Is Cryptocurrency halal to invest?

Discussion in 'Smalltalk' started by Inwardreflection, Oct 15, 2017.

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  1. abu nibras

    abu nibras Staff Member

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  2. abu Hasan

    abu Hasan Administrator

  3. Aqib alQadri

    Aqib alQadri Veteran

    The bitcoin really "bit" some guys today.
     
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  4. abu Hasan

    abu Hasan Administrator

    btw,

    on feb 5th 2018, that is today bitcoin is in free fall and dips below $7K

    a while ago charts were showing 1BTC = US$6882

    upload_2018-2-5_23-3-5.png
     
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  5. ghulam-e-raza

    ghulam-e-raza Well-Known Member

    Bitcoin is P2P, there's no "server" which becomes "kharab" (the whole point of bitcoin is that it is decentralised). Maybe he's talking about online exchanges but that's a completely different issue altogether.
     
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  6. abu Hasan

    abu Hasan Administrator

    i happened to watch nizamuddin sab's speech just a while ago.

    it appears that he does not understand bitcoin, going by that speech. the premises he cites, based on which he rules on bitcoin indicates that he is mixing ponzi schemes with crypto-currencies; while it may be true in a sense.

    also mufti sab's explanation of fiat currency is oversimplified. he seems to have given the great indian "notebandi" a big leeway and discount the risks.

    ---
    his talking of 'server kharab ho jaye' is factually incorrect.(update: a brother pointed out that we must cut slack for non-specialists for their incorrect terminology. true, but we are talking of bitcoin aren't we?).

    his understanding of "hukumat wali currency" which is fiat currency also raises questions on its durability.

    ---
    i am not saying bitcoin is halal or permissible, but just pointing out things that i know are patently wrong.
     
    Last edited: Feb 4, 2018
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  7. abu nibras

    abu nibras Staff Member

    With due respect to Mufti sahib, this is an ultra simplistic view of what crypto Currency is, for giving a fatwa on it.

    One can show him a hardware legder wallet.
     
  8. AMQadiri

    AMQadiri Seeker



    ^Mufti Nizamuddin sahib says it is impermissible as well.

    From what I understood in the clip, his view is that cryptocurrency has no backing and once a server is gone (or company closes), everything is gone. This is unlike the currency that a country uses which can be replaced and is readily available in paper form.
     
  9. ridawi

    ridawi Muhammadi Sunni Hanafi

    I have used 'appears' in my analysis in other posts. i am not saying it is definitely, but from a basic analysis it may appear so. i have also mentioned in various posts the difficulty it poses to complete a proper analysis because of certain factors, such as: intangibility. another difficulty in classifying it as mal, and more specifically, mutaqawwim, arises when one considers its inherent value - cryptocurrencies do not generally have an intrinsic value. so aside from what the market is willing to offer for it, there is no practical use in the 'real' world (albeit in limited circumstances as of yet) and there is no 'real' value.

    sure.

    radd al-muhtar [5/50 & 55]:
    innal mutaqawwima huwal malul mubahul intifa'u bihi shar'an.
     
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  10. Unbeknown

    Unbeknown Senior Moderator

    brother @ridawi, I feel you have been a bit hasty in classifying Bitcoins as "maal mutaqawwim". Can you please post a definition of "maal mutaqawwim" from fiqh books or provide a reference for me to look up? I have seen some definitions on the internet - but they are in English and unsourced.

    ------

    After consideration my personal opinion is that despite being brief, sh. g.f haddad's reply is quite comprehensive and apt.

    Mufti Munawwar Ateeq's reply is also very good - although he withheld giving any specific hukm.

    Allah ta'ala knows best.
     
  11. Unbeknown

    Unbeknown Senior Moderator

    I am also aware that if - by some freak chance - bitcoin comes to stay permanently and gradually becomes the de-facto unit of exchange (replacing the dollar) - a fantastic scenario but not impossible - the masses will lay blame on scholars for "impoverishing" them - since by then Bitcoin will have become a giant of currency - maybe there will come nano-bit coins or something like that - but basically, those who buy now will be super-duper rich by then.

    But that will be a once in several lifetimes scenario and no one can be blamed for not foreseeing it.

    As of now, the best place to park money is pure old gold.

    Allah ta'ala knows best.
     
  12. Unbeknown

    Unbeknown Senior Moderator

    From the news piece:

    Prof Ethan Ilzetzki at the London School of Economics told the BBC: "A digital unit of currency has no intrinsic value unless it can be used in transactions, and I cannot name a single cryptocurrency that is more useful in transactions than a credit card that's denominated in dollars or pounds or yen.

    "There's nothing inherently wrong with privately provided digital currencies, but they need to be well designed and well thought out.

    "They're worth a lot because people say they're worth a lot. I have very little confidence that they have any long-term value."


    ----

    Consider the following hypothetical scenario:

    In some city, a bunch of vending machines turn-up overnight at various street-corners, parks etc. The machine bears a message, "Put dollars or gold in and get an innovative currency note (lets call it) Midas. This currency is not controlled by any government and bears a unique-id because of which it cannot be counterfeited. It's start up value is $50 for 10K Midas. Lets kick the government and banks aside and trade in this de-centralized money."

