.

Let’s name just a few:

1.1 Travel:

• Surf Air – Private flights.
• CheapAir – Online flight booking.
• MoAfrika Tours – Africa tourism!

1.2 Videogames:

• G2A – Codes for games.
• Big Fish Games – Casual games.
• GamesPlanet – Online games store.

1.3 Online shopping:

• Overstock – Large variety of items.
• Shopify – eCommerce platform.
• Purse – Amazon discount website.

1.4 Computers and electronics:

• Microsoft – Technology company.
• Namecheap – Hosting service.
• WordPress – Blogging platform.

1.5 Other:

• Wikipedia – Online encyclopedia.
• Save the Children – Charity organization.
• BitHope – Various charitable donations.

2. Protection against inflation

One of the main drawbacks of traditional money is that it can be controlled by central banks and governments.

These entities can print enormous sums of fiat currency into the market and manipulate interest rates, thus causing the devaluation or appreciation of the value of the currency, even if said value doesn’t correspond to the real value of the economy of a country.

This has happened throughout history and continues to happen both in poor developing countries and in superpowers like the United States.

Many people have realized this and have chosen to use Bitcoin as a means to protect the value of their money against the problem of inflation since this cryptocurrency has a superior ability to preserve the value of money – something similar to gold.

3. Online trading

Another of the main uses of Bitcoin today is to serve as an investment instrument in international markets. This is possible thanks to exchange platforms like Binance.

Through this and other similar platforms, you can use your BTC to exchange them for other fiat currencies – such as USD and EUR – and cryptocurrencies around the world, play with the fluctuations of market prices, and thus make a profit with your exchange.

In this simple way, you can participate in international financial markets without using fiat money.

4. Carrying out international transactions

The international financial system is the traditional platform for capital mobilization across borders. This has allowed the emergence of large companies that are essential for the development of the economy in different countries.

However, not everyone can access the capital market, even less without the help of banks.

Bitcoin changed that. Thanks to the emergence of Decentralized Finance (DeFi), now anyone in the world can make international investments or simply send money to or from their country using the blockchain on which Bitcoin is based.

On top of that, transaction fees can be much lower than those of banks depending on the cryptocurrency you use.

5. Investing

As you already know, the value of Bitcoin has varied a lot since its inception; from zero USD in 2009 to the all-time high of $60K recently.

Those people who had the luck or the vision to acquire tens, thousands, or hundreds of thousands of bitcoin in their early days, may now find themselves enjoying their profits on a beautiful island in the Caribbean or Indonesia.

It’s not known exactly whether the value of Bitcoin will continue rising – although many experts say it will – but the growth potential of Bitcoin and other cryptocurrencies has attracted – and it’ll continue attracting insha’Allah (God willing) – many investors, large and small alike.

What is a blockchain?

We previously said that blockchain is the technology behind Bitcoin; this technology is what allows the cryptocurrency to work as we know it.

However, this technology can also be used independently of Bitcoin to create other cryptocurrencies or many other things.

A blockchain is a distributed or decentralized database. This means that it’s not located in a single place nor controlled by a single person or institution, but rather, it’s spread over different nodes (computers, users), which hold the same importance within the network.

It’s like a ledger. This ledger is replicated identically at each node that makes up the chain. Each new transaction that is carried out or each new block that is created is also replicated in each of the nodes.

There is no single entity that has all the information since it’s distributed in real-time among all the nodes.

Each time a new block (information unit) is created, it contains the information of all previous transactions. To validate each new block within the chain, the base software poses a mathematical challenge to the nodes, and the first to solve it will send the (unique) solution to the rest of the nodes.

If the majority certify that the result is correct, that block is accepted by all, and thus becomes part of the chain, adding new information to the database.

Thus, the network works by consensus among all parties. Once a transaction is approved in the master book, it can no longer be deleted or modified. It is permanent.

This is how blockchain replaces trust in a third party with mathematical truth, which is infallible – like saying that one plus one equals two. There is no possibility of fraud: everything is transparent and auditable by everyone, and in addition, everything is encrypted.

What is Bitcoin mining?

We previously said that the creation and validation of a new block within a blockchain implies solving a mathematical problem (proof of work). This is known as mining.

Mining can be done by individuals or by groups of people working together, and it has two purposes: the creation of new currencies and acting as a supervisory agent in the network to confirm the veracity of the transactions.

This activity is neither easy nor free since it consumes a large amount of computational resources and electricity. Although at the beginning it wasn’t like that, nowadays powerful computers are required to perform very complex equations from time to time.

Every time a miner or group of miners manages to solve the mathematical problem presented by the network and produces a new block, they must include in the header of the block, the hash or cryptographic summary of the block that precedes it – which was the last validated block of which they’ve knowledge – and transmit it to the rest of the nodes until reaching the entire chain.

Once the new block has been fully validated, the miner or group of miners who created it receives an incentive or reward: a certain amount of bitcoin – BTC 12.5 today.

This is how new bitcoin is created to be added to the blockchain.

Anyone can mine. As long as you have the hardware and software to do it, and the more teams that develop it in the same space and time, the better. Otherwise, it wouldn’t be profitable nowadays.

What is a Bitcoin wallet?

Once some bitcoin has been mined, the next step is to make use of them through the action of buying, selling, or storing them away safely.

It’s at this point where Bitcoin wallets come into play, which is basically software that connects to the Bitcoin blockchain and allows you to manage the so-called public and private keys. It’s as if it were a bank account, but on the blockchain and exclusively online.

The private key is a very long number that works as a kind of password that represents a certain number of bitcoin. Remember that your bitcoin exists at all times on the blockchain. Having access to a private key is having access to a certain number of BTC within the blockchain.

If you lose your private key, you lose access to your coins. You should never show it to anyone.

On the other hand, the public key is similar to the private key, except that you can show it to anyone who wants to send bitcoin to your wallet.

An analogy is like when you use your email: your email address would be the public key that others can use to send you messages, while your password would be like your private key, which gives you access to the content of your email. Would you give it to someone?

Depending on what you want to do with your BTC, whether it’s simply to store them or accumulate a certain number for the payment of goods and services, you can choose different types of wallets. Not all serve the same purpose, so let’s see how they classify:

1. Custodial wallets

In simple words: a custodial wallet is one in which your private keys are stored or “guarded” by a third party. Most of the online wallets that work through a web page interface on the internet are of the “custodial” type.

Custodial wallets store private keys on the servers of a company that provides this service. This means that they’re in control of your funds at all times. Some of these wallets are usually also presented in desktop and mobile versions.

The main advantages of these types of wallets are:

• You can access your funds anytime, anywhere – as long as you have an internet connection.
• You don’t have to deal with complicated technical issues – great for beginners.
• In most cases, they charge very low fees for each transaction.

The negative aspect of custodial wallets is that because there is a third party controlling our funds, it’s very easy for them to decide at any time to close the business, and run off with our money. They are also very prone to hacker attacks. Mt. Gox is a great example of the latter.

Some of the best-known platforms that operate as custodial wallets are:

• Coinbase
• Binance
• Kraken
• Blockchain
• Poloniex

2. Non-custodial wallets

With a non-custodial wallet, you are responsible for the security of your private key. You are the custodian of your funds.

These wallets allow you to store your funds without the need for a constant internet connection and can work in any format, including web, mobile, desktop, hardware, and paper.

In the case of hardware wallets, these are usually like memory sticks that store the public and private keys as they would with any other type of file.

When you want to make a transaction, you just have to connect the stick to a computer with an Internet connection. Once your transaction is finished, you just remove your memory stick and you’ll have the security of offline storage again.

Paper wallets work in a similar way to hardware wallets. In this case, the keys are printed on a piece of paper. Typically, the keys are printed in the form of a QR code, so that they can be quickly read by some electronic device to perform transactions.

Next, the keys are temporarily transferred to a software wallet. Once your transaction is complete, the software generates a new public and private key that you can reprint on paper for the security of cold storage.

By not requiring a constant internet connection, non-custodial wallets allow you to store your funds in the medium and long term, making them ideal for those who want to save or invest.

The main advantages are:

• You are in full control of your funds.
• The risk of a hacker attack is greatly reduced.
• You don’t need to go through “Know Your Customer” (KYC) processes to verify your identity.

The main disadvantage of these wallets is that if you permanently lose access to your wallet, you lose your funds forever. Also, they are not suitable for constant trading due to the rapid changes of the market.

Some of the non-custodial wallets that we can find in the market are:

2.1 Web:

• Xapo
• Bitfinex
• Bitgo

2.2 Mobile:

• Mycelium
• Jaxx
• FreeWallet

2.3 Desktop:

• Electrum
• Armory
• Exodus

2.4 Hardware:

• Ledger Nano
• Trezor
• Keep Key

Where do I buy Bitcoin?

Today, the most popular way to get bitcoin is by buying it on crypto exchanges.

Crypto exchanges work in a similar way to traditional exchange houses that operate with fiat currencies. The main differences are that crypto exchanges operate exclusively online and are for exchanging cryptocurrencies.

There are basically two types of exchanges: centralized (CEX) and decentralized (DEX), each with its own pros and cons.

The main difference between the two types of exchanges is that CEX are controlled by an organization – usually a company – that acts as a regulator for transactions.

On the other hand, DEX don’t have a regulatory body, since they operate entirely on the blockchain and transactions are performed directly between users.

In this link, you can get more information about the differences between centralized and decentralized exchanges, Centralized vs Decentralized Exchanges.

An important aspect to note is that you don’t need to invest thousands of dollars that a bitcoin is worth today to buy this cryptocurrency, since you can buy it in fractions called, Satoshi.

Once you have paid for your bitcoin, either through fiat currency or another type of cryptocurrency, you’ll have to wait an average of about 10 to 15 minutes – depending on the exchange – to receive your bitcoin.

Now that we’ve clarified some points, let’s see below what are some of the most popular exchanges today.

Coinbase (Affiliate link)
Coinbase is one of the largest exchanges in the world and the most popular in the United States. This exchange is very easy to use, allows you to buy Bitcoin in addition to other cryptocurrencies, has a high volume of liquidity, has a presence in more than 40 countries, and follows Money Transmission and e-Money Regulatory Compliance worldwide.

Binance
Another of the big exchanges on the market. Although Binance allows you to buy Bitcoin, this exchange mainly focuses on altcoin trading. The best thing about Binance is that it has much lower fees than other platforms, in addition to offering a greater variety of cryptocurrencies than many of its competitors. It’s suitable for more advanced users.

Kraken
A very popular and reliable exchange that, although it doesn’t offer as much variety of cryptocurrencies in addition to Bitcoin – about 20 cryptocurrencies – makes up for it with other attractive features for investors. A wide variety of payment methods, presence in more than 150 countries, high liquidity, low rates, and excellent technical support make the difference.

