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Bitcoin from the Islamic Jurisprudence Perspective

In the analysis of Bitcoin from the jurisprudential perspective, two personal and governmental aspects should be taken into account, the personal jurisprudence deals with individual issues, whereas governmental jurisprudence addresses the issues from a micro and systematic outlook.

In the analysis of Bitcoin from the jurisprudential perspective, two personal and governmental aspects should be taken into account.

The personal jurisprudence deals with individual issues, whereas governmental jurisprudence addresses the issues from a micro and systematic outlook. According to the former, the question that is raised is whether trading bitcoins or the profits gained thereof is lawful (halal) or forbidden (haram). With regard to the latter, the main issue is the effect of promoting Bitcoin on the Islamic economic system, and social institutions that benefit from or bear the consequences of this event.

In response to these questions, it should be stated that although an official position about this type of money in particular and the virtual money in general has not been adopted, at the level of personal jurisprudence, if one refers to the fatwa issued by the grand jurists about Bitcoin it is possible to deal with issues in a way to arrive at positive responses. From the standpoint of governmental jurisprudence, bitcoin mount challenges that cannot be underestimated, as its adverse consequences will also affect the macroeconomic system of the country. For this reason, exploring this subject and its various dimensions and effects on the economic system will be the first step in adopting a proper position and issuing necessary religious decrees.

The Analysis of Bitcoin from the Standpoint of Personal Jurisprudence

Given that some scholars assume a monetary value for Bitcoin and regard it as a virtual currency, it is necessary to first examine the nature of money from the point of view of the jurisprudence and then analyze the rules governing it with respect to the virtual currencies, including bitcoin.

Nature of Money in the View of Jurisprudence

Undoubtedly, money is a convention created by human based on the requirements of the social life. Therefore, the jurisprudential analysis of money should be based on the conventional and technical reasons cited by its inventors. However, economists have diverse attitudes about the nature of money. Despite all of these disparities, there is a consensus among experts regarding the threefold functions of money as a trade intermediary, a measure of value and a means of saving value. These triple functions were also at work in the era of the Prophet and they have been substantiated by the Infallibles (PBUH) as well.

In the literature on economics, there are two general theories about the nature of money: some consider money as a commodity, which gains manifestation as precious metals or bonds backed by it, and some see it as fiat money unrelated to any commodity, which is only used to settle debts and its issuance is exclusively within the jurisdiction and authority of administrations.

The stands of Islamic theorists about the nature of money can be divided into two broad categories: in evaluating the nature of money, some underlie its purchase power whereas some stress the nominal value of money as an essential factor underlying the nature of money. According to late Shahid Sadr, the value of money is summed up in its “purchasing power”, and hence, although he regards money as fungible assets, what represents its real value is crucial for the release of its obligation and compensation. According to him, purchasing power is equivalent to the exchange and financial value of the money.

Ayatollah Mousavi Bojnourdi, who is an advocate of the theory of purchasing power, sees the nature of money as the legitimate purchasing power determined by the legislature.

Perhaps the main criticism leveled against the purchasing power theory is its confusion of the concepts of property and value and lack of commitment to the requirements of fungibility of the money. On the other hand, the advocates of the nominal value theory, having acknowledged the fungibility of money, contend that the nominal value of money is underpinned by its substantive nature. Proponents of this theory maintain that money is the value of exchanged objects that ensures its consuming value.

It seems that the theory of the creditworthiness of money is more cogent that other assumptions. Money has purely exchangeable value, and its value, origin, and backing is provided by the credit. According to this theory, every currency, irrespective of its type and level, bears some value. This credit in determined by the unit of measurement and its value is set by the legal authorities. Moreover, the exchanging value of money is also established by the authorities. That is, based on a valid mandate, a certain value is forged for the money and it is born as a property (without value). Then, contingent upon this creation (money), a specific initial value is assigned to it and the value of each value measurement unit is determined. In today’s currencies, property with a certain value is determined by the legislator as the intermediary of trade and ultimately it is through issuance and circulation in the real economy and its relation to the national production that it acquires a secondary and adjustable value.