    Some people like the idea and start buying it - and the machine keeps spitting lesser and lesser denomination notes for the same amount of dollars/gold and eventually it doesn't yield a Midas unless people cough up $20K.

    People are still buying it like mad because they feel that sometime in the future they will be able to get much more gold than they originlly got the Midas for.

    The currency has no gov backing (that was the point it was created) and no one knows how those machines came up, how it decides the dollar to midas ratio and where all the dollars are going.

    Does a mufti have a right to rule it impressible to buy those bits of paper for hundreds of dollars?

    Is large scale jeopardizing of a people's wealth by pinning hopes on some paper of unknown origin and unstable value a harm that must be repelled or a right that must be defended?

    Just because it's paper and it's maal mutaqawwim - does it make halaal to endanger a country or city's economy and future - and force the governments to watch helplessly as capital keeps getting sucked into a machine?

    This is not identical to the bitcoin issue - but has some similarities - it is a question about how far the people are allowed to follow hype and bubbles - just because it's "their" money?
     
  13. Aqib alQadri

    Aqib alQadri Veteran

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  14. Unbeknown

    Unbeknown Senior Moderator

    https://motherboard.vice.com/en_us/...ty-consumption-ethereum-energy-climate-change

    https://news.bitcoin.com/analysts-debate-power-consumed-per-bitcoin-transaction/

    so, apparently, it takes a week's worth of electricity to produce one bitcoin - one number.

    one can claim that people want to pay 16000 $$ to remunerate the energy and hardware costs incurred while producing that number. few days back they had to pay more than 20,000 $$$ and few years back - just a pittance for thousands of them.

    okay so you swap money/gold for a number, in the hope that you will be able to get more money sometime in the future. that doesn't make total sense, does it?

    ------

    cause it's not tied to something tangible:


    "Although his Rs 15,000 investment in ATC Coin quickly grew to Rs 1.82 lakh, Pethe started having doubts when he tried to withdraw Rs 5,000 from his holdings. He was unable to execute the sell order smoothly. The computer screen just flashed ‘operational error’ messages. When that was resolved, and he was finally able to sell them, the money wasn’t credited to his bank account right away. “I finally received the money three months later, that too after many follow ups with the firm. I am not sure if I’ll be able to recover my remaining investment in this scheme,” he says."


    2. Neither commodity, nor currency
    The lack of clarity about its origin is another big issue related to bitcoin. In olden days, highly priced metals like gold, silver, etc. were used as currencies. Then came currencies printed by governments (or central banks) and these are called ‘fiat currencies’. Though its proponents claim that cryptocurrency is ‘mined’ using complex mathematical formulae, they are reluctant to call it a commodity. They also claim that it is not controlled by any government and so, it is ‘democratic’. Therefore, cryptocurrencies don’t fall into the ‘currency’ category either. “It can be very risky for businesses, industry and people to trade or invest in bitcoins as it is just a formula, not backed by any tangible asset, but by sheer demand,” says S.P. Sharma, Chief Economist, PHD Chamber of Commerce and Industry.


    http://economictimes.indiatimes.com/articleshow/60891341.cms
     
  15. Unbeknown

    Unbeknown Senior Moderator

  16. Unbeknown

    Unbeknown Senior Moderator

    ok, so we will leave it's status as thaman for now.


    that was my reasoning - of-course you can buy one strip of paper for a million dollars if someone's selling it - my point was - why would someone do that?

    Alahazrat's risalah is in the backdrop of widespread use of paper currency by perfectly sensible people for valid reasons - and he provided a proof for valuing paper as one would wish. However, it was a genuine need - not mere hype created around a dubious concept of equally dubious existence.


    ---

    the reason I posted below quotes is to highlight the condition that maal should have durable value - as a store for future necessity.

    also the "giroh dar giroh" consensus - needs to be seen in context.

    do hype and bubbles qualify as being "giroh dar giroh raazi"?

    on the above two points the jury is still out - even the non-muslim pundits of finance don't agree.

    it's just too early.
     
  17. ridawi

    ridawi Muhammadi Sunni Hanafi

    which specific point is this a reference for?
     
  18. Unbeknown

    Unbeknown Senior Moderator

    from kifl al-faqeeh:

    what-is-maal-kifl-al-faqeeh-start.png

    notes-are-maal-due-overwhelming-consensus-in-urf.png
     
  19. ridawi

    ridawi Muhammadi Sunni Hanafi

    First and foremost, I’d like to clear the air and say that I too personally think it should be avoided to be on the safe side. But this is about reaching a hukm. In order to do that, one needs to know the chapter of bay' and how exactly cyryptocurrencies work. all irrelevant considerations need to be put to the side and only points that have relevance to the hukm need to be discussed.

    I have already highlighted in another post that it is not just about its status as a thaman. There are other considerations to make. There are four types of maal, one of which is thaman. So, even if it does not fall under the category of thaman, can it fall under another category of maal? this is what needs to be looked into.

    Is this your definition of 'valuable' or the shar'i definition?