Gemini
This popular exchange was founded by the famous Winklevoss twins, the first Bitcoin millionaires. This exchange has a great reputation in the industry, it’s USA-based and its managers work hard so that the business operates according to the regulations of each country where it has a presence (more than 50). It allows making deposits through bank account and wire transfer and offers more than 30 cryptos to buy and sell.

Bisq
Up to this point, we’ve only talked about centralized exchanges (CEX). For its part, Bisq is one of the best decentralized exchanges (DEX) on the market. This exchange is designed so that people from any country in the world can have access to the crypto world; it offers a huge variety of payment methods (about 30), is accessible from any device and its fees are very low (less than 1%).

Remember that being a DEX, you’ll be in full control of your funds.

Changelly
Founded in 2015, Changelly is another DEX-type exchange that has gained quite a bit of popularity recently. Changelly allows you to perform operations instantly and pay by credit, debit card, and cryptocurrency. It offers more than 150 cryptos to choose from (including BTC), has extremely low fees, and allows you to transfer your cryptos to a private wallet without major difficulties.

eToro
eToro is a very popular cryptocurrency exchange and investment platform that has a very useful feature for those who want to enter the investment world: copy trading.

Copy-trading allows you to track and copy the investments of experienced and professional investors to reduce risk in your own investments. In addition to this, it allows you to trade not only Bitcoin and other cryptocurrencies, but also a good variety of assets.

Is Bitcoin legal?

Since its creation, Bitcoin opened the door to legal questions that even today legal experts around the world are solving.

In order to avoid delving into too many legal details, we’ll say that the legality of Bitcoin is directly related to where you are in the world. While some countries already have a more or less established regulation, as is the case of the United States, in other countries such as Russia, Bitcoin is prohibited.

If we focus on the United States, we’ll see that, for example, the purchase of goods and services with bitcoin is completely legal.

Likewise, investment operations with bitcoin are also considered legal, as long as the investment platforms meet certain requirements – mainly to enforce the Anti-Money Laundering (AML) and Know Your Client (KYC) policies.

Also, having bitcoin doesn’t make you exempt from paying taxes; if you sold or invested in bitcoin, by law you must reflect them in your account statements, according to the amount of money you have handled in the transaction.

In any case, it’s recommended that you go to a professional on this issue so that they can offer you clear advice.

Is Bitcoin safe?

We already said that Bitcoin is a very safe currency as it’s decentralized since it allows you to have full control of your funds. This means that it is very difficult for someone to steal your bitcoin – unless you are careless.

However, if you store bitcoin in order to increase your wealth, you should bear in mind that the opposite could also happen if the following scenarios occur:

1. Its value decreases temporarily due to market fluctuations.
2. It loses all its value because people no longer want the coin – have you ever read about the Tulip Mania?
3. You lose all your funds due to theft in exchanges or some type of computer attack.

Remember that with Bitcoin, it’s you, the user, who must face all these risks directly.

What are the advantages and disadvantages of Bitcoin?

Advantages of Bitcoin

• High liquidity. Being so popular and moving so much money in the market, its users can preserve most of its inherent value by converting it to fiat currencies.

• Increasing acceptance as a payment method. Thanks to the fact that more and more e-commerce heavyweights accept Bitcoin as a payment method, today it’s possible to buy almost anything with bitcoin.

• Lower commissions. Compared to payment methods such as credit cards and PayPal, BTC has commissions that are usually around 1%.

• Privacy and anonymity. The system of privacy protections that Bitcoin incorporates allows its users to separate their accounts from their identities if they prefer.

• Decentralization. Due to its decentralized nature, Bitcoin is not influenced by any political or government agencies, and not even by its own creators.

• Anti-inflation shortage. With only 21 million bitcoin going to exist, it’s highly likely that this scarcity will bring it intrinsic value in the future, similar to gold.

Disadvantages of Bitcoin

• Greater exposure to fraud. Due to its popularity and user base, Bitcoin has been exposed to a greater number of scam attempts, such as pyramid schemes and direct attacks.

• The black market could damage its reputation. If over time the illegal uses of Bitcoin outnumber the legitimate uses, the cryptocurrency could face marginalization.

• High price volatility. Since the price of Bitcoin can fluctuate extremely from week to week, it may not be appropriate for certain uses, such as long-term investments or the daily consumption of goods and services.

• Transactions are irreversible. If you buy an item in an online store paying with BTC and they never send the item to you, the decentralized structure of Bitcoin makes it impossible for someone to respond to you for your loss.

• The student surpasses the teacher. Bitcoin served as the basis for creating other cryptocurrencies that exceed it in technical specifications. Over time, some of these alternatives could overtake Bitcoin as the most important cryptocurrency, which could lose its value.

• Damage to the environment. Bitcoin mining consumes large amounts of electrical energy. This is a serious pollution problem in countries like China, where electricity comes mainly from coal plants.

Is Bitcoin halal?

A growing number of scholars are beginning to hold the opinion that Bitcoin is halal. There are a number of scholars who will say that Bitcoin can be classified as “mal” (property), has “taqawwam” (permissibility according to the shariah), and meets the objectives of shariah (Maqasid al-Shariah). At this point, most scholars who view Bitcoin as halal would classify Bitcoin as a currency while others may classify it as an asset.

Over the past few years, we have seen a growing trend where scholars are beginning to have a better understanding of Bitcoin and cryptocurrencies as a whole. For a deeper understanding of the permissibility of Bitcoin and cryptocurrency, please see the following blog post, Is Bitcoin Halal or Haram? 10 Scholars’ Opinion on Bitcoin.

Conclusion

Bitcoin is the first decentralized cryptocurrency in history and there is no doubt that more than ten years after its creation, the invention of the mysterious Satoshi Nakamoto came to change the system, for better or for worse.

Bitcoin is today synonymous with revolution, transformation, opportunities, and more.

I hope that you now have a better understanding of Bitcoin and are in a much better position to carefully measure what you’d want to do.

If you decide to enter the world of Bitcoin and cryptocurrencies, do it carefully, step by step, and wisely. Remember the risks involved.

In any case, sooner or later, Bitcoin – or any other cryptocurrency – will end up coming into your life, since this change, revolution, technological advancement, or whatever you want to call it, is here to stay.

And in the end, Allah knows best.

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Assalaamu Aleikum everyone! Back in 2017, I wrote a series of blog posts addressing the question, is Bitcoin halal or haram? And in 2017, I was not able to find a single scholar that mentioned whether Bitcoin was either halal or haram. In fact, many simply said, “I don’t know.”

So now, what do our scholars have to say? Is Bitcoin halal?

The answer is, there is still no consensus among the scholars as to whether Bitcoin is halal or haram but we are seeing some movement with scholars having a better understanding of cryptocurrency where some scholars now say it is halal while others still say it is haram and some say it is makruh (disliked). As for scholars who say it is halal, they fall into two groups, one who sees bitcoin as an asset and the other that sees bitcoin as a currency. For those who see bitcoin as a currency, then the rules of Riba Al Buyu would apply.

The chart below gives a quick overview of scholars and their opinions on Bitcoin. Let’s take a more detailed look at what our scholars have to say about Bitcoin. Insha’Allah this will help you make a decision as to how to proceed when it comes to Bitcoin and cryptocurrencies in general.

Dr. Salah Al Sawy and Bitcoin

Dr. Salah Al Sawy is currently the Secretary General for the Assembly of Muslim Jurists in America (AMJA) as well as President of Mishkah University. Dr. Salah takes a very balanced approach with Bitcoin and adheres to the general Islamic principle that when it comes to business transactions, all transactions are considered halal unless we have clear proof that it is haram.

When it comes to Bitcoin, it is the position of Dr. Salah that we cannot say that Bitcoin is haram as he sees no direct proof that it is haram. He even notes that he sees many positives and benefits of Bitcoin such as, it can be easy to use, can be an inexpensive way to send money, it can be faster to send money with Bitcoin as opposed to wiring money, and its secrecy is a positive `and also other benefits.

However, even with these positives, he does see some negatives such as, there is no supervising body over the currency, there is no authority backing the currency, and one can make huge profits but can also experience huge losses.

He also notes that even though it is not necessarily haram to attain huge profits from cryptocurrencies, making huge profits as such is not something that is normally found in other products. Also, the secrecy of the coin could be used for money laundering, buying illegal items, and financing haram things.

Dr. Salah also notes that one of the principles of Islamic economics is that money has some tangible benefit to the country such as creating jobs and businesses, and he does not see cryptocurrencies adding work or jobs to the economy at this time. Rather, it is just an investment that people are putting their money into.

As of now, Dr. Salah Al Sawy sees Bitcoin and cryptocurrencies as very “shaky and dangerous territory” where people could potentially lose all of their money by investing in it and that we must proceed with caution and be very careful when using cryptocurrencies.

His opinion is that even though we cannot say that Bitcoin is haram, at this time, he sees it as makruh. You can watch his talk on Bitcoin here.

Grand Mufti Shawqi Allam Bitcoin Fatwa

Shawqi Ibrahim Abdel-Karim Allam is the current Grand Mufti of Egypt and a Ph.D. graduate of Al Azhar University where he earned his degree in Jurisprudence and Sharia Law. Mufti Shawqi has taken a more stern stance with Bitcoin and has issued a fatwa stating that Bitcoin is haram.

“Dr. Shawqi Allam, the Grand Mufti of the Republic, affirmed that it is not permissible according to Sharia to trade in the currency of “Bitcoin” and deal in it through buying, selling, leasing, and so on. Rather, it is prohibited to participate in it because it is not considered as an acceptable medium for exchange by the competent authorities, and because of the harm it entails resulting from deception, ignorance and fraud in its bank, standard and value, in addition to the high risk that its practice lends to both individuals and states.” Read his fatwa here.

Mufti Shawqi was also interviewed by the Egyptian magazine, Egypt Today, and had the following to say,

“Allam told Egypt Today that he met with a group of economic experts to reach his final ruling. He clarified his findings on the cryptocurrency, stating that Bitcoin could allow for tax evasion, piracy, money laundering, fraud and corruption, and therefore is forbidden in Islamic Sharia Law.” See the article here.

Mufti Shawqi also sees Bitcoin as haram because of its price volatility as well as being a high-risk investment where investment is focused on speculation. He also notes that Bitcoin is not controlled or issued by a government bank and that this can be problematic for the state.

In short, Mufti Shawqi has not noted any good that Bitcoin or cryptocurrencies can offer to humanity.

Sheikh Assim Al Hakeem Bitcoin Haram Fatwa

Sheikh Assim Al Hakeem is a prominent scholar and imam based out of Jeddah, Saudi Arabia who takes the position that Bitcoin is haram and lists a number of reasons as to why he holds such a position. Here are the 10 reasons why Sheikh Assim sees Bitcoin as 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.

After closely reviewing his reasons as to why he sees Bitcoin as haram, I can see that he has some slight errors in his understanding of Bitcoin and I have written a blog post commenting on his fatwa. Please see my following blog post here, 10 Reasons Why Bitcoin is Haram. Sheikh Assim Al Hakeem Bitcoin Fatwa.

