Maybe before saying things are haram or halal, it might be best to understand money, first? Then maybe we’d be able to make a more educated decision… especially on whether or not to participate in bitcoin and the rest.
- MONEY: Let’s start with what money is. Since five to six thousand years, based on what I know, barter, gold and silver, and other trade-able goods were accepted as a medium of exchange. Gold and silver being the ones lasting the longest (up until today, albeit market manipulation), where they still hold relatively the same value since the time of Prophet Muhammad (PBUH). Maybe due to them holding intrinsic value, they can be used in halal trade.
- FIAT (Paper Money): Long story short… paper “money” was meant to make trade convenient. Based on my readings (please correct me if I’m wrong), FIAT originated as claim checks on Gold in the vault. I think in the past, 35 US dollars was backed by 1-ounce of gold. This means that, there is one ounce of gold (in the VAULT) to back that 35 number on your piece of paper. The dollar claim-check only had value because of the gold in the vault! This imposed control to the amount of claim-checks you can print (since the gold is limited, hence the claim-checks are limited as well). This also keeps things stable to avoid inflation .
- The Gold Standard being axed: American president Richard Nixon broke the tie between dollars and gold in 1971, which means that no X-dollars is backed by Y-ounces of gold, anymore. The agreement broken was called the Bretton Woods agreement/accord. After 1971 (I hear some say 1973), the USA could print as much claim-checks as they needed!!! This was supposed to be a temporary thing btw, but Nixon never pressed the stop button.
So that’s sorta the paper money that we have now all around the world. I don’t mean we all have USDs… no. But we sure ain’t backed by anything anymore. Weird stuff can happen when u’re not backed by anything… such as the wrong people manipulating the economy based on their own whims. Anyway, back on topic. Now, let’s talk money supply. Or more accurately, currency supply. Since the paper that we have now is not actual money, but currency. Moreover, it’s a claim check on nothing!!! (no gold, silver or even a camel backing it up!)
One very important feature of money is that it holds purchasing power over long periods of time. We don’t have that in paper FIAT money. In Malaysia where I’m from, a stick of Ice-Cream Malaysia used to cost 10–20 cents back in the 80s and maybe early 90s. Now its around RM0.50 but more commonly RM1.00!!! (image below - basically it’s a popsicle thinggy in a long narrow plastic casing)
AIS KRIM MALAYSIA
Ok. Let us continue…
- Currency Supply from Haram (Impermissable) Sources: Now we know that governments can literally print as much currency as they want/need/are-forced-to/etc. But they can’t fire the printing press just like that (except maybe for the USA, since they own their own printing press). Where do governments get money? Ok, this is what I understand. After a party wins an election, they must’ve promised a tonna things to the people. They don’t have the $$$ to pay for all these promises. So they offer government bonds, which are actually nice pieces of paper where on them are promises to pay back the borrowed amount, plus interest (riba!). From what I understand, mostly BANKs buy up these bonds. But even if they were bought up by the public, still, when the people sell the bonds back to the governement (after maturity), it includes the element of interest (which is the yield on the bonds). In actuality, government bonds are acutally loans given by BANKs/the-public, to the government. And when the govt. buys back the bonds, they’re really repaying the loan, PLUS INTEREST! (riba’ - Allaah and His prohet decalres WAR on riba’ btw, as many Muslims already know). So in this way, if we are involved in this transaction, we are complicit in riba’… Wallaahua’lam. (I was however recently made aware that some Hanafi scholars say giving riba’ is permissible but taking it is haram. I don’t know the whole story though so don’t take my word for this)
- The Paper We Have is riba’-based DEBT: Ok. Now the government has the paper currency to distribute to its various agencies (from the bonds they ‘sold’ to the BANKs or the public). Some of these currencies go to government servants as monthly salary. So, as govt. servants, they are actually receiving haram paper currency (but they’re trapped in the FIAT system, so might be a case of darurah/emergency for many, Wallaahua’lam. But we’re not here to talk about this…). And this ‘money’ that they have, is also DEBT! Right? The government’s debt. Each piece of dollar/peso/ringgit/rupiah/rupee that is held, is actually debt (from the loan the govt made from the BANKs/public!). So for each of the paper currency that is held, there is interest/riba’ due on each of them! Since they originated from an interest-based loan. [BTW, the vast majority of currency flowing through society is not from govt. borrowing though. I hear its from the Fractional Reserve Banking system that we have in almost ALL countries]
CRYPTOCURRENCIES
Where do the cryptos come in? Well, It’s kind of difficult to establish the link I guess. But I’ll just provide my opinion (which might be wrong… but I’ve thought about all this for quite some time. And God knows best!).
