21 July 2025

Why Bitcoin is considered unIslamic

The advent of cryptocurrencies, particularly Bitcoin, has sparked extensive debate within Islamic finance circles regarding their permissibility. While some scholars cautiously embrace digital assets, a significant segment deems Bitcoin un-Islamic, primarily due to concerns surrounding speculation and its perceived lack of intrinsic asset value. Understanding this perspective requires an examination of the fundamental criteria that underpin Islamic financial transactions.

Islamic finance operates on a set of ethical and moral principles derived from the Koran, aiming to foster economic justice, fairness, and stability. Key prohibitions include riba (interest), maysir (gambling), and gharar (excessive uncertainty or ambiguity). Additionally, Islamic finance emphasizes that wealth generation should stem from legitimate trade and real economic activity, ideally linked to tangible assets, rather than purely monetary manipulation. Money, in this framework, is primarily a medium of exchange and a store of value, not a commodity to be traded for profit in itself without an underlying productive purpose.

One of the foremost reasons for Bitcoin’s classification as un-Islamic by some scholars is its inherent volatility, which is seen as embodying excessive gharar. Gharar refers to situations where the outcome of a transaction is highly uncertain, ambiguous, or involves an unacceptable level of risk. The extreme and unpredictable price fluctuations of Bitcoin mean that its value can surge or plummet dramatically in short periods. This unpredictability, critics argue, transforms investment into a form of speculation akin to gambling (maysir), where gains are often derived from chance and market manipulation rather than genuine value creation or productive enterprise. Such transactions are deemed exploitative and capable of causing significant financial harm to one party, violating the emphasis on transparency and mutual consent based on clear terms.

Furthermore, the argument against Bitcoin often centers on its perceived lack of intrinsic asset value. Traditional Islamic finance principles prefer transactions to be backed by tangible assets or real economic activities. Historically, currencies like gold and silver possessed inherent value, and even modern fiat currencies derive their value from the backing of a sovereign government and its economic output. Bitcoin, however, is not backed by any physical commodity, nor is it issued or regulated by a central authority. Its value is largely determined by supply and demand dynamics, market sentiment, and the collective belief of its users. Critics contend that this makes Bitcoin a virtual or imaginary asset, lacking the concrete foundation required for a financial instrument. They argue that money should facilitate trade in real goods and services, not become a speculative commodity in itself.

In essence, the un-Islamic verdict on Bitcoin by some scholars stems from its perceived violation of the prohibitions against excessive speculation (gharar and maysir) and its detachment from tangible asset backing or real economic utility. While proponents highlight its technological innovation and potential as a decentralized medium of exchange, the core principles of stability, fairness, and asset-backed wealth generation remain paramount in the eyes of those who deem Bitcoin incompatible with Islamic finance.