Shaykh Haitham al-Haddad Bitcoin Fatwa

Dr. Haitham al-Haddad is an Islamic jurist and judge for the Islamic Shariah Council in the United Kingdom and has given a fatwa stating that Bitcoin is haram.

Shaykh Haitham believes that Bitcoin is haram because it (Bitcoin) is not backed by anything. It is not backed by gold or any commodity. Bitcoin also has no government backing and when a currency has no government backing, then no one can be forced to use it as legal tender.

Price volatility within the market is yet another reason why Shaykh Haitham sees Bitcoin as haram and since it is not backed by the government, the currency could fall to zero value and thus be a hardship on people.

He also notes that Bitcoin is created out of nothing and that there is nothing real or tangible to hold and says that it is haram to have money that is created out of nothing.

His conclusion is that all aspects of Bitcoin are haram. Therefore, it is haram to use it, to manufacture it, to mine it, to trade it, to buy it, and to invest in Bitcoin.

You can read his fatwa here and also watch a video on his fatwa here.

Mufti Faraz Adam and Bitcoin

Mufti Faraz Adam holds a Master’s degree in Islamic Finance, Banking and Management. He is currently President of Amanah Advisors where he works as a finance and fintech consultant.

Mufti Faraz is one of the few scholars I have found to have a very deep and solid understanding of Bitcoin and cryptocurrency as a whole, yet you will not find him giving fatawa on Bitcoin. He will defer that to other scholars.

Instead, he looks at the overall technology of cryptocurrency, its features, and if it is in harmony with an Islamic paradigm that could be of benefit to humanity.

If I was to summarize my understanding of Mufti Faraz’s position on Bitcoin, I would say that he does not view Bitcoin as haram but rather holds the view that at this time,

“Bitcoin is not ideal as a long-term investment and neither should the Islamic finance industry consider its use in exchange unless there is a specific need to until a regulated and transparent framework is established.

At this current time, Bitcoins are just another investment which are for individual profit maximisation. Nevertheless, returns on Bitcoin investment would be lawful and Shariah compliant according to this understanding.” Read the full paper here, “Bitcoin: Shariah Complaint?” Page 6

In addition to his statement above, there are also six key areas in his research that he touches on that have led me to the conclusion that he does not see Bitcoin as haram.

1) Bitcoin does exist and it is real:
Mufti Faraz offers a counterargument to scholars who say that bitcoin is not real and is made out of nothing. He argues that even if you cannot see or touch something, this does not mean it is non-existent or not real.

As for Bitcoin, he notes that we can see digits [addresses and transactions] on a blockchain and we can see the results of these digits in real life [purchasing coffee, buying a house, paying for a service, etc.] so therefore we know that Bitcoin is real.

2) Bitcoin is mal:
Mal is commonly translated as, “money”. However, in Islamic law, the technical meaning of mal is something that is retrievable.

Mufti Faraz argues that bitcoin is mal. He notes that bitcoin can be stored and retrieved when needed from a Bitcoin wallet, therefore, we can say that Bitcoin holds the characteristic of mal.

3) Bitcoin has taqawwam:
Taqawwam means, legal value. Islamic law states that valid trade can be done only with items that have legal value.

Mufti Faraz makes it understand that we cannot conduct trade with a bottle of wine and/or pork because they are considered haram; therefore, wine and pork do not hold legal value.

Mufti Faraz argues that Bitcoin is nothing more than software code and software code in and of itself is not haram; therefore, we can say that Bitcoin passes the test of having taqawwam, legal value.

4) Bitcoin as a currency:
Is bitcoin a currency? To determine this, Mufti Faraz examines whether Bitcoin has what is called, thamaniyyah.

Please note that the video of his conversation was held sometime after he wrote his research paper, “Bitcoin: Shariah Complaint?”, so his conversation on thamaniyyah may differ slightly in the video when compared with his research paper.

You can find the video of his talk here, Bitcoin: Shariah Compliant? | Mufti Faraz Adam | AMAL.

Thamaniyyah can simply mean, the fundamental features of currency. Those features are a store of value, a medium of exchange, a unit of account, and a standard of debt repayment.

Mufti Faraz highlights that there are differences of opinion on this matter as some scholars have valid ijtihad that Bitcoin is an asset and not a currency while other scholars have valid ijtihad that Bitcoin is a currency.

He also notes that past scholars have made it clear that the Qur’an and Sunnah provide no characteristic or definition as to what is a currency. Allah has left it to mankind to define this for themselves.

5) Bitcoin is not issued by the government:
Mufti Faraz notes that Hanafi jurists have made clear arguments that the people of a society can determine what is a currency just as a government can determine what is a currency.

This would mean that we cannot say that just because Bitcoin is not issued by a government that this now makes Bitcoin impermissible.

6) Risk: 
Mufti Faraz notes that some scholars have noted that Bitcoin is haram because of the high risk that entails investing in bitcoin.

However, he notes that risk in and of itself does not make a matter haram due to the fact that the very nature of investing encompasses some risk, and risk sharing is permissible in Islam.

Rather, risk due to gharar (ambiguity) is what is prohibited, but not risk in and of itself. Investing in bitcoin is not in and of itself gharar so long as the person is clear of the risks and what it all entails.

These 6 points and his extensive research on the matter make it clear that he does not see Bitcoin as haram. Still, though, he would like to shift the focus away from only looking at Bitcoin.

Mufti Faraz holds a similar belief to my own which is, this new area of cryptocurrency is bigger than Bitcoin. Bitcoin is one small part of cryptocurrency. There are other aspects of cryptocurrency that we as an ummah should be exploring.

Over the past few years, his research and interest have extended beyond Bitcoin and have expanded into other areas such as ICO’s (Initial Coin Offerings), Blockchain, tokens, and crypto coins examining their usefulness from an Islamic and sharia perspective.

He would like to explore how we can utilize this technology to benefit not only the ummah, but humankind as a whole and this is in complete harmony with the goals of the Islam and Bitcoin website.

Dr. Ziyaad Mahomed and Cryptocurrencies

Dr. Ziyaad Mahomed is currently the Associate Dean of E-Learning/Online Programs and Director of Executive Education at The Global University of Islamic Finance, Malaysia, and has over 20 years of experience in Islamic Finance with a specialty in banking and investments.

Dr. Ziyaad does not provide a fatwa on Bitcoin but mentions the overall ruling from other reputable scholars noting that some say that it is halal, some say haram, and some say use with caution. He notes that unfortunately, not as many scholars provide an opinion on cryptocurrencies as he would like.

When it comes to assessing the permissibility of Bitcoin, Dr. Ziyaad mentions that there are 3 things that one must examine as it relates to the shariah.

(1) Is it considered mal.
(2) Does it pass the test of permissibility according to the shariah, taqawwam.
(3) Does it meet the objectives of the shariah, Maqasid al-Shariah.

His overall assessment of Bitcoin is that ”there are no clear serious standards on cryptocurrency so therefore one will have to exercise caution in the beginning and one will have to be very brave in entering into cryptocurrency assuming that he understands the necessary shariah parameters behind it before entering into it.” In other words, he does not see it as haram, but one must proceed with caution.

Dr. Ziyaad would love to see a more standardized approach to cryptocurrencies from the scholars as he believes that the future of cryptocurrencies lies in implementing cooperative programs that utilize cryptocurrencies to develop sustainable halal projects that can be of benefit to humanity while also allowing investors to earn a halal income from it.

He has provided a wonderful talk on the topic of Bitcoin and cryptocurrencies which can be found here, Cryptocurrency in Islam: Halal or not Halal? – Ethis Webinar.

Mufti Muhammad Abu-Bakar and Bitcoin

Mufti Muhammad Abu-Bakar is a Shariah Scholar of Product Development and Shariah Structuring at Emaan Islamic Banking and a Shariah Advisor at Blossom Finance. He holds a Master of Science in Islamic Finance from INCEIF, The Global University of Islamic Finance, Malaysia, and is also a Certified Shariah Advisor and Auditor (CSAA) from Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Bahrain.

His area of specialty is Shariah, Islamic Banking and Finance, Takaful (Islamic Insurance), and Islamic Fintech.

Mufti Muhammad has not given a fatwa on Bitcoin, but he does hold the view that Bitcoin is halal and permissible to use and has written a research paper on Bitcoin that you can find here, Shariah Analysis of Bitcoin, Cryptocurrency, and Blockchain.

However, he does note that one of the objectives of the shariah is the protection of wealth and because of this, Mufti Muhammad believes that is it necessary to exercise caution and to be mindful of risks when using cryptocurrency.

He also does not advise buying cryptocurrency as an investment just as one would buy stock in a company, but rather, use cryptocurrency networks as a payment system particularly in areas where the benefits of utilizing cryptocurrency outweigh that of conventional payment methods.

Mufti Muhammad does note that Bitcoin,

(1) Meets the characteristics of mal
(2) Can be classified as money/currency
(3) Money/currency does not need to have intrinsic value

His argument is based on the ijtihad of prominent scholars in the field of Islamic jurisprudence such as Shaykh Zuhayli, Shaykh Khalid Saifullah Rahmani, Shaykh Taqi Usmani, Turki, Al-Mausuah, Al-Fiqhiyah, and Al-Kuwaitiyah.

Finally, he examines the arguments made by scholars who note that Bitcoin is haram because of the following reasons:

(1) Bitcoin is not a legal tender
(2) Bitcoin’s issuer is unknown and has no central authority or government backing
(3) Bitcoin is highly speculative and not stable
(4) Bitcoin can be easily used for money laundering and illegal purposes

To summarize Mufti Muhammad’s counterargument against these points he notes:

(1) Bitcoin is not a legal tender
“The main criteria for money in Shariah is its acceptability by people – whether it comes about by forcing it upon people through laws, or through widespread voluntary acceptance of people.” Page 17

(2) Bitcoin’s issuer is unknown and has no central authority or government backing
Mufti Muhammad argues that even though the inventor of Bitcoin is unknown, the framework of how Bitcoin works, “is a set of rules adopted by voluntary mutual acceptance by users of the currency, and that these rules are published and open for anyone to critique or suggest revision.” Page 17

And even though there is no central bank or government to back Bitcoin, he notes that the blockchain technology of Bitcoin has been, “more secure than any centralized system employed by a government or central bank.” Page 17

He also cites the case where $1 billion USD was stolen from the central bank of Bangladesh in 2016 to note that a centralized bank or government backing alone does not promise security of wealth.

