Ethereum is halal, conclude prominent Muslim scholars (2024)
Robert Stevens
Cryptocurrencies have perplexed Muslim scholars for several years now.
Debates generally concerns its status as currency: Shari'ah principles forbid usury—lending money to make profits through interest—and prefer exchanges of goods to be backed by physical assets, like gold. But cryptocurrencies typically aren’t backed by physical assets, and people can make massive profits through interest, causing a stir within the Islamic finance community.
But a new paper released earlier this month might finally provide some clarity.
Prominent Muslim scholars have released a whitepaper certifying that Ethereum’s native cryptocurrency, ether, is, in fact, Shari'ah compliant. The paper, by Amanie Advisors, said that because ether is a utility token, which is mostly used to power the network, the Shari’ah laws around currency don’t apply.
But the scholars reserve judgment on particular uses of the Ethereum network. If specific tokens, for instance, are used to make profits from interest, then that wouldn’t be Shari’ah compliant. And if Ethereum started being used as currency, then Amanie Advisors would need to take another look. They also said that both the Proof-of-Work and Proof-of-Stake mining mechanisms could be Shari’ah compliant, but Ethereum’s Proof-of-Stake mechanism is subject to review once work on it has been completed.
Though Amanie Advisors’ judgment is by no means enforceable, their opinion is influential. Amanie Advisors is a well-respected, moderate voice within the Islamic finance community, and the report could convince Muslim developers to develop apps on the network.
“It is easier for Islamic finance houses to produce certified products. Individuals who are more faith conscious can now engage without any doubt that the emerging tech is fully permissible to use,” says Atif Yaqub, a Muslim blockchain enthusiast who helped communicates the technical aspects of Ethereum to Amanie Advisors, and the Shari’ah understanding to Ethereum.
More conservative schools of thought may not accept Amanie’s judgment. In a 2017 speech, Shaikh Haitham al-Haddad, a conservative Muslim scholar who sits on the UK’s Islamic Sharia Council, issued a fatwa on Bitcoin and other cryptocurrencies. But Yaqub says that Amanie and its scholars have a broad enough appeal for their scholarly opinion be widely accepted. Amanie Advisors’ chairman, Dr. Mohamed Ali Elgari, is a professor of Islamic Economics and the former Director of the Centre for Research in Islamic Economics at King Abdul Aziz University in Saudi Arabia.
The project started when Virgil Griffith, head of special projects at Ethereum, wrote a blog article last year saying that ether is more halal than bitcoin. Then, Yaqub ran into Griffith at a blockchain conference in Korea and talked to him about his blog article. Griffith, enthused, reach out to Amanie Advisors. They’ve been working together ever since.
The project has courted controversy last month when Coindesk accused Ethereum of courting investors from Saudi Arabia, which has a poor human-rights record. Griffith said that blockchain technology has generated a lot of interest from Saudi Arabian investors, but the interest has nothing to do with the country’s politics.
Yaqub’s own blockchain project, CLARITY, could stand to benefit from the judgment. Amanie’s judgment means that it’d be easier to connect Islamic Finance products into CLARITY’s ecosystem. But Yaqub tells Decrypt that “the religious input was purely from Amanie and therefore no direct impact from my involvement.”
Among the major cryptocurrencies, Bitcoin, Ethereum, and Dogecoin come under the halal category, while Shiba Inu (SHIB) token, Alpha, and PancakeSwap (CAKE) are labelled haram.
Islamic scholars who believe that cryptocurrency money and digital assets are halal include Ziyaad Mahomed, Shariah Committee Chairman of HSBC Amanah Malaysia Bhd, and Mufti Faraz Adam. These views lend credence to the notion that Muslims can invest in crypto.
On the other hand, forex trading is deemed halal in Islam when transactions are conducted on a spot basis with immediate settlement, avoiding interest, ensuring actual ownership, and utilizing swap-free accounts to comply with Islamic finance principles.
Islamic finance prohibits investments that involve excessive uncertainty or risk. This is because gharar can lead to gambling and speculation, which is Haram. And this is where cryptocurrency hits a wall in terms of acceptability to Muslims, as cryptocurrency is considered to be highly speculative and volatile.
Our extensive research into bitcoin and cryptocurrency by qualified scholars concluded that buying and selling bitcoin, ethereum, and similar well known currencies is halal without any issue. All four Sunni Schools of Islamic (madhab) thought agree that non-physical items are valid property to buy/sell.
“In Shariah, there is no valid reason to accept bitcoin or other cryptocurrencies as a currency. It is just an imaginary number, which is generated through a complex mathematical process. It is purchased for gambling or speculations, and used in illegal or unlawful transactions”.
Yes generally scholars say it's halal to invest and trade Bitcoin and Ethereum. Obviously you can't use any leverage (as normal with any financial market investing).
Trading futures in cryptocurrency is generally considered haram in Islamic finance. This is due to its speculative nature, likened to gambling, and the involvement of uncertainty and risk, which contradict Islamic principles emphasizing risk-sharing and avoiding speculation.
Buying stocks is not haram in general. As long as the company's shares are per Shariah principles, Muslims can invest in that stock. When you are a stock owner, you own a small percentage of the business. However, it is essential that you need to make sure the company in question is aligned with Shariah rules.
What do Islamic scholars say about crypto? Many Islamic scholars seem to agree that, as it stands, cryptocurrency is haram, and should be avoided by Muslims. Indonesia, the world's largest Muslim-majority country, has banned cryptocurrency trading.
Regardless of the regulatory regime, their price volatility and absence of intrinsic value means that unbacked cryptoassets will inevitably pose significant risks to consumers. Furthermore, consumer speculation in unbacked cryptoassets more closely resembles gambling than it does a financial service.
Yes generally scholars say it's halal to invest and trade Bitcoin and Ethereum. Obviously you can't use any leverage (as normal with any financial market investing).
Prominent Muslim scholars have released a whitepaper certifying that Ethereum's native cryptocurrency, ether, is, in fact, Shari'ah compliant. The paper, by Amanie Advisors, said that because ether is a utility token, which is mostly used to power the network, the Shari'ah laws around currency don't apply.
You will receive rewards for being a validator for the blockchain and helping to build a more robust network. Essentially, the profit you make from staking is the reward you get for investing in a blockchain and sustaining its functions. As such, staking as a concept is not Islamically problematic.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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