Answer
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
- You may use cryptocurrencies for transactions or use them as a store of value. However, they are not assets and therefore you do not buy them with the intention to sell them at a higher price.
- Due to its high volatility and it being used mainly as a speculative investment, it has been argued that cryptocurrency is not a real currency until it has some stability and usability. If it turns out that this is true and it is not a currency, it is not lawful to purchase.
Answering your question, Sheikh Mustafa Umar, President of California Islamic University, states:
Most cryptocurrencies like Bitcoin and Ethereum are similar to fiat currencies such as the Dollar and Euro. You may use them for transactions or use them as a store of value. However, they are not assets and therefore you do not buy them with the intention to sell them at a higher price.
The details are in the semantics but are important to understand. Let’s take two examples:
- Maryam lives in the USA and wants to send money to her family in China. She uses her dollars to buy cryptocurrency and then sends it to them without any additional transaction costs. They then pay rent to their landlord with the same cryptocurrency. All of this is allowed since they used it as any other currency for transacting.
- Yusuf is deciding whether to invest in stocks or cryptocurrency. He plans to buy one of them and sell once he makes a 10% profit. He should understand that when he buys a stock he is purchasing part of a company which is likely to benefit a community/economy by producing products, providing services, or creating jobs. Buying a currency such as the Euro or Bitcoin will not achieve any of these likely economic benefits, so no ‘value’ is created in the process. Therefore, it is technically not an ‘investment’. However, if Yusuf thinks the US dollars he is saving will devalue over time relative to another currency then he can buy and hold the other currency. This is known as using the currency as a ‘store of value’ and will protect the purchasing power of his wealth.
In summary, most cryptocurrency is fine to use for transacting or storing your wealth. You might view an ‘investment’ as anything that will make you more money with the current money you have. However, buying another currency to store your wealth is different than investing in something that has an economic benefit, even if both are halal, so keep that in mind when deciding what to do with your money. (For more information, see: Are Currencies an Investable Asset Class?)
Lastly, several experts have been changing their view on whether Bitcoin functions as a legitimate currency. Due to its high volatility and it being used mainly as a speculative investment, it has been argued that it is not a real currency until it has some stability and usability. (For more, see: Black Swan’ author Nassim Taleb says bitcoin is worth zero and fails as a currency and a hedge)
If it turns out that this is true and it is not a currency, it is not lawful to purchase.
Almighty Allah knows best.
Source: Ask the Scholars