(3) Bitcoin is highly speculative and not stable
Mufti Muhammad notes, “Bitcoin and cryptocurrency cannot be declared haram (impermissible) based on the fact that they experience speculation. In fact, if this principle was valid and applied, then trading in gold, silver, US Dollars, and Euros would all be ruled impermissible, since those assets also experience extreme levels of speculation.” Page 18

However, Mufti Muhammad does acknowledge that cryptocurrency prices in the market are more volatile than many cryptocurrencies and because of this he says, “it is not advisable to trade in cryptocurrency, especially for laypeople who lack professional experience and sophistication with regard to foreign exchange trading.” Page 18

(4) Bitcoin can be easily used for money laundering and illegal purposes
Mufti Muhammad makes the argument that Bitcoin or cryptocurrencies being used for illegal purposes is not an Islamic criterion of currency.

He makes the argument that utilizing something lawful for an unlawful purpose does not make the thing itself unlawful.

“An example from the Hadith can be found in that the Prophet Muhammad (peace be upon him) forbade the selling of grapes to a wine merchant, since making wine is haram (impermissible), but did not forbid the production or trading of grapes for lawful purposes.” Page 18

He also notes that fiat currencies are regularly used for illegal activities with the United States Dollar being the most widely used fiat currency for illegal activities.

Dr. Mohamed Ali El Gari

Dr. Mohamed Ali El Gari holds a Ph.D. in Economics and is a shariah scholar with a specialty in Islamic Finance. He serves on numerous Shariah advisory boards and is currently the Chairman of the Amanie Shariah Supervisory Board.

Dr. Mohamed believes that the advent of cryptocurrency is merely the natural evolution of money as we have already been utilizing digital currency for decades and sees cryptocurrency as the “grand finale” of money.

Dr. Mohamed notes that from the shariah perspective, there is nothing in the shariah that dictates exactly what medium of exchange Muslims must use. The decision is left to the community.

As for Bitcoin, through his research, Dr. Mohamed notes that Bitcoin does fulfill the shariah requirements to be considered mal and classifies Bitcoin as a currency, and states that the rules of riba al buyu apply. Dr. Mohamed also believes that Bitcoin does pass the test of permissibility to use according to the shariah, and it is in harmony with the objectives of the shariah.

Therefore, according to Dr. Mohamed, Bitcoin is considered permissible (halal) to own, buy, sell, use, keep, and invest in, and that cryptocurrency issued by a government is also halal.

He goes on to note that even though he considers Bitcoin and cryptocurrencies halal, he does mention that cryptocurrencies that are not issued by a central bank will have characteristics such as high speculation in the marketplace.

And cryptocurrencies that are not controlled or monitored by a government can end up being used for gambling, embezzling, to steal money from the weaker of those in society, and could also be prone to collapsing and this will end up casting doubt on using such cryptocurrencies as a measure of value or a store of value.

To hear his commentary on Bitcoin, please see here and also here.

Dr. Mohd Daud Bakar

Dr. Mohd Daud Bakar is a shariah scholar receiving his shariah degree from the University of Kuwait. He is also a serial entrepreneur whose professional career now lies within the world of Islamic Finance and is now the President and CEO of Baker Investment company (Financial Investment Company) and also the President and CEO of the International Institute of Islamic Finance (IIIF) Inc.

He is also the current Chairman of the Central Shariah Advisory Council of the Central Bank of Malaysia and a member of the Shariah Advisory Council of the Securities Commission of Malaysia.

Dr. Mohd Daud actively researches fintech applications such as Bitcoin and other cryptocurrencies to gain insight as to how these technologies fit into an Islamic paradigm and can be of benefit to the Muslim world and humanity at large.

Dr. Mohd Daud has worked with a group of scholars researching Bitcoin and cryptocurrency for two years and came to the conclusion that Bitcoin does meet the shariah requirements to be considered mal regardless of whether it is tangible or intangible and classifies Bitcoin and digital currencies in general as an asset and not as a currency.

Dr. Mohd Daud acknowledges that even though he classifies Bitcoin as an asset, he is well aware that people use it as a medium of exchange. However, even though Bitcoin is used as a medium of exchange in the market, he does not classify it as a currency because he believes Bitcoin falls short of fulfilling the requirements of a currency in two key areas:

(1) At this time, it falls short of serving as a unit of measurement
(2) At this time, it does not fulfill being a store of value as the market still pegs Bitcoin to fiat currency and not the other way around

He also notes that since Bitcoin can be classified as an asset, then the rules of riba al buyu do not apply. The only exception would be is if the cryptocurrency is backed by a commodity such as gold, silver, fiat currency, etc., then the rules of riba al buyu would apply. Please find Dr. Mohd Daud commentary on Bitcoin, here.

Sheikh Mustafa Umar and Cryptocurrency

Sheikh Mustafa Umar holds a B.A. in Islamic Studies from the European Institute of Islamic Sciences and an M.A. in Islamic Studies from the University of Gloucestershire, UK. He has also studied under scholars from as far as Nadwatul Ulama in India as well as at Al-Azhar and Darul Ulum in Egypt and is the founder and Director of California Islamic University.

I had a wonderful interview with Sheikh Mustafa where we discussed Bitcoin and its permissibility which can be found here, Is Bitcoin Halal or Haram? Sheikh Mustafa Umar Has the Answer.

To summarize, Sheikh Mustafa agrees with the opinion of Dr. Salah Al Sawy which is, at this time, we can say that Bitcoin might be permissible or it might be makruh (disliked), but we definitely cannot say that it is haram. He also notes that there are other scholars who hold the opinion that Bitcoin is halal and is also a currency and as such, Sheikh Mustafa says that if we are to say that Bitcoin is a currency, the rules of riba al buyu must apply.

Final thoughts

After reviewing the opinions of multiple scholars, I lean more towards the scholars who view Bitcoin as halal or even makruh as I find their ijtihad and arguments to be more sound than those who argue that it is haram.

I also find that the scholars who hold the opinion of Bitcoin being halal or makruh have a deeper understanding of the technology of cryptocurrencies as a whole.

I also want to correct myself. I had posted a blog article called, Is Bitcoin Trading Halal or Haram?, where I mentioned that since there is no consensus among scholars that Bitcoin is halal or haram, then there is no need to follow the rules of riba al buyu when dealing with crypto.

I have changed my position on this due to the understanding that there are scholars who make sound arguments that Bitcoin and certain cryptocurrencies can be categorized as a currency and as such, the rules of riba al buyu would most certainly apply.

And in the end, Allah knows best.

PLEASE KINDLY SHARE THIS ARTICLE IF YOU’VE FOUND BENEFIT IN IT

Today we talk with Sheikh Mustafa Umar, from California Islamic University, to gain insight into whether Bitcoin is halal or haram as well as discuss investing in bitcoin, fatwas on Bitcoin, bitcoin mining, and more.

But first things first, is Bitcoin halal or haram?

To summarize the words of Sheikh Mustafa Umar, at this time we can say that Bitcoin might be permissible or it might be makruh (disliked), but we definitely cannot say that it is haram.

To learn more about why we cannot say that Bitcoin is haram as well as how Muslims should approach this new technology, please watch the video below or simply read the video transcript of the interview below.

Sheikh Mustafa Umar’s websites to check out
California Islamic University
Video: “Bitcoin & Cryptocurrency” by Sh. Mustafa Umar on January 26, 2018
Mustafa Umar’s Blog
Sheikh Mustafa on Facebook
Twitter: @mustafaumar

Video Transcript

Hacking and Cryptocurrency

Andre Rishi: As-salamu alaykum wa rahmatullahi wa barakatuh! And I want to thank everybody out there for joining us for today’s episode here of the Islam and Bitcoin Podcast. Today, we have another special guest with us, Shaykh Mustafa Umar, from Cal Islamic University.

Our Shaykh, comes to us with a very established background, I would say. He does have a Bachelor’s and a Master’s in Islamic Studies as well as a bachelor’s in Information Systems and Computer Science. The brother just loves to study.

He is definitely – he’s also traveled the world and been able to study at the feet of scholars; something that many of us would love to do. And if that’s not enough, if he’s not busy enough, he actually is the author of several books and also the founder and director of California Islamic University. So, I wanted to welcome you Shaykh, to the Islam and Bitcoin Podcast.

Shaykh Mustafa Umar: Thank you very much for having me. It’s a pleasure to be here.

Andre Rishi: Hamdullah! Hamdullah! Now, just so the audience knows I actually met you at the Islamic Institute of Orange County back in January of this year. And you gave a wonderful talk on Bitcoin and cryptocurrencies.

So, just so the audience knows, I really believe you have a very solid understanding of cryptocurrency married to Islamic finance. Again, for the audience, I’m actually going to post a link to that talk that you gave in the show notes here of the podcast and I highly encourage everyone to go check it out.

It’s two hours long but that’s Ok, it’s two hours of excellent information, and I definitely highly recommend that people check that out. So, again, I think your background in cryptocurrency and Islamic finance is better than most of what I’ve seen with the scholars out there.

I mean I have been doing this podcast, this website for a while now probably two years, and I have yet to find scholars who can articulate cryptocurrency well in conjunction with Islam. So, I’m curious, how did you even get into studying cryptocurrency?

Shaykh Mustafa Umar: [Laughter] So, it’s a long story going back but I mean when I was in high school, I used to – like every other high school kid, I used to be motivated by the movies that I watch. So, one of the movies that really influenced me a lot was a movie called Hackers.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: And it kind of got me into this idea of computer security, network security, and things like that. So, that’s what kind of motivated actually to go and do a degree in computer science.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: So, I’ve always been into computers and I kind of got a little bit more into the idea of digital security, cybersecurity, those types of things. Call it a little bit of computer hacking but like not the really illegal type.

[Laughter]

Shaykh Mustafa Umar: I just want to throw that out there.

Andre Rishi: Just clarify, clarify a little bit.

Shaykh Mustafa Umar: We got to clarify that before I get so much showing up on my door.

Andre Rishi: I know right. I know right.

[Laughter]

Shaykh Mustafa Umar: So, I was kind of – I’ve been into that and you know ever since I was a kid and that interest never really went away. That’s even while I was abroad studying Islamic Studies and all of that stuff.

I used to come home in the summers and I’d still like open up my books and go on websites and I was really interested in cybersecurity and those types of things. So, that’s why I have been following things like Bitcoin and cryptocurrency, that’s something that kind of started out amongst a group of people who are into that stuff.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: They’re into like new technology, they’re into the idea of you know cryptography. And also, on top of that like when I was studying Islam, I started to understand you know what, you know, what is riba? What is interest in the Islamic model? It kind of, when you realize that riba kind of encompasses everything.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: It’s built into the economy then you find these ideas of, well you know what was the gold system of the past and does currency mean, what does money actually mean and how could you have an actual, “Islamic System”?

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: These two things kind of came together, interest in computers, interest in cryptography, interest in computer hacking mixed in with this interest in alternative financial systems or a potential system that could be riba free; that could be interest-free completely.

