The question whether cryptocurrencies are Shariah-compliant as per Islamic finance standards is as old as digital money itself and remains a hotly debated topic among scholars and Islamic finance experts, who declared them both either halal or haram in the past. However, the growing popularity and the obvious broad operational capability of emerging cryptocurrencies to simplify global payment processes – despite their potential for malpractice – would certainly merit a generally valid solution to this issue, with the most reasonable position being to declare them permissible if certain basic rules are met.
Last week in Manama at the 16th Annual Shariah Conference of the Accounting and Auditing Organisation for Islamic Financial Institutions, an influential standard-setting body for Islamic finance based in Bahrain, many of the world’s top Islamic finance scholars were diving into the issue, scrutinising the permissibility of cryptocurrencies and trying to determine the pressing question whether Islamic financial firms, particularly those with a wide range of activities in the Gulf Co-operation Council countries and in Southeast Asia, can invest in digital money and cryptocurrency-based businesses or at least develop products based on the underlying blockchain technology, as many of their conventional competitors readily do.
Basically, since cryptocurrencies are products of financial engineering and objects of speculation, they sit uneasily with Islam. The scholars in Bahrain debated the issue over certain key questions, namely to what extent and how cryptocurrencies must be backed by real assets and represent real economic activity based on physical assets and whether they fall under the so-called “ribawi” category, which means a cryptocurrency would have to be exchanged in equal measure and with immediate transfer of possession, otherwise transactions may involve riba, a major prohibition in Islam.
Due to the complexity of the issue, the scholars at the conference did not come to an imminent conclusion, and there is no current indication that the organisation would issue guidance on cryptocurrencies, but rather a tendency to clarify what types of cryptocurrencies are religiously acceptable to unlock their potential for future product development with Islamic finance institutions.
“Financial technology developments mean scholars must revisit Islamic finance concepts and how they have evolved over time,” says Ebrahim bin Khalifa al-Khalifah, chairman of organisation’s board of trustees, leaving the door open for further scrutiny.
Meanwhile, the possibility that cryptocurrencies are indeed halal got some backing from Mufti Muhammad Abu Bakar, an influential certified Muslim legal expert based in Kuala Lumpur and consultant for London-based Gateway Islamic Advisory, who wrote a report “Is Bitcoin Halal or Haram: A Shariah Analysis” commissioned by Indonesian fintech startup Blossom Finance, which operates a micro-financing portal in Jakarta, using Bitcoin-based transactions. 
Abu Bakar, who is also Blossom Finance’s internal Shariah adviser and Shariah compliance officer, argues that “Bitcoin [or cryptocurrencies in general] is permissible in principal as it is treated as valuable by market price on global exchanges and it is accepted for payment by a wide variety of merchants”. He says that cryptocurrencies would fulfil the economic role of money because they are acting as medium of exchange, unit of account and store of value – and also gain status as Islamic money by being “customary money” which is recognised by Shariah as being anything that gains monetary status through wide acceptance in society or by government mandate and as long as the price is subject to supply and demand, just like commodities and fiat currencies.
All this would qualify Bitcoin indeed as a permissible medium of exchange as per Shariah criteria, unless a local government forbids the use of digital currencies in general, Abu Bakar states.
While Islamic scholars have been so far subdued in issuing official halal declarations through authoritative legal opinions such as fatwas for cryptocurrencies, there are official rulings by Islamic scholars against them – such as a ban by Turkey’s Directorate of Religious Affairs against trading Bitcoin and similar digital money declared in November last year; a fatwa against Bitcoin by Egypt’s Grand Mufti issued in January and, most recently, a fatwa against one particular cryptocurrency, OneCoin, by Kurdistan’s highest Islamic authority.
In a nutshell, the counterarguments of the scholars are that Bitcoin & Co are not permissible because they are subject to fluctuation and speculation and have the potential to be used in illegal activities.
But Matthew Martin, CEO of Blossom Finance, says that “it, honestly, all depends” on the interpretation of Shariah law.
“Contrary to popular myth, Shariah law is not a single set of rules. It is a scholarly field subject to differing interpretations and opinions on various matters,” Martin says.
“The fatwas issued by prominent Muslim scholars offer incomplete or contradictory opinions on the topic. For example, the potential for unlawful use is not a valid reason against Bitcoin under Shariah law, since this in an external factor and the use of any lawful thing for an unlawful purpose cannot not make the thing itself unlawful,” he argues.
“With all the confusion out there, we wanted to offer clear guidance supported by solid research that benefits both laypeople and practitioners of Islamic finance,” Martin justifies Abu Bakar’s study.
As a side effect, many cryptocurrency experts see Abu Bakar’s conclusions as an explanation for the sudden surge in the price of Bitcoin last week by more than $1,000 since his halal declaration technically opened the cryptocurrency market to 1.6bn Muslims around the world.