1. Bitcoin was made to mimic Gold: Really, if you think about it… the coins having the B-dollar like thinggy is portrayed to look exactly like a gold coin… then you have to mine bitcoin and there is only a limited supply of 21-million coins. These features are that of gold (needs to be mined and has a limited supply). So, it seems like some conditioning is going on so that the masses perceive bitcoin (and other cryptos) as if they are gold or gold-like. All this might be to incite sentiment that cryptos actually have intrinsic value (which they don’t in my opinion - but I know, they are accepted as trade)
2. Bitcoin is valued against FIAT: What value does bitcoin have? I mean, intrinsically? At the beginning, bitcoin had no value in 2009. And it’s kind of ironic that bitcoin is supposedly to replace the FIAT system… why ironic? Because today, it only has value because FIATs still have value. It can’t seem to stand on its own, for now (I have no idea if some form of economic gymnastics will be able to inject intrinsic value into bitcoin. Who knows?). Most people own bitcoin not to replace FIAT. But instead, to profit from the rise in bitcoin’s paper/FIAT price! Bitcoin IS VALUED AGAINST FIAT. So now, I still hold the opinion that the FIAT system is haram (but we use FIAT due to dharurah… ). Cryptos are valued against FIAT… So, every crypto currency is valued against an entire system that is riba’ based… Doesn’t that make it a bit, weird? And sorta like, or approaching, or in cahoots with, haram? I don’t dare to give a ruling of haram as I’m no scholar… but cryptos are valued against a haram system…. Makes you think…. FIAT use by Muslims, in most cases, is a necessity (due to dharurah/emergency since riba’ BANKERS control the world economy and monetary system). But when you then create another system on top of it… now that’s sorta a double whammy (for now at least, since cryptos are still valued against fiats)… But it still makes me wonder… If (and most say WHEN) the FIAT system dies or reset… then how will Bitcoin, Ethereum and the rest be valued? … Really makes me wonder…
3. Bitcoin vs. Gold/Silver w.r.t. intrinsic value: One function of money is to hold purchasing power over long periods of time. I don’t think anyone disagrees with that. When the FIAT system fails, dollars/pesos/ringgits/rupees/renmimbis etc., will not have any value anymore. Their values will either go to zero or fall very2 low. The US Dollar is no exception (as a matter of fact, due to the explosion of the derivative markets, it’s more vulnerable nowadays). If the USD falls… now, what will bitcoin be valued against? Today 1 BTC = ~$8,000. It’s hard to imagine the value of 1 BTC when the USD has no or very little value. Compare that to GOLD and/or SILVER (dinar and/or dirham). In today’s up-side-down system, gold is valued against FIAT, which doesn’t make sense. Before Nixon axed the backing, FIAT was valued againts Gold/Silver! (What I mean is that FIAT only had value because of the gold/silver). Anywayz, in this up-side-down system, 1-Oz Gold = $1,270-$1,300 (at the time of writing). But say there is a currency reset and the USD falls flat on its face. Does it make sense that Gold also doesn’t have value just because the USD went belly up? I don’t think so… Gold will always have intrinsic value… But can we say the same about cryptos that are currently valued against failing fiats?
4. The case of the fish: Ok, I don’t know why fish… but just go along with me. Say the crash happens and the USD and other FIATs die. One day, you are approached by two people, and you have a fish! They want it!!! One has 1-bitcoin whereas the other has 1-ounces of gold. Who will you sell the fish to? Will you take the bitcoin, or the gold?
Of course in all, Wallaahua’lam. These are merely my thoughts…
I don’t know guys and gals. If you look at it… cryptos don’t seem to exhibit any intrinsic value… except the value that they are purported to possess :’( And if you look at the trend now, especially that of bitcoin, it’s acting very much like a bubble. And when bubbles burst, normally the end result is disastrous. Compare the bitcoin bubble against the TULIP bubble (TULIP MANIA) way back in the 1600s. See any similarities?
So, halal or haram…. Wallaahua’lam. Darurah though is on the way, as I believe that the central banks will be coming out with their own cryptos or some form of digital currency. It’s going to be a totally different story after this…. Like it or not, we will be going into the era of Digital Currency [some form of crypto maybe?]. But like paper money… what is any crypto valued against? What is it backed by? What is its value? Can they replace actual money, i.e. Gold or Silver or anything else with intrinsic value such as food/security/land etc., with crypto currencies? Maybe they can, but I’d really like to see how (or maye I don’t want to. Haha!)
In all, the cryptocurrency world, enabled by blockchain technology is a system controlled by humans, which is claimed to be secure. The notions of decentralization and anonymity however, seem to be getting thinner as time goes by. We humans can be a greedy bunch, especially those at the top… The Quran does mention that humans are a corrupt bunch (even in the beginning of Surah Al-Baqarah when the angles talk to Allaah regarding the creation of Adam Alaihissalaam).
For myself… my current view cryptos are as follows:
- A speculative instrument, hence… I personally see it as gambling. You can’t control much, and you don’t have a company that trades anything (bitcoin is not a company that sells bits or coins :P). So, what’s controlling its value? Supply and Demand? Of what? And based on what value? Just like the stock market in many senses.
- Not a valid form of money. Many things are quite unclear. If you guys/gals have read till this long, Google about ‘ACChain’ and how they wanna digitize assets and use cryptos with smart contracts. They did this already in Texas with properties :P So the thing gets a lot weirder… Many things are very very unclear at this point… However many claim its a way to do trade. True… its an alternative. BUT! Many use it as a means to get rich! :) Especially the early adopters. But in all, many things are still unclear about bitcoin. Well, to me at least :)
Man this answer was long. Assalaam aleykom.
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