That’s really what got me interested and that’s why I kind of been following cryptocurrency along the way here and there as much as I can kind of keep up with the – what’s going on in the emerging technology.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: And then you know as soon as this boom started in like 2016…

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: …2017, that’s when I started getting questions, I’m like, “Oh, there’s actually Muslims in the community who actually know what Bitcoin is!” Like, I’m not the only one. And they’re not even…exactly…

Andre Rishi: Yeah.

Shaykh Mustafa Umar: And people started asking me these questions like, “What do you think about that?” And I’m like, “Oh…” and I’m like the only, you know, pretty much the only scholar at that time who could even explain what it is. Like, can even tell you something otherwise everyone is just like, “What are you talking about?”

Andre Rishi: Right. Right.

Early Fatwa on Bitcoin

Shaykh Mustafa Umar: So, that’s kind of what sparked my interest initially and then what really got me more motivated was when I saw some fatwas, or some like Islamic rulings, coming up about scholars commenting on Bitcoin. And I looked at it and I said, “You know I don’t really think you understood the technology very well.” So, that got me more kind of a little bit aggravated you could say.

Andre Rishi: Right. Right. Right.

Shaykh Mustafa Umar: So, that’s kind of what sparked my interest, kind of interest increased and increased over time.

Andre Rishi: Right. Right. Give me one second, I just want to make sure as we’re doing this, does my video look frozen to you?

Shaykh Mustafa Umar: Yeah, it does.

Andre Rishi: It does? All right, so hold on and see if I can pause. All right, so, I completely agree in what you’re saying in regards to when you have scholars out there who are giving fatwa and again like you said they are giving these fatwas saying that this is what you know, Allah subhanahu wa ta’ala and our messenger say, when I’m seeing some of the reasons why –

Well, first of all, even before I get into certain, some of the rulings, what has been the general consensus amongst the scholars as it relates to Bitcoin and cryptocurrency as a whole whether it is a halal or haram?

Shaykh Mustafa Umar: So, the majority of scholars who issued statements initially, I think they were a little bit politically motivated because they were more issued by like State agencies run like State of Egypt, the official – the Egyptian body from the State issuing the fatwa.

And so, they said it promotes terrorism and it makes it easy for money laundering and there’s a lot of danger to the State. Initial Turkish fatwa was something ever similar.

Andre Rishi: Hmm.

Shaykh Mustafa Umar: Many other independent fatwas coming out of Madinah University and others not necessarily representing the school but individual scholars saying that this cryptocurrency has no real existence. So you can’t – something that has no real existence is not valid in Sharia; it’s not considered to be something valid.

Other people talking about the danger of it you know talking about it’s a bubble, it’s going to burst and it’s going to become just nothing because it has no value because it’s not tangible. So, these are the kind of the most of the fatwas that were coming out.

I think it’s changing slightly so there are a few people now kind of saying we should be careful about it. It’s very volatile. People can lose a lot of money but at the same time, we can’t just say that it’s haram.

We can – we have to be a little bit more careful. That’s – things are changing slightly but those are the initial fatwas. Most of them were saying that it’s haram to use which we shouldn’t have anything to do with it.

Andre Rishi: Yeah. And even I’d have to say that I remember seeing or hearing some of the fatwas that didn’t make complete sense to me like there was a – it seemed like there was such a huge push between some of the shuyukh, the scholars, saying that well, it’s not backed by a central bank.

Shaykh Mustafa Umar: Mm-hmm.

Andre Rishi: And I remember thinking to myself saying, but during the time of the Messenger,  may peace be upon him, there was no such thing as a central bank back then and I– and granted I’ve never studied all the hadith that’s out there to see whether if banks are ever mentioned. But even in the Qur’an, you don’t hear anything about banks being mentioned and money or currency having to be backed by banks. So, that was something I thought was a little odd.

Also, the whole thing of anonymity. So, one thing that I saw a lot of the scholars mentioning too that “It’s anonymous”, “It’s anonymous”, “It’s anonymous”. And truth be told that anyone who studies Bitcoin, in particular, it’s not actually really fully anonymous.

There are some other altcoins out there like Monero, I think, is actually is more so anonymous. But even aside from that, I think modern-day currency – I always tell people that I think modern-day currency is it is a – cash is probably anonymous.

And even if you look back in the day of the Messenger of Allah, may peace be upon him. They use of gold and the transaction of gold back then between two people again, that can be anonymous.

You wouldn’t know – you can’t tie but you can’t link the gold back to the person who used it. So I didn’t – I was kind of curious that does the Sharia stipulate anything about currency having to be – it shouldn’t be anonymous or should be backed by a central bank or anything as such?

Money During the Umayyad Caliphate

Shaykh Mustafa Umar: Yeah. No, there’s nothing like that technically. The closest, closest thing that you could get is basically what happened was after the time of the Prophet, peace be upon him.

Andre Rishi: Sallallahu alaihi wasallam (may peace be upon him)

Shaykh Mustafa Umar: During the Umayyad Caliphate, the Khilafa, when Islam became a very powerful force, it was spreading to different regions. Muslims were at war with the Roman Empire at that time. And up until that point in time, the Muslims were using Roman stamped gold coins.

Basically, Roman produced gold coins. Because the gold coins have to have like a certain type of measurement so you know exactly what they are, the Dinar or the Silver Dirham that exists. So, they’re being minted basically by the Roman Empire.

So, Muslims were using these Roman coins and then what ended up happening about maybe 50 years or 60 years something after the Prophet, peace be upon him, they decide we need to stop using these Roman coins. We’re going to mint our own coins and we’re only going to accept taxes. We’re only going to accept Zakah for distribution from our own coins.

Andre Rishi: Hmm.

Shaykh Mustafa Umar: Right? So, that was kind of like a State-mandated thing. Now, you can imagine Muslim scholars at that time saying, “You know what? This is – this is a good thing. There’s nothing wrong with that. Let’s stop using the Roman coins that we’re going to use the Muslim empire coins.” Right?

So, that can become like a fatwa where it’s like you know you have to follow the points that are made by this specific group or by this government because that’s better for the stability of society rather than using some foreign coins where we’re at war with these people, we don’t want to support them, right?

So, that makes sense and there’s a sense of security in that. So, you know that if someone is coming to you with another coin that looks like a gold coin and I guess I don’t know you bite on it or something like that and you’re like yeah, it seems good but it may be a counterfeit, right?

So, it’s safer for you if you’re using a minted coin than if you were using a non-minted one because of a potential counterfeit, you might get harmed. You can understand like is fatwa something along the lines with support the government in having decentralized minting of coins for the protection of people, right? So, that’s the closest thing you can get.

Now, to make the argument and take that same argument say, “Ok, therefore we need to have a central bank.” It’s quite different because a central bank is setting the value of the coin itself and has the potential to manipulate the value of that currency. So, there are two different things, that’s the closest that someone can find historically to some type of Sharia presence.

Andre Rishi: Ok. Yeah. Yeah. And it’s not only that too, but like you said, the bank being able to set the value and now, they– especially with our currency not being backed by anything. They literally can just print as much currency as they want to flood the market with.

So, it seemed like there’s no limit to it. So, it seems like that would be – that in itself to me seems like it can be a form of like a silent theft. And I don’t know – I don’t know the exact ayah in the Qur’an, but just to summarize, audhubillah min al-shaytaan ir-rajeem (I seek refuge in Allah from shaytan the rejected), is that the ayah in the Qur’an, Allah says something along the lines that you should not usurp the wealth of others.

Shaykh Mustafa Umar: Mm-mm-mm.

Andre Rishi: You shouldn’t usurp the wealth of others.

Shaykh Mustafa Umar: Yes.

Andre Rishi: So, when you see banking systems develop an economic system as such from what I see, it is a silent theft because the more currency they print, the less value the currency that you currently hold has.

So, all your work and labor that you put into earning this currency, you don’t get the full value of it because a group of people or cartel or a centralized system has usurped that value from you.

So, I know sometimes when I see, you see scholars out there telling people, like funneling people back into a central banking system. To me sometimes it’s like you’re funneling them right back into a system that steals from them which is really, I find really interesting, very interesting. So, yeah. Yeah.

So, what about the average Muslim who’s looking at this and saying, ‘You know what? You know I hear these fatwas and some of those are from my favorite Shuyukh, but I think, they may be wrong and XYZ but at the same time, they want to definitely be a good Muslim. So, what is the ruling on fatwas in regards to the obligation of following fatwas?

The Obligation of Following Fatwas

Shaykh Mustafa Umar: Hmm, that’s a good question. So, you know the average person, who’s not a specialist, they should rely on fatwas because they shouldn’t just take the law unto their own hand and say, “Well, I’m going to interpret the Qur’an and the hadith however I think is right.”

There’s a less likelihood of them arriving at a correct answer. You know, it’s almost like you trust your doctors, you trust your lawyers, you trust your architect that you know if you’re going to build a house you want to get someone who understands architecture.

They know how to build, you know the engineer or someone knows how to build this house, you don’t just go and like grab some wood and then I’ll just hammer it into the ground and you know, I think I’ll be all right. You don’t want that, right?

So, there is a sense of reliance that you should have on scholars collectively. Now, what we’re talking about is a fatwa is usually a statement of one specific scholar. And again, it’s their interpretation of what they think the Sharia stands for, right? And they could be mistaken but usually you should not abandon a fatwa unless there’s another fatwa from an equally or a more competent scholar.

So, what people should realize is that look, when it comes to Bitcoin, when it comes to cryptocurrency as a whole, there’s not that many fatwas on them because it’s a new technology and it’s something that has not really been around for a long time.

It’s not been researched for a long time. It’s not hit the fatwa question sites for a long time where now they have six months, one year to kind of let it simmer in their minds, do some more research, get some funding to have a council go and do some research and then come up with some papers that are really high quality one research papers.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: But because that’s not happened yet, you have to take some of the fatwas that have come out with a grain of salt and say, “Ok, you know what? This issue has not been given enough time to really fully understand it, grasp its origins.” And that’s what’s going to happen in any type of new fatwa that comes out, you know.

The moment the first sheep was cloned for example, right? People are like, “Oh, give us a fatwa on you know what do we say about cloning?” Right? I mean you’re going to get some fatwas and they’re from qualified people. It’s not like the people are not qualified.

They’re qualified in the Islamic aspect of it but they are not qualified in Ok, what is – how does cloning work exactly, you know? What are the ramifications, scientific, political, ethical ramifications of cloning? That’s whole, that’s a large discussion. Right?

So, what happens is you have to have knowledge of both of these things, right? And at the same time, the scholars are getting questions like this which are very complex, they’re new and people need answers immediately. They’re like, “I’m going to buy this tonight. I need an answer. Now!”

And so they’re like, “Ok, we’re going to try and give you something of what we kind of think it is.” And most of the people who are actually giving fatwas on new issues they’re saying “Look, this is based on our preliminary research. This is based on our minimal research. This is what we see and the opinion may change in two years.

It may change in five years when a little bit more research is done, we understand the issue a little bit better and we have more people on the council of scholars who can help us to kind of think through this issue.”