The credibility of today’s currencies is backed up by the law, and its value is supported by the “national production capacity”, political stability and the sovereignty’s commitment to keeping the relative value of the original value of money based on relevant criteria. “

According to this theory, virtual money, depending on the atmosphere of its creation and circulation in the virtual world, value support, unit of value, functions and other existential effects, is forged and as long as this value is recognized by its creator and users, these currencies would continue to emerge.

Virtual currencies are in a constant state of flow. Virtual currency, much like the current money, gains its legitimacy based on the credibility of its inventors (in the mechanism of creation and control) and the acceptance and recognition of these currencies by users as a party to this contract.

The legitimacy of an activity that generates and accredits virtual currency is the only consideration underlying the existential legitimacy of these currencies. If the virtual money is produced by a mechanism that its legitimacy is not recognized by the law, the ownership of this money and its value would be questionable by law.

In accordance with the rules of jurisprudence, one requisite of value is that the intended object or action achieved from a transaction is rationally justified, or that object or action would not be approved in the eye of law.

If the basis of the production and circulation of a virtual currency is legitimate, the legislature will not tamper with its conventional credits and contracts. Therefore, as long as the virtual currency exists by the virtue of its creator’s credibility and its origin is an activity or property with justified benefits and interests, it would be recognized by the legislature so long as its users respect such conventions,

Jurisprudential Considerations of Bitcoin in Terms of Credit Money

  • Credit

The value of Bitcoin is founded on credit, rooted in the trust and tendency of people to its acceptance or the complicated mathematical algorithm that eventually has given credit to Bitcoin. In either case, its value would be credit-based.

It is noteworthy that in today’s banknotes and digital currencies where the money and monetary value is created by government and its affiliated institutions, the economic, political, military, security and cultural support of governments coupled with a number of other factors influence the accreditation of these types of money. In other words, governments cannot continue to print money forever irrespective of economic considerations like economic power, because in that case, the money is devaluated and the economic system of the country will collapse.

Therefore, the credit-based value of this kind of currency has an actual counterpart in the economic system. In case of a virtual money like Bitcoin, however, the concepts of backing and credit are essentially different, and since the credit value of this currency and its actual counterpart is not clear, it may raise questions from an Islamic standpoint regarding issues such as “What is the actual counterpart of virtual money in the real world”, “Do these types of credits have a religious or rational basis” and “Is there a proportion between the real and nominal value of this type of money?” which should be addressed in the government jurisprudence.

Thus, it is clear that bitcoin is radically different from gold and even banknotes and the laws governing gold and bank rules cannot be readily applied to Bitcoin.

  • Fungibility or Non- Fungibility of Bitcoin

As stated earlier, Bitcoin has a credit-based value like banknote, and despite the controversy over its actual value and credibility, we can determine the fungibility or non- fungibility of this value the same as banknotes.

One of the primary jurisprudential debates about credit money is concerned with the fungibility or non- fungibility. Most jurists argue that gold and silver, which have intrinsic value, are fungible, but this is not the case for credit-based currencies. Those who posit that the fungibility or non- fungibility dichotomy is applicable to real properties contend that credit money is neither fungible nor non- fungible.  However, there is a tendency among contemporary jurists to regard it as fungible. Shahid Sadr, assuming that banknotes with legal backing constitute a fungible property, states: “Paper money, although categorized as fungible, is not interchangeable merely by an identical paper. Rather, it can be replaced by anything that represents its real price; therefore, if banks, when repaying deposits to depositors, transfer the real price of what they have received, usury has not been practiced.

Thus, considering the fungibility of credit monies, it can be maintained that the possession of some bitcoins does not mean that one merely owns a number in the virtual world; that is, when one says that they have a certain amount of bitcoins, it does not imply that they are the possessor of certain numbers and equations in a computer memory, but that they possess the virtual purchasing power of this money, the fungibility of which can be investigated.

  • Compensation of Money Value in Bitcoin

As noted, Bitcoin is a fungible asset that represents its purchase power and therefore compensating the value or the lost purchase power of bitcoin is justifiable. Shahid Sadr, despite categorizing money as fungible assets, does not assert that this fungibility is exclusive to the paper and the digits printed on it. Instead, he argues that this fungibility encompasses things that represent its true value and the true price of money is its “purchasing power” or its exchange value.

