Why is bitcoin and other cryptocurrencies invalid in Islam?
Most Islamic scholars believe that using bitcoin and other cryptocurrencies as money is unacceptable since digital currencies lack intrinsic value and there is a high risk involved in their trading.
Other reasons Islamic experts cite for invalidating cryptocurrencies is that these currencies lack real ownership and are not backed by any governments.
Research shows that cryptocurrency is hugely volatile and has limits to being called ‘money,’ as it is limited and used for speculation, which is prohibited in Islam.
Studies imply that Muslims would be reluctant to use cryptocurrency as money and a currency of transaction.
Legal tender, or money, is produced by the central bank of each country. However, cryptocurrency is based on a borderless system as it is not limited to one country or territory. No authority controls the money mechanism of cryptocurrency.
The value of cryptocurrency is based on the blockchain creation to store the data. The calculation is based on the algorithm, which is complicated. The bigger the blockchain can create the data and system, the higher the fee of miners.
A cryptocurrency is a virtual coin so it does not have a
physical form. The only proof of ownership of cryptocurrency is a recorded
transaction on the blockchain.
Money, in the Islamic perspective, should be based on physical assets, should be able to cover all activities, and is not for speculation purposes.
In Islam, money should be treated as a currency of transaction rather than for gaining profit from speculation activity, which is strictly prohibited.
Nigeria’s central bank on Friday ordered banks and financial institutions to immediately close accounts transacting in or operating cryptocurrency exchanges, saying such deals are “prohibited.”