So, that’s the way we should kind of perceive these fatwas that are coming out because they’re still new. Most people did not get questions about cryptocurrency until about 2017, maybe 2016, definitely not before 2014. It really wasn’t well-known. So, that’s still fairly new.

Andre Rishi: Mm-hmm. Mm-hmm.

Shaykh Mustafa Umar: So, it’s going to require simple processing there.

Andre Rishi: Mm-hmm. I know I probably started asking questions in 2015. Like I started reaching out to scholars back then and you know hamdullah, I got honest answers. Pretty much, they all was like, “I don’t know.”

Shaykh Mustafa Umar: Mm-hmm.

Andre Rishi: Simply said, I don’t know. That’s it. They have nothing else to say. I will say though that right now from what I see, it seems like the majority, even if it’s a few scholars, the majority of those – of that pool of scholars have ruled it to be haram.

And the reason being is because they simply say that is simply not a currency. And for me, when I look at that, I think to me it would serve the purpose more of they were a little more nuanced in how they come about the ruling.

So, one thing that I did want to ask from your understanding of cryptocurrency, do you see right now as a currency or as an asset or just a digital token?

Is Bitcoin a Currency According to Islamic Law?

Shaykh Mustafa Umar: Hmm. I mean again, we can get into the philosophy of what a currency means. But understanding the way currency functions today in terms of fiat currency and different currencies throughout the world I personally see it as a currency. Because the idea of – the idea of fiat currency meaning like this has been declared to be something of value by government, right? So, that’s fiat– that’s what fiat means.

So, that idea of fiat doesn’t necessarily have to come from a government, it can come from any group of people now in a – just international network. So, if people consider it to be something of value that they will use it as a currency, then the fiat part of it is done by people due to their trust and due to their wanting it to be used as something of value.

So, I see it personally as currency. And I think currency is something that can be – the way we understand currency today is something that could be introduced, it can be removed, it can become extinct.

So, that’s the way currency operates today. That’s the way most of the rest of our currency is. Now, whether it’s the – you know, how does it compare to gold currency and all that is a whole another discussion but I would rule that as a currency.

Andre Rishi: Ok. Hamdullah. Yeah. It’s funny because with one of the teachers I was studying with, he – one of the things that he did mention was – again, going back to government saying that government pretty much puts the stamp on saying what is and what is not a currency.

And my thought was when it comes to cryptocurrency, this is something that – again, going back to your studies on computer science and hackers, this is something that someone can sit down in their home and now the knowledge and the information is out there where they can program a currency and print out it for anyone to use. It’s that simple now.

And I do think that I think that we’re probably going to see down the road where again, if it’s not my children – I don’t have children yet, God willing, insha’Allah, but let’s just say, your children or grandchildren, it will get to the point where they will be able to program their own currency.

So, I’m curious is that at what point does Islam say, “Well look, as…” I think you’re definitely thinking more long-term in regards to with some of your thoughts that you’re sharing. But what will they say in regards to be the average small group of people just declaring a currency that they’ve come up with for themselves?

Shaykh Mustafa Umar: Right. So, I mean again, it’s hard to define in this day and age exactly what is – what is the quantity that you need for people to buy in and what their geographical distance should be. So, there are no clear-cut rules especially in this day and age where we’re all interconnected across the borders.

So, it’s very hard to make a claim and say this is how many people need to adopt it. So, yeah, there are some risk anyone can just make their own currency. But if that currency is being used by a significant number of people and they’re valuing it without defining what that significant number of people is then that should suffice it for being a currency. Because if you look at what currency was primitively, you look at small little village somewhere and…

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: And they have different currencies and all of a sudden they find some shells in the water and they’re like, “Oh, these shells are kind of rare and not – there’s not that many of them, Ok, let’s go ahead and use this as a bartering system. This becomes our currency where we’re going to have to trade all these products all the time, we use the shells as intermediaries and they represent some store value.”

As long as that’s recognized, you could make anything into a currency. You could take a shell to currency. You could take a random colored rock because that has a certain restricted number within a society and there’s like a – you can call it a social contract or something among those people that they’re saying, “We agree to transact and give certain type of value to this state that’s there.” Right? And that’s exactly what a self-program cryptocurrency would end up becoming.

Andre Rishi: Right. Right. Now, with that being said and I know you said you see it as a currency, one argument that I have definitely seen some scholars make in regards to ruling out Bitcoin in particular, not other altcoins but Bitcoin, in particular, is that trade cannot be instantaneous.

So, for instance, when you make a let’s say a transaction with bitcoin per se, it is at least a minimum of about 10-minute window of time for the transaction to truly be confirmed, even though you’ll see it pop-up on the ledger instantly. So, what are your thoughts on this?

Shaykh Mustafa Umar: Yes, I mean that is one of the issues with Bitcoin. So, it does take some time to process. But again, I think the – that’s due to the technology. So, again, the risks that’s actually involved of it not processing, like you said, it appears instantaneously, right?

So, even with processing at the same time, the appearance ends up being that you know this is something that has transferred over. There are many other types of transactions. I mean if you look at, even when you send money to someone else in a bank or something that used – you write me a check, I’ll deposit that check. It’s not going to come instantaneously.

But what is the ruling on ownership? The moment you handed me that check, and the moment I put it into the bank, that is technically considered to be my property even though it’s not really appeared, even from the Islamic perspective. You’ve handed the money over to me. That property is considered to have transferred over to me, right?

So, from that perspective, this is not a major issue because we already deal with that on a regular basis. What’s the most important thing in Islam is to understand who owns what at what particular period of time and what level of danger or risk is there that a transaction is somehow not going to process such that someone is going to think that they’re getting property transferred but they don’t get it transferred. Right?

I think risk is fairly low as far as my understanding goes, and that’s why it’s not a major issue. We’re like looking and look at this and nitpick on this detail because this stuff happens all the time.

Bitcoin and Riba al Buyu / Riba al Fadl

Andre Rishi: Right. Right. Right. And just hearing you say that definitely clarifies certain things to me and makes more sense. I mean I posted a blogpost some months back where I was talking about trade. And one of the things – again, I always tell people who come to my blog, I’m not a scholar.

I take information from scholars I’ve studied with and share that with them. I know one of the teachers I have had before clearly doesn’t see this as a currency and so because of that, when people had asked me in regards to my studies with Bitcoin and regards to trade I would always say, “Well, at this time, if I don’t see any consensus that people are calling it a currency, then my thought process was that the rules of riba al-buyu, also known as riba al fadl, wouldn’t apply to it simply because there was no consensus and they didn’t call it a currency.

However, from your viewpoint if you can see it, as a currency right now then it would be that the rules of riba al-buyu would apply, no?

Shaykh Mustafa Umar: Absolutely. In fact that’s why I’m very – I actually read a fatwa that said it’s a digital asset and they were making an argument about it being an asset but then the rules of riba don’t apply and that’s very – it’s very problematic because then you can just justify, if you can’t loan money to someone else, you can go ahead and do the whole riba business with cryptocurrency saying that we’re selling you an asset with the profit and there’s Murabaha and all of that and – I mean that’s not the way it functions.

So, I mean I think sometimes people will go down into the technical details and forget that you have to look at the substance and the spirit of what – of how this thing functions and what it’s supposed to do and what was it intended to be and what it generally is rather than trying to make some analogy based upon you know some pre-conceived definition that you have in a book of Islamic law or something like that. I think that’s where the issue arises.

Andre Rishi: Ok. Ok. So, then what are your thoughts when it comes to other aspects of a cryptocurrency such as mining? I’ve seen some scholars here that all of it is haram. All of it, whether you’re doing transactions, whether you’re mining, all of it is not in line with the Islam. What are your thoughts on mining?

Thoughts on Bitcoin Mining

Shaykh Mustafa Umar: So, I mean in terms of mining, there are two aspects. One of them is the electricity consumption, you know, so that’s obviously concerning. So, you know, I mean they say if it becomes so big and you know it takes up a lot of electricity. There’s no doubt about that. Obviously, there’s ways around that. I mean ways to overcome that shouldn’t be too difficult to think of other mechanisms and alternatives.

The idea of mining if you look at it again, what is the substance of mining? The whole point according to my understanding of mining was two things, I mean one, is that they wanted you know Satoshi, whoever that was, wanted to come up with this idea of gradually introducing more and more currency and then putting a cap on it. Right?

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: So, there is that cap when it comes to bitcoin and mining it, built-in. So, this is a problem that’s technically going to resolve itself. I mean the mining is going to be done after certain period of time. That’s the way he planned it to be. And I think that’s a genius way to think about it from that perspective.

One of the ways to restrict the harms from the current financial system that – one of the reasons why cryptocurrency was made in the first place was because you could just manipulate it anyway you want and it just – you can keep on printing more and more like you said, right?

So, once you put a cap, you’ve really – you’ve taken a really big step in preventing that type of abuse from taking place. So, I think the cap is very, very important. And obviously, he had a very good reason or they, whoever they are, they had a very good reason…

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: …for putting out this gradual thing in order to get more acceptance, in order to give an incentive to people who are not just going to do this for the purpose of verifying transactions because there’s not going to be that much money initially.

It seems like an ingenious idea to me. So, it makes sense, people have gone in and said “Well, where’s this money coming from intrinsically? And you know you’re somehow getting money for nothing.” I know it’s somewhat of a far analogy but the analogy is like you know you’re putting effort in to actually mine gold. Right?

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: That’s where the term mining came from. So, yeah, they say well gold has intrinsic value so that’s why you’re doing it. But I mean again that’s another argument whether it has intrinsic value or you know, declared value due to historical reasons and all that. So, I don’t have intrinsically an issue with mining because I understand the purpose of it and the substance of it and the spirit of it.

Once – and if there’s another way or a better way around that, I think it wouldn’t be necessary and I think because cryptocurrency has already become so popular perhaps the transaction cost or whatever technology to transact through it would suffice and people would make enough money just through that without having to do all of this mining. So, I mean my – I would say, I haven’t really thought too much about this issue but I would say that my initial thoughts are, even if mining was like stopped right now.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: It wouldn’t hurt cryptocurrency and people would still be able to charge certain amount of money for their services and it would still – the service would be valuable, the person would still make a profit like many companies are doing and people would be willing to pay that and they would still prefer that and the traditional methods of currency that we have today.

Investing in Bitcoin

Andre Rishi: Ok. Yeah. I agree. I do see that. I do see that. So then, what you’re saying in regards to people being involved in it in transactions and mining, obviously you have the people who are looking to invest and I do know, I do see people that come to my site who they – they do have some knowledge of cryptocurrency and they may not necessarily agree with some of the fatwas that they give and they still move ahead and look to invest.

So, I want to hear what your thoughts on investing.  And before I do that, I definitely want to preface this and say that none of us here financial advisors so please – we’re not here giving you financial advice and what to do or what not to do just speaking generally. Generally speaking for the average Muslim who does have some understanding how this works and is seeking to step in and get involved in this. What are your thoughts in those thinking about investing in it?