    Interesting that you mention this. Again, is this your view or the shar'i view? Fiat currencies are not "akin" to maal, they are maal because they satisfy the conditions of something being maal [see kifl al-faqih].

    you missed the point. the conditions of bay' require one majlis. when purchasing or selling online, the majlis element is non-existent, and as such, one of the conditions of bay' is missing. yet, muftis have given the fatwa that due to common adoption, it is is permissible.

    --------
    bay' is mubadalah al-maal bil maal. hence, it needs to be discussed whether cyrptocurrencies are maal or not. if they are not maal, then the rukn of bay' is missing, and such it is impermissible to trade.
     
  20. Unbeknown

    Unbeknown Senior Moderator

    well the point that they are "easily lost" - was made to highlight the virtual - flimsy - nature of crypto-currencies - and therefore questioning their status as "thaman". of-course, all types of wealth is prone to destruction but how many other assets do you know that simply vanish into thin air - at the click of a button?

    indeed - but g.f haddad's reply sounds a precautionary note, which is how it should be. It is specifically about Bitcoin - not all cryptocurrencies - and at this point bitcoin is going through a flagrantly obvious bubble - and Muslims should be prevented from imperilling their wealth chasing after the chimera of some unbeatable, de-centralized global currency - beyond the reach of the spidery net of banksters.

    how do you define something as "valuable"? you've got two options (afai can see) - something is either intrinsically valuable (gold, silver, ores, coal etc.) or because a large section of people consider is valuable and there is a reasonable amount of certainty about it's value persisting in the long term.

    that is why fiat currencies are akin to "maal" - because there is some entity - bank, government etc. - who will accept it even if no one does - the backing of centralized authority is what makes it "valuable". You can always exchange torn or worn out paper notes at the bank.

    what happens when bitcoin suddenly falls out of public favor - and you've parked 80% of your wealth in a wallet at coinbase? Who will accept your "immutable secret key" and give a million pounds in return? Nobody.

    the lack of centralized backing makes it more vulnerable than any sort of currency out there.

    fiat currencies, after having been decoupled from gold/silver, have become similarly susceptible to complete devaluation (as happened with demonetization in India or during recession in Greece) - but that is something which has been imposed upon the world and there's no way out of it. We can't force people to pay zakaat in gold coins anymore.

    But with bitcoin we do have a choice, yet.

    ----

    Bitcoin is not just decentralized and volatile but also shrouded in mystery - how many of the thousands of people investing in Bitcoin and declaiming it's advantages are aware of the details of the algorithm that runs it? Of-course its code is open-source but how many are competent enough to even read that code - let alone understand it?

    People are jumping the bandwagon in blind faith and what if the bogeyman of "technical error" or a "secret sink which quietly pilfers away the coins" suddenly pops up ans cries "boo!"?

    It's anonymity and mysterious origins can turn out to be it's biggest stealth weapon which can be wielded to suck the wealth out of nations and people. If this sounds like a conspiracy theory, that's because it is - but a global plot to undermine the financial stability of nation-states and push them into a chaotic whirlpool of economic ruin is within the realm of possibilities and finds home in the hearts of many dominion-hungry imperial-wizards - that is no secret.

    -----

    now, it would be an altogether different ballgame if a different sort of cryptocurrency were adopted by a government with full faith and backing of it's financial institutions - as India is said to have been contemplating - because it will come with it's own safeguards against accidental and permanent loss - something which is missing in case of bitcoin. There will surely be a way to get your lost password or your money in cash from a bank.

    ---

    While the manner of conducting bay' is "virtual" - what is traded are real products - which can also be returned or exchanged and the sale is covered by at least some policies which assure authenticy and complaints redressal in a reliable manner. Credit card based transactions are routed through trustworthy payment gateways and backed by acceptance of banks - which can be held accountable (at least in principle) in case of fraud.

    All these things are absent since bitcoins are the agents of digital anarchy and the first frontier in the battle against centralized rule - it incorporates the philosophy that governments are unnecessary and people can rule themselves with the help of clever algorithms and hack-proof technology - and governments and power hungry megalomaniacs will simply vanish in a puff of smoke, like the millions of dollars worth of bitcoins at mt. gox....

    ------

    however, no one hordes software programs as "property/asset", it's value doesn't fluctuate and it's origins are known - selling/purchasing programs has become an unavoidable part of our lives - and they serve an immediate purpose - unlike bitcoins which at least at this stage is simply of speculative value and hording it is beset by tonnes of uncertainties.

    the only thing their share with software is their virtual nature - but the key difference is that a software can be likened to a service which you pay for (such as a postman or carpenter - their worth arises from the ends they help us achieve - unlike bitcoins which are ends in and of themselves) - while it might not be sufficient to class something un-tradable merely on account of it's intangibility - it is certainly something which must be seen as an impediment to classifying it as "property". That is why "intellectual property" is a concept alien to Islaam and we have to find various sideways to dissuade "piracy" of "intellectual products".

    so yes, it is intricate but it's safer to err on the side of caution - we don't want Muslims to risk their wealth in the teeth of such overwhelming uncertainties.

    And Allah ta'ala knows best.
     
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