  • Prohibition of usury and Bitcoin

There are two types of usury discussed in jurisprudential texts. Trade usury, which is the additional money received in the exchange of two commodities of the identical nature and weight with pre-conditions and loan usury, which is the extra price paid by the borrower to the lender on the account of the loan that he has received.

Obviously, none of the above points applies to the Bitcoin, because it is limited in number and therefore the possibility of a trade usury in Bitcoin is rejected.

The usury loan is not specific to money and banknotes, and it is used for non-cash goods, although these days it is often used exclusive for money. Among various goods, it does not matter whether a good is of similar nature or weigh, as it may be the case for Bitcoin. Given that bitcoin is a decentralized money and banks and deposits do not have a say in it, it seems to be more credible than most of fiat monies that are exchanged today.

Charles Evans, a professor at Berry University, has conducted an analysis of virtual currencies with the requirements of Islamic banking and finance in the Islamic Banking and Finance Magazine. In this article, he says, “Bitcoin or a similar system may be more compatible than cash backed by the Central Bank, which is underlined by usury in Islamic banking and financial system, especially in small-scale businesses where banks are not involved.” It should be noted that without a systematic analysis of this subject, it is difficult to pass judgment regarding its usury-related issue.

Prohibition of Deception (Ghorar) and Bitcoin

For the term Ghorar, several definitions have been offered in dictionaries and jurisprudence discourse, but one that is more relevant to the Prophet’s hadith “Forbid you from deception in business” implies deception and risk. Although dictionaries do not cite “ignorance” as one of the meaning of Ghorar, each of the above two meanings denotes the unknown nature of the business, because for someone who is not adequately aware of the subject of the business, this deal could be risky as he may be deceived and his assumptions about the transaction be wrong, thereby leading to the loss of properties.

In other words, what has been forbidden by the Prophet in the Ghorar Hadith is the purchase or any other deal that involve a deception or risk, whether such deception or risk is rooted in the unknown nature of the subject of business or any doubt about the submission power.

With regard to Ghorar in Bitcoin, it should be noted that since the inception of this currency to date, it has faced severe fluctuations in price. For example, in 2013, each bitcoin was traded for $13 but in a few months, this figure was increased to more than $1150. These fluctuations in price are more evident in recent years. For instance, the value of bitcoin went from $1,000 in late 2016 to about $ 4,000 in August 2017, and this figure is still on rise.

Citing to these price fluctuation in Bitcoin, some experts argue that the pricing system of Bitcoin is irrational and its exchanges are deceitful. Nonetheless, many experts justify these extreme fluctuations and put forth two reasons for this. Firstly, they contend that these fluctuations are motivated by supply and demand, rather than speculations. Secondly, these oscillations, they argue, are rooted in the pricing of bitcoin by dollar. They argue that when bitcoin is treated as a reference currency, such fluctuations would be ceased.

In any case, according to Islamic texts, those who want to deal in bitcoin must be aware of the risk and future of their investment; that is, they must recognize the potentialities, advantages and disadvantages of bitcoins so that they are not surprised by the unknown, uncertain and excessively risky nature of bitcoin deals. There is no denying that Bitcoin is associated with an enormous risk, and whether recognition of such rationally-motivated risk can lead to deception or not is still open to debate.

Jurisprudential View of Bitcoin as an Asset

As discussed in the section on virtual money and bitcoin, we cannot formally consider bitcoin as a digital money or currency because despite some features that are characteristic of money, it still lacks the main functions and features of credit money. Thus, we have to be cautious in treating it as virtual currency.

Therefore, it is more fitting if we regard bitcoin as a type of digital asset that is based on information. In other words, it is a kind of non-physical asset that has acquired value for the society and they are willing to pay the cost of its procurement. In some cases, however, this asset could be used as a basis for transaction, though it is not exclusive to Bitcoin and it could be attributed to any other valuable asset.

From standpoints of jurists, this value is obtained under two premises: it is assumed to be profitable and bear outstanding benefits by the rational people. And the profits obtained thereof are thought to be lawful (halal).

