At present, specialists are hamstrung from offering a Sharʿi opinion on the production of Bitcoin by the sheer abundance of questions around this electronic currency combined with the lack of conceptual clarity around the product. In some respects the haze that surrounds the issue arises out of insufficiency of the information available. What has been stated to date has been inadequate, and has been of a rather exploratory and conceptualizing character. The present paper would perhaps initiate a hitherto unprecedented stage in which new steps are taken in dealing with this exigency in terms of Islamic law.
I will attempt here to provide a seminal foundation for academic dialogue on the issue with due emphasis upon the nature of the problem as a contemporary exigency. It exhibits a great degree of similarity to fiduciary paper money unbacked by gold and silver whose status as money stems from confidence reposed in its issuer, who is the sovereign authority of every country, and whose value changes in relation to a country’s trade balance, i.e. its exports and imports in the first instance, followed by investments and speculations in the currency markets as the chief factor influencing the stability or unsteadiness of a currency vis-a-vis other currencies.
The available information brings into relief three aspects to Bitcoin: (1) production; (2) dealing and trading in Bitcoin; and (3) entering the Bitcoin network as an investor. I will presently deal with the first and second aspects only, leaving aside the third on account of the fact that it lacks universality as compared to aspects 1 and 2, and in consideration of it holding greater relation to the mechanics of network marketing against which many a fatwa has warned.
Production of the digital currency Bitcoin
It is important at the outset to differentiate between Bitcoin as a digital currency on the one hand, and the possibility of converting any real currency to a digital or electronic currency. I will initially comment upon this latter aspect and later return to the first as it is the actual issue under discussion.
Converting any currency into digital currency: It is possible to convert, or encrypt, real currency into digital or electronic currency in pursuit of a faster and safer means to exchange and trade in currencies, and perhaps even money laundering. This is because digital currency steps over the obstacles that state oversight imposes on currencies.
Purpose and intent notwithstanding, this much produces nothing new in terms of the Islamic legal position. The mere reference to a currency in an alternative format does nothing to alter the reality of it being, for example, dollars or pounds sterling, even when expressed as an equivalent value under a new descriptor, eg.
$100 = 1 unit of digital currency X.
As long as it remains possible to revert to the original currency through decryption, matters will remain reasonable, acceptable and free from substantive change. In the use of currency cards, bank transfers or prepaid banks cards we actually find something that correlates to it in form, with one important distinction, which is that these mediums operate on units of the original currency itself while Bitcoin utilizes a new equivalent value and a new unit descriptor. This would then bring us to the situation where a real currency has been converted into Bitcoin via exchange, which is what I will presently discuss.
“Purpose and intent notwithstanding, this much produces nothing new in terms of the Islamic legal position.”
Bitcoin as digital currency
There are, as stated in the introduction, two aspects with which I will deal: firstly, production of this currency; and secondly, dealing with it and its acceptability as currency. To me, the second aspect appears to be much easier that the first. I will begin with the first.
What is meant by production here is the issuance of currency, comparable to the minting of currency as in when a sovereign power prints dollars etc. With Bitcoin, however, there is no sovereign issuing authority. What we do have, according to the available information, is that anyone can issue Bitcoin currency through the process referred to as mining on specific internet sites. This is done via the use of an electronic program that requires a high-powered computer.
The computer process culminates in the production of a specific number of units of the digital currency Bitcoin. Accordingly, anyone can use the program and issue Bitcoin currency with which to credit his own internet-based account.
This method of production forms a substantive point of divergence between sovereign-issued currency, and Bitcoin. The latter is not issued by an authority that defines and guarantees it. This particular aspect of Bitcoin is wrapped in obscurity. Some of the information available would appear to point at the possibility that this currency could even electronically evaporate from a user’s internet account. The absence of a guaranteeing authority would mean that in instances of such evaporation there would be no one from whom compensation could be demanded.
