Fatwa's Insights - Islamic Finance

THE 38TH MEETING OF THE PERLIS STATE FATWA COMMITTEE / 2018

8 - 9 NOVEMBER 2018 / 30 SAFAR & 1 RABIUL AWWAL 1440H

FATWA ON BITCOIN

Bitcoin, created by Satoshi Nakamoto, was formed with the objective of providing a payment intermediary that offers an alternative facility of 'peer to peer electronic cash system' that enables owners of Bitcoin units to transfer ownership of their units to other parties as payment for services, purchase of assets, or remittance more quickly, cheaply, and easily without having to go through the medium of financial institutions. It can also avoid high financial service charges and improve the integrity of each such transfer through the use of anti-hacking blockchain technology and 'distributed ledger' through a functioning ecosystem.

Furthermore, Bitcoin is also traded in privately-owned crypto markets without any regulation by any country, whereby demand and supply through such trading platforms cause the value of Bitcoin to rise and fall, and at times the rate of decline and increase is at a very high level, different from the usual rates for other existing investment instruments.

In determining the ruling on Bitcoin, there are many differences of opinion among scholars in determining the classification, nature and status of Bitcoin from the perspective of the validity of its value and its recognition as valuable property (Mal Mutaqawwam). In addition, the subsequent difference among scholars is in determining the ruling on transacting with Bitcoin, which encompasses the process of trading (selling and buying), storing and using it, as well as the obligation of zakat upon it.

After hearing presentations from parties knowledgeable and experienced from a technical perspective, we are of the following view:

1) The nature and validity of property value in Bitcoin: It is valid and can be recognized as possessing property value based on the 'multi-function and benefit' nature obtained by Bitcoin owners. Among the benefits or advantages intended are:

- Access to a complete ecosystem that enables ownership transfer to be executed securely and accurately.

- The ability to be stored and transferred to other parties easily, quickly, and cheaply.

- The ability for it to be traded in open crypto markets.

- The acceptance by certain parties of it as a payment intermediary.

- The use of blockchain technology that enhances the transparency, security of Bitcoin, and its value.

Therefore, Bitcoin can be characterized as a digital asset in a unique form and possesses various benefits of its own that is permissible (mubah), particularly for communities that know how to use and benefit from it.

Bitcoin at this time is also considered not to fulfill the conditions for the classification of currency; therefore, it cannot be regarded as currency, and the legal guidelines of Sarf (currency exchange) do not apply to it.

2) It is permissible to transact with Bitcoin as a payment intermediary, money transfer, savings asset, and to trade with it. However, consideration must be given to what is mentioned in point five (5) below.

3) Since Bitcoin is recognized as a valuable asset, then every ownership exceeding the value of 85 grams of gold and having fulfilled the ownership period of one year, it is obligatory upon the owner of Bitcoin to pay zakat on wealth amounting to 2.5% of the current value of the Bitcoin.

4) Those who wish to use Bitcoin are also obliged to understand the intricacies of Bitcoin usage. This is important to avoid the element of gharar (uncertainty) when using it. In addition, the parties involved must also first understand the high level of risks associated with Bitcoin transactions.

5) The ruling on the use of Bitcoin can change to become PROHIBITED or FORBIDDEN due to several external factors such as:

- When its use is prohibited by the government at that time, it also becomes haram from the perspective of Shariah law on the basis of public interest and avoiding harm according to the assessment by the ulil amri (those in authority).

- When participating in Bitcoin SCHEMES through get-rich-quick schemes organized by intermediaries or intermediary companies that promise fixed or lucrative profits. This is PROHIBITED from the Shariah perspective and also from local law. This is what causes some people to purchase Bitcoin through accounts owned by such companies, resulting in fraud.

Resolved at the Meeting of the Majlis Agama Islam dan Adat Istiadat Melayu Perlis No. 6 of 2018 convened on 6 December 2018.