Another condition cited by some jurists is that the object is not abundant, meaning that it is not easily accessible and you need to do a transaction or business for its procurement, knowing that rational people even compete with each other for its procurement.

In jurisprudence, property is defined as follows: “property is something that people are willing to pay for it. A group of jurists, nonetheless, argues that this definition leads to a vicious circle, because according to this definition, property refers to something that can be traded with another property. As can be seen, this definition is based upon the definition of property. It is more fitting to define property as “Something presumed to be desirable to people, which directly or indirectly addresses their needs. A number of properties such as food and clothes directly eliminate the wants of humans and therefore their value is genuine and real. Another group of properties does not address these demands directly, but they provide a means of meeting such needs. For example, money cannot obviate needs by itself, but it is through its exchange with other properties that one can satisfy his demands. That is it possesses a credit-based value.

Imam Khomeini (RA), defines property as follows: “Property is that which is sought and demanded by rational people so that they are willing to pay its price”. In legal terminology, property is something of economic value that can be exchanged for money; in other words, something that can be traded and transacted.

From the standpoint of jurisprudence, a property is usually divided into three categories by the virtue of its existential value.

  1. Corpus,
  2. Profit,
  3. Right.

These categories, in the words of the Imam Khomeini, are stated as follows: “If it is conditioned that the goods and properties that are to be traded constitute the corpus, corpus signifies the concept that is the opposite of the profit and right”.

Corpus describes a property that is out there and can be perceived by senses.

Profit: It refers to the benefits that come from goods. The value of profit is a controversial issue among jurists. Some of them consider profit as a type of property while others draws a distinction between profit and property and issue a separate verdict for it.

Right: There is no consensus among jurists regarding the meaning of the Right. Some posit that it represents “ruling over objects” which is a low level of possession. Others contend that it is a form of “property”. Still another group believes that the right is stipulated by the legislature and it indicates ruling over others.

As such, Bitcoin can be seen as a kind of asset that is exchanged in the society in the form of profits and services. It is worth noting that according to the mathematical algorithm that monitors the transfer of money in a peer-to-peer process within the Bitcoin’s network, we can regard bitcoin as an intellectual property that its financial and economic value is recognized by the jurisprudents.

As discussed earlier, property is something that is of economic value, but it does not need to be necessarily a material object, and a “right” with material value can constitute a property as well. Hence, the patent and copyright that an inventor or author has over his invention and works is a type of property that can be evaluated and priced.

Consequently, despite the traditional division of right into objective rights and obligatory rights, a third category titled intellectual rights can be added to this list. It denotes the right that does not cover material objects, but rather intellectual activities of the holder that allows him to exercise his rights as he sees fit.

As stated by a scholar, in the modern era, in face of the abundant changes that have taken place, it is no longer possible to restrict property rights to objective material rights, as presumed in the classic definition. Instead, we have to account for another aspect called intellectual property, which is similar to the ownership in terms of exclusivity, but unlike objective rights, its subject is not limited to materials, as exemplified by the copyright that an author has over his work. Hence, financial right can be divided into three categories: objective, obligatory, and intellectual

Jurists acknowledge intellectual property as a right, and since almost all contemporary scholars recognize intellectual property as a right that its foreclosure would be an act of injustice, they treat it as legitimate and legal.

Hence, Bitcoin can be considered as an intellectual property with particular value that has seen a rise of price due to its limited supply and increasing demands,


Analysis of Bitcoin from standpoint of the governmental Jurisprudence

Prohibition of Detriment Rule

A major rule of jurisprudence, which lays the ground for many other jurisprudential decrees in jurisprudence, is the prohibition of detriment rule. There are, however, controversies over the interpretation of its provisions, the most important of which is the theory of Sheikh Ansari concerning the negation of a detrimental rule and the theory of Akhund Khorassani, the negation of the rule as the negation of detrimental subject, according to which the provisions of the rule of negation encompass those decrees that are of detriment. Also Imam Khomeini (RA) interpretation of the prohibition of detriment rule is regarded as soltanieh and ruling laws.