Shaykh Mustafa Umar: Right. So, here’s the thing, this is like investing in any other currency, Ok? For me, this is a currency. So, if you’re going to invest in any currency the Islamic definition or the Islamic idea of investing into a currency is not, is not really there, right?

Because currency is not supposed to – intrinsically, it’s not supposed to be fluctuating from an Islamic perspective. You got your gold coin, you got your silver coin, that’s what’s considered to have value. You don’t go like “Ok. I’m going to take my gold coins now and I’m going to buy a bunch sea shells from the village that uses sea shells for currency with the hopes that I can go ahead and sell this sea shells back to my other village for more money than I bought them for.” Right?

So, the idea of investing in currency as far as I understand it is not really something in Islam that’s there. All right. So, from that perspective you don’t like buy and sell currency that kind of comes in the idea of riba. Riba in the sense that you know you’re using currency, using money to make more money that’s not an asset that’s supposed to actually have a certain value that’s increased. That’s the fundamental part of it.

Then you got the practical part of it. Currencies are going to change, right? And they are being valued and devalued. So, the only time that it’s normally acceptable to purchase currency for the “purpose of investing” is when you have a strong reason to believe that either your currency that you have is going to be devalued or the other currency – it’s more about your currency being devalued relative to the other currency which means that that currency is going to be increased in value. To give you an example, Ok let’s – give you an example, let’s say, you live in Zimbabwe, Ok? And…

[Laughter]

Andre Rishi: Oh yes.

Shaykh Mustafa Umar: …before what happened…

Andre Rishi: May Allah helped them. Aameen.

Shaykh Mustafa Umar: Aameen.

Andre Rishi: Aameen.

Shaykh Mustafa Umar: So, let’s say you live in Zimbabwe 2005 and all you do is you transact in the Zimbabwe whether they’re dollars or whatever they were.

Andre Rishi: Their currency. Mm-hmm.

Shaykh Mustafa Umar: Their currency. And somehow you get information that this government is not doing very well and they don’t seem to be making good decisions and I think there’s a very significant risk that my currency in Zimbabwe is somehow going to devalue itself and I’m going to end up losing – a lot of people are going to end up losing a lot of money because this is an unstable currency and the government is going to make decisions and things are going to happen.

You say, “You know what? There’s a big risk in that and I have a very good insight that this is likely to happen. Let me go ahead and protect myself and take some of the money that I have even though I’m a Zimbabwean, I live in Zimbabwe, let me go and put my money in a safer place.

Let me go convert it into US dollars, for example, right?” And then hyperinflation happens and then you realize oh that guy got saved because he realized that his currency was going to be devalued.

So, the same principle applies. When we talk about investing into a currency, when we have an understanding that our currency relative to the other currency is somehow something is going to happen to it and we’re going to have a problem that’s kind of like a flip way of looking at “Ok, this other currency is going to be going up relative to my currency that I happen to hold all of my assets in.” Right?

So, when you lose trust in your own currency and you put your trust in another currency, what you’re doing is you’re switching from one currency to another because you’ve lost trust in it. Rather than looking at it from the financial transaction of “I’m going to buy $10,000 worth of cryptocurrency and I’m going to – the intention of selling it when it hits $30,000.” Right?

So, that’s kind of the way that it should be viewed from Islamic perspective because we don’t buy and sell currency as an asset because it’s not an asset.

Andre Rishi: Ok. All right. So, again, just to clarify, you’re saying that going in with the intention of like well, I’m going to purchase XYZ cryptocurrency because I believe that in three years, it will be worth $15,000 instead of $100 today that that intention is not allowed Islamically or shunned upon Islamically.

Shaykh Mustafa Umar: Yeah.

Andre Rishi: Yeah, Ok as opposed to just saying hey, I just think maybe the country I’m in like the US is just going to keep on inflating the money supply and it’s going to lose value. So, let me go and hedge by purchasing other currency.

Shaykh Mustafa Umar: Yeah.

The Philosophy of Bitcoin and How it Relates to Islam

Andre Rishi: Ok. All right, cool. So, with that being said, I think that’s a really good segue to talk about the philosophy behind Bitcoin and cryptocurrency as a whole. So, what are your thoughts on the philosophy behind this new technology and how does that, how does that work with Islam?

Shaykh Mustafa Umar: Ok. Where should I start?

Andre Rishi: Ok in – I know that my understanding is this whole thing really came about with – at least I don’t want to go too far back because cryptocurrency happened before Satoshi, it was already talked about. With Satoshi, in his white paper, it does seem to be a reference between a 2008 financial crash and wanting to have the philosophy behind having a decentralized system, a currency that’s set on a decentralized system that would be of benefit to everyone.

Shaykh Mustafa Umar: Right. Right. Right. So, you know the philosophy of it, it makes sense from two perspectives and it doesn’t make sense from one perspective. So, two perspectives which are in line with Islam is that governments – currency is not supposed to be something that can be easily be manipulated by government.

Because what that does is that puts people’s assets, it puts their money, it puts their property all at risk and at risk of a simple government decision. And that’s very, very dangerous and there’s something known as principles or the underlying objectives of the Sharia, it’s called maqasid al-Shariah.

Andre Rishi: Hmm.

Shaykh Mustafa Umar: And five principles – basically, it’s five principles that underlie every single rule in Islam. And one of those principles is the preservation of wealth. So, if you look at you know if you ask, well, why is stealing haram? Why is stealing prohibited in Islam?

Well, because God wanted to preserve the wealth of people. That’s why when you say, why is drinking alcohol forbidden in Islam? Because one of the second rules is the preservation of the intellect. God wanted society as a whole, everyone to preserve their intellect because that’s how they make rational, reasonable decisions and moral decisions.

So, you want to preserve certain things within society, one of them – one of the objectives, underlying or overlying objectives is the preservation of wealth. So, when you have a system where a government can somehow, anyone can become elected or become leader and then make a decision and somehow take people’s wealth.

I mean basically, you’re taking the wealth by devaluing whatever they own without even having to exert the physical military force to go and steal from them.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: That’s very dangerous. So, that goes against one of the principles of the Sharia, the underlying principles of Sharia. So, in that perspective, the idea of a decentralized currency makes a lot of sense and fits into the paradigm of Islam.

Andre Rishi: Right.

Shaykh Mustafa Umar: From the second perspective, you have a quick transfer of currency, transfer of money or transfer of goods with a very quick way of paying. So, this is a faster means of technology without exorbitant amounts being charged particularly to people who cannot afford such amounts like third world countries, you know the amount of money that gets sent from wealthy countries, “first world countries” to like to poor developing countries and their relatives back home, it’s in the billions. I mean it’s huge.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: There’s a lot of money that’s sent back and the amount that these people are going to have to pay because they don’t have, in their village, they don’t have a bank, branch or something like that setup, they have to pay a really large fine, or fee.

You could say a fine in a sense for not being developed or whatever, [maybe] war happened you know 40 years ago or something like that. So, that’s very sad. And this actually, this technology can and actually is being used to help a lot of poor people and that completely fits in line with the principles of Islam as well. So, these two things directly fit in line with the principles of Islam.

Andre Rishi: Hmm.

Shaykh Mustafa Umar: The only thing that where you can say there is some level of danger for decentralization is that Islam does recognize that you have to have a just government, put certain principles in place to prevent people from doing bad stuff.

So, sometimes may not be legitimately used, but sometimes government needs to crack down on people who are funding money launderers, drug dealers, terrorists, all of that stuff. That stuff happens and if they have a little bit more oversight that can be a thing if used correctly to prevent people from doing bad things. Again, now, the flip side of that is the government can be doing bad things about it.

Andre Rishi: Yeah, exactly.

Shaykh Mustafa Umar: So, that’s why you have to have this balance.  We have to weigh it out, right? So, that’s where it becomes a very difficult decision to make in terms of who do you trust more? Do you trust the government more or a government more or specific government more?

Or do you trust that the average person is not likely to engage in this type of activity that’s going to harm society? So, kind of comes back down to what is going to be better for society as a whole? And not every country, not every time, not every period, not every society you can give the exact same answer.

Some societies work better, some societies, it’s worse. So, you go into very corrupt country and you look at that country and you say, “Is it better that this currency is centralized or decentralized?” We could pretty easily say, “You know, this government is so corrupt, we definitely are better off with the decentralized currency.”

Andre Rishi: Right.

Shaykh Mustafa Umar: Whereas you could go to another one and you say, “Oh, these people aren’t so bad, but there are some really bad people within that society but they’re not in government. They could potentially do a lot more harm so maybe we should give government the benefit of the doubt here.” So, it’s not a clear-cut black or white answer all the time.

Andre Rishi: Right. Right. And I think that makes a lot of sense. Yeah, when I look at a lot of again, just the economic system that we have worldwide for me and not just me. I think I, a lot of people see that there’s just so much corruption and then I think that’s why you see so many, I can’t say so many people, but at least groups of people who are very open to and push for a sort of decentralized system where they figured, “All right, well, all of us say have an invested stake and we all want to protect our wealth.”

So, if we all sort of spread out trust, then you know they do see that as a more reputable, possibly more solid system.

But like you said, there are so many nuances to that which also leads me to what you believe the future is for cryptocurrency. One of the things I tell a lot of the viewers of the podcast, people come to the site, and this is one thing that sometimes I think, I’m not even sure if some of the scholars really understand right now. I always say that this is more than Bitcoin. Bitcoin could be gone tomorrow.

Shaykh Mustafa Umar: Yeah.

The Future of Bitcoin in the Muslim World

Andre Rishi: I think that the – I do think that the technology though, I’m just curious, what are your thoughts on the cryptocurrency and the future, how that relates to the Muslim world as a whole?

Shaykh Mustafa Umar: Yeah, I mean I think cryptocurrency is not going to be going away. It’s a concept. Like you said, I agree Bitcoin may disappear. It may disappear in a year. It may disappear in 20 years.

But the idea of a currency whether it’s through cryptography or through some other means, a decentralized currency, the idea is not likely going to go away because people believe in it. And as long as people believe in that idea, you can’t just take it away. It’s going to be very, very hard to take it away.

And in terms of what is the future, how is it going to look? How is it going to look in the Muslim world? It’s hard to speculate. I think time will tell. But I think it’s going to develop over time and I think we’re going to find more and more uses and different uses for things like this.

So, you find people already – people taking blockchain technology as one aspect of cryptocurrency, it’s not the decentralized aspect but they’re taking this like implementing it within their own system even within the banking system and all of that. The decentralized aspect of it is something that’s going to remain as a means of transfer or –  what do you call it? A money transfer.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: Money transfer that’s something that’s going to continue. It’s not likely to go away unless somehow massive competitions somehow keeps up and it doesn’t require it to be the case anymore.