It may be argued that commercial banks as private entities issue credit money many times in excess of the amount of actual currency originally deposited with them, and they do this by granting finance to an extent much higher than the deposits they hold. However, the difference between Bitcoin and money issued by commercial banks (in a process spoken of as the creation of money) is that issuance by banks is backed by the guarantee of original deposits as well as by oversight of the sovereign authority. None of these two factors features in Bitcoin.
I now continue on to the second aspect, leaving for later the Islamic legal position on issuance, since complete conceptualization and an economic view would greatly facilitate the formulation of a position in Islamic law.
To date the issuance of Bitcoin has been riddled by the obscurity that surrounds its guaranteeing authority and the sovereign authority which generates confidence in it. The real purpose of Bitcoin is to compete with other currencies in the purchase of goods and services, or even speculating in currency. Bitcoin has in fact emerged as an accepted currency in thousands of stores around the world, and has become accepted as a currency parallel to other currencies to the extent where it has become exchangeable with the dollar and the euro at prices accepted in Wall Street like any other currency.
The emergence of Bitcoin currency from its issuer (or producer) to the restaurant owner or the owners of dollars or pounds raises Bitcoin from the obscurity and haze that surrounds the stage of its production, to a stage where a general norm comes to form around Bitcoin as an accepted means for settling obligations, a means of commercial exchange, or a store of value or wealth. These are the salient features of any currency. At this point, if we were to close our eyes to the nebulousness of production, we find ourselves before a new currency comparable to other currencies in their essential features whilst exceeding them in ease and safety—but also exhibiting the risk factors of which we spoke earlier.
The Islamic legal view on issuance: It is noted that Bitcoin differs from the fundamental concept for the issuance of any currency in that its issuing authority is unknown, that it is acquired without recompense, and that its producers gain access to great advantages by exchanging these numbers for goods and other currencies. Through the advantages of issuing currency they are able to generate enormous wealth at the expense of society as represented in its sovereign authority. This is one of the important axial points of consideration in the formulation of an Islamic legal position in the issuance of Bitcoin. The issuance stage, however, will soon recede into a non-existent historical stage while the currency itself remains as available and accessible as any other.
The questions will remain: Who is the issuer? And by what right did the issuer achieve those massive returns on issuance? Is it an undisclosed global government with governmental authority to issue? This assumption might well be the key to facilitating an Islamic legal position, thereby bypassing the issuance stage. As the currency increases in circulation, discussion around the issuance stage will disappear because the currency would then become, as mentioned, a reality before the eyes and ears of the world.
The Islamic legal view of the post-issuance stage (circulation, settlement and saving): A general norm has begun forming around the acceptability of this currency in all markets in full view of legislators. There are even places for the exchange of Bitcoin against other currencies. This will reinforce a view of Bitcoin as fully comparable to other currencies in currency-for- currency contracts, and in usury through the enforcement of equivalence in case of single- specie contracts, and the taking of constructive delivery bilaterally where more than one specie is involved as in the case of dollars-for-Bitcoin, as well as the prohibition on lending at interest.
“The real purpose of Bitcoin is to compete with other currencies in the purchase of goods and services, or even speculating in currency.”
Support for the notion of a general norm might be drawn here from a point Imam Malik mentions: if people were to agree on camel skin leather as money, the rules of usury would apply to it. The reality, however, is somewhat different. Money issued from camel skin leather is on par with gold and silver since all of these are recognized as goods in their own right, which is quite different from paper money which are not goods on their own but only paper. Bitcoin, similarly, is only numbers. It is for this reason that I have hinted at the problems inherent in its issuance.
Had Bitcoin been a form of goods in its own right it could have been said to be similar to gold, silver or camel leather. Being as it is a mere number, it bears greater resemblance to contemporary paper money which is nothing but paper. Nevertheless, Bitcoin differs from paper money in that the latter receives from sovereign decree a confidence that it will lose in full only through another sovereign decree of discontinuation, while confidence in Bitcoin grows gradually, without any sovereign decree, but only by its actual existence.
The above is not a legal ruling. It is a window to boost academic legal study of this important exigency. The length to which it went was necessary. I preferred not to divide it into two papers in order to keep the subject in one place from the first aspect, thereby allowing researchers and specialists to develop upon it.