So, if that was the case, then yeah, things are going to change. Like the postal service took a huge hit when emails started becoming international phenomenon and everyone has an email and send messages and how many people send letters?

Andre Rishi: Right.

Shaykh Mustafa Umar: It’s not that much. So, they’re obviously going to lose out. So, I think it’s going to be something like that in terms of people who like to transfer money or who are responsible for transferring money, making currency exchanges and all that. Cryptocurrency will become part and parcel of their system or those systems will go away and cryptocurrency will replace, for the most part, that type of transfer system.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: From there, what’s going to happen afterwards? I mean I think there are so many possibilities. It really depends on what Muslims do and how much freedom they have to actually develop something…

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: …across this new one that was coming up called OG OneGram.

Andre Rishi: OneGram, yes, yes.

Shaykh Mustafa Umar: Yeah, so it’s like a cryptocurrency that is somehow tied at minimum value to one gram of gold.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: persons look at that and they’re like, we need to go back to the gold standard. They said that Libya once tried the gold standard and look what happened to them?

Andre Rishi: Yes, God forbid God and I personally think there is some truth in that and I think there’s some truth in that.

Shaykh Mustafa Umar: Yeah, absolutely. I think so too. And Malaysia, they have been talking about it for a very long time. And I think a lot of the Muslims who kind of know they are very excited about this idea but it’s extremely difficult to somehow go back to a gold standard when – like a traditional gold standard when the entire world economy is taking a different turn and the way gold is being controlled and manipulated all of those things.

Now, this potentially could be that one thing that people are waiting for to overcome all those obstacles and somehow structure something where you can either get – you can get back to a standard that resembles the pros of a gold standard which is what Muslims have been really calling for and waiting for actually.

And that would cause a lot more stability within economies, a lot less speculation which is definitely in line with the principle of Islam, less riba-dominated all sorts of transactions and just the economy itself. Right? So, there’s I think where cryptocurrency can lead. How it will lead there exactly I can’t say.

Andre Rishi: Right.

Shaykh Mustafa Umar: I think this is one of the technologies that could potentially help us get us there if we’re doing the right things and we’re making the right decisions with regards to it and the leadership is going to give people the freedom to develop these things.

Andre Rishi: Yes.

Shaykh Mustafa Umar: And not put a ton of hurdles in their way to prevent this technology from actually getting there. It’s kind of like electric cars. I mean the technology has been there for a long time but the oil companies and stuff.

They have been preventing all of these. Solar technology, same thing. Now, it’s finally starting to take off, why? Because some of those hurdles have been overcome. So, as long as the hurdles don’t get in the way, I think it’s a lot of development then.

Andre Rishi: Yeah. And I think what you’re saying with hurdles is absolutely right. And again, it goes back to what I was saying earlier in regards to I really wish I would have – we would have seen more nuance from some of the scholars on their rulings because I would hate to see them, by simply painting a broad brush and saying that it’s all haram in some ways to kill the research and development that can go into this new technology.

Because I look at it as like Ok, well, cryptocurrency right now is not perfect. It’s in its beginning stages.

So, I would much rather them say something along the lines or say, “Ok, well, maybe this is makruh (disliked) or maybe this aspect of it doesn’t work but if you can fix it here or do X, Y, and Z here then we can take a second look at it.”

I would love it if we had scholars that would dimply encouraging Muslims to actually do research into this new technology and to find a way for it to be better for all of humanity as opposed to just striking the whole thing down and then just keeping quiet and not saying anything else.

Is Bitcoin Halal or Haram?

Shaykh Mustafa Umar: Yeah, well I got good news for you then. And probably this is the last thing I have to say before I have to get going.

Andre Rishi: Yes.Mm-hmm.

Shaykh Mustafa Umar: I was at a scholar’s conference recently. It’s called the AMJA, the Assembly of Muslim Jurists of America.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: And there was about you know 150 scholars and about another 200 students of knowledge And Bitcoin came up and there was a presentation given. And one of the head Shaykh, Shaykh Salah Al Sawy, he presented a paper on Bitcoin and cryptocurrency. And his initial paper seemed like he was going to come out saying that it’s forbidden, the draft of it.

And then finally, when he presented it, he actually said, “You know we cannot outright say that it’s prohibited and we can’t even say that it’s technically even makruh for sure. We can say that it’s somewhere, it might be makruh or it might be permissible, but we still need a little bit more research. But we definitely know we cannot outright say that it’s haram.”

So, after doing more research, he actually changed his view and his view was not – is not just a view of one person. He’s a very heavy-weight scholar so when he gives his view, you got probably the other 150 scholars in the room, most of them are agreeing with him.

So, that’s a good step in the right direction. I was very happy that came out. And that paper was written in Arabic. So, it has been translated yet. But I think that’s a good step in the right direction. That was just a few weeks ago.

Andre Rishi: Masha’Allah Hamdullah. I’ll be on the lookout for that and then I’ll probably touch base with you to see if that does come out in the English version so I can talk about it here. I don’t want to keep you too long because I know it’s already – we’ve been going at this for like a little over an hour now I believe or just about an hour.

What is California Islamic University?

But I did really – I would love for you to share with my audience what is California Islamic University? I mean here you are with years of study under your belt, a bachelor’s, a master’s degree, studying worldwide and now, you have founded this university, if you can share with us what is this all about and how can people get involved?

Shaykh Mustafa Umar: Sure. So, about five years ago, I was out of the country and I was thinking, am I just going to come back to the country and just be an Imam again or, how do I take people to the next level?

So, I came up with the idea, I said, you know we need an educational institution that teaches people, gives them a foundational knowledge of Islam that I wish I had. I mean, I’ve always had a lot of questions about Islam and that’s the reason why I went abroad to study. I traveled to different countries. I didn’t want to be an Imam. I never wanted to become a scholar or anything like that. I just wanted to learn my religion.

And I think there are a lot of people like me but not all of them have to quit their jobs. They don’t all alone to you know have to drop out of school and like travel to some random country and go through different living circumstances, culture shock and all of that stuff.

But I said, how can I make the knowledge that I’ve learned that you’d find in the average seminary, which is like in Islamic university, and take the stuff that is the most relevant to Muslims living in the west and sift out the stuff that’s the least relevant Muslims living in the west.

And that’s when I said, “You know what? Let me start a school. And what we’re going to do is we’re going to take the curriculum of Madinah University, Al-Azhar University just looked to all of them and start sifting, what’s the most relevant, what’s really not relevant to the average person unless they’re going to specialize and become like a scholar.”

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: And I started reconstructing a curriculum from scratch on what’s going to be the most important thing. So, we cover – basically, I made 22 courses.

Andre Rishi: Ok.

Shaykh Mustafa Umar: We covered everything from the life of the prophet, peace be upon him.

Shaykh Mustafa Umar: …from that Islamic law, the Sharia, the principles of making everything from wudu, to fasting, to zakah, to marriage, to divorce, the correct way to get divorced if that ever happens, economic transactions.

But every time you studied the subjects not looking at like camels and you know goat, stuff like and replaced it with modern-day examples of what we actually encounter you know.

Andre Rishi: Salla Allahu Alaihi wa Salaam.

So, taking the research that has been done and issues like cryptocurrency and zakah and 401(k) accounts and you know what are modern manifestations of interest in today’s transactions and stock market and options trading and future and you know all of that stuff selling short. Taking that and implementing into the core curriculum.

So, we go from there and we go, “Ok. There’s rules that we’ve got to learn. There’s recitation of the Qur’an that we’ve got to learn. There’s history of the Qur’an. How do you know the Qur’an has been preserved? How is the hadith… How do you know stuff is authentic? Where does all of these come from?” And then supplement that with a few classes like research methodology. How do you research a subject in Islam on your own; under some guidance maybe.

Andre Rishi: Mm-hmm.

Shaykh Mustafa Umar: Public speaking, once you got your knowledge down, how do you convey the message of Islam to other people? How do you give a khutbah (Islamic sermon) that people are not going to bring their pillow and fall asleep? Unfortunately, there’s a lot of khutbahs like that.

Andre Rishi: Yeah.

Shaykh Mustafa Umar: So, that’s what we’re trying to do. We have a two-year curriculum. You could do it part-time, you could take six years and do one class a quarter, that’s perfectly fine. And we have quite a few students, you know different parts. We have online students, you can be anywhere in the world. We have students randomly like Taiwan and South Africa.

Andre Rishi: Yeah.

Shaykh Mustafa Umar: …different countries. So, we use top-of-the-line technology and management system technology so that people can take classes at their convenience, according to their own schedule.

You know you don’t got to quit work, you just watch the video later and finish the exam, you get credit for that class. You don’t want to take all the exams, you don’t want to do all that stuff, just take the class as an audit student.

Andre Rishi: SubhanAllah. SubhanAllah.

Shaykh Mustafa Umar: You just get the – that’s it.

Andre Rishi: Ok. Ok. So, yes, you can study like, physically on – you have a physical campus.

Shaykh Mustafa Umar: Physical campus in Fullerton, California. You could do that or you can attend live so you can like actually chat with the teachers and ask questions live. Or, you can watch the videos afterwards. You can attend courses later on. You can learn your Arabic, you can learn your Qur’an, you get your tafsir, you get your hadith.

Andre Rishi: Masha’Allah.

Shaykh Mustafa Umar: And do it at your own pace as well.

Andre Rishi: Masha’Allah. Ok so, ok so once they finish this then they should have a basic understanding then, a foundation of Islam that they can go and to the community maybe be, maybe an Imam…

Shaykh Mustafa Umar: Probably an assistant Imam.

Andre Rishi: Assistant imam. Ok.

Shaykh Mustafa Umar: Yeah.

Andre Rishi: Ok. Very good. Very good. But what I’m going to do I’m going to leave the link for that website down below so people can check that out as well. I highly encourage people to check it out. I mean I myself am a student of knowledge myself, I’ve studied with like SeekersHub, Qibla for Islamic Science, so I’m definitely taking a look at this for sure since it’s right down the block from me.

I really wanted to thank you for your time today for joining us here on this Islam and Bitcoin Podcast, you shared a lot of information, a wealth of knowledge that I think is highly beneficial to the community and it’s really good to see someone have a very balanced understanding of cryptocurrency as a relates to the world of Islam.

So, we lost our Shaykh. I just heard from him and he said that the battery on his laptop went dead. Alhumdulilah, no worries. It was wonderful having and a beautiful conversation with our dear Shaykh and I wanted to thank Shaykh Mustafa Umar again. Thank him for coming on the, appearing on the Islam and Bitcoin Podcast and having a great conversation with us.

Please do share your thoughts. Leave comments down below and let us know what you think about the conversation we just had. And as always, we say sharing is caring so please do share this podcast far and wide with those who think may benefit from it

And as always, I leave you in the way that I greeted you assalaam alaikum wa rahmatulahi wa barikahtu, Ma’salama. 

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