According to this general ruling, execution of all the religious laws, which under certain circumstances wreak havoc on the lives or property of Muslims, tarnish their reputation or violates the rights of the other, are prevented by the law, and every act of worship or business that brings about personal harms in this world– except for obligatory tasks such as jihad, khums, zakah, hajj, Qisas (retributive justice), Hudud (punishment for violations of God’s law) and Diyat (blood money), which have been enacted for more important purposes – is repudiated.

Given that the unbridled expansion of virtual money in the absence of governmental control, as the exclusive monetary policy makers, may lead to a violation of the rights of people and national wealth, the prohibition of detriment rule maintains that the production and circulation of these currencies in the real economy can be precluded.

Cherishment Rule

 Literally, cherishment means praising and showing respect to something proportional to its value. The cherishment rule signifies respect for the property of the people and the immunity of their property from infringement and violation in the sense that any transgression and violation of those properties is not permissible, and in the event that such transgression or aggression is occurred, the aggressor shall be held responsible. Therefore, based on the cherishment rule, any imposition on properties of Muslim, and the unauthorized circulation of these currencies into the real economy will disrupt the flow of money and wealth in the real economy. Accordingly, the injection of such money is subject to prohibition.

System Maintenance Rule

One of the essential issues of jurisprudence is the necessity of maintaining the system and precluding anything that disrupts the life system of Muslims. For jurists, this is an essential and rational principle, to the extent that they, in many cases, have overruled the primary precepts in favor of secondary fatwa to uphold this principle.

According to this rule, when rational people approve something on the ground of its contribution to the preservation and survival of the system or deny it on the account of its disruption of the system, the legislators, as rational people, are required to issue verdicts in fitting with their decision.

Therefore, considering the challenges of virtual money, such as security problems, proliferation of Internet crimes, tax evasion and money laundering, which threaten the economic and even political and social system of the society, it is expedient that the Islamic ruler impedes the production and circulation of this currency in the economy until it is organized and regulated.

Dissipation Rule

One of the prominent jurisprudential rules that jurists cite in relation to accountability is the dissipation rule.  The provisions of the dissipation rule are set out in the hadith “whoever destroys or uses the properties of others is held accountable for them”. This means that if someone wastes or exploits properties or wealth of another party without their permission, they shall be accountable to the owner of the said property.

Therefore, if the monetary policymaker, irrespective of expediency and interests of Muslims, fail to adhere to policies that protect property of Muslims or thus leads to the loss of the Muslims’ wealth and dissipation of their property, in accordance with the dissipation rule, they shall be held accountable and their acts of detriments must be prohibited based on the cherishment rule and the principle of refrainment from violation of the property of the Muslims.

Justice rule

The definition of justice is not straightforward, not in the sense that it is difficult to understand, but on the account that justice and oppression are axiomatic concepts in the realm of practical wisdom as are the concepts of existence and non-existence in sphere of theoretical wisdom, and their conceptual expansion and significance is for this reason. The definitions given by scholars of justice are mainly exclusive to the exemplifications of justice. Islam, which considers social justice to be the cornerstone of developing economic policies, has not treated it as an abstract concept or left it open to interpretation.

Further, it has not entrusted human societies, which maintain diverse perspectives on this subject, and tend to perceive it in fitting with their discernment of life. Instead, Islam has defined justice as a policy and planning that has succeeded in the embodiment of this idea in real life, a reality that is interwoven in fabrics of the Islamic concept of justice.

Imam Khomeini (RA) discusses the pivotal role of justice in Islamic jurisprudence: “… enforcing laws on the basis of justice, inhibiting the oppression and rule of oppressors, hindering the propagation of individual and social justice, prohibiting corruption, prostitution and other deviancies, promoting freedom underpinned by reason and fairness and self-sufficiency, preventing the exploitation and manipulation and meting out punishment and retribution based on power of reason and justice, along with hundreds of other examples, are not things to be rendered obsolete during the human history and social life. This is to claim that rational and mathematical rules in the present century must be changed and replaced by other rules.”

In the same vein, the unfair distribution of wealth is one of the major threats that bitcoin may pose to the Islamic economic system, because currently more than half of the market for this currency is in the possession of a handful of people who are in fact the main shareholders of Bitcoin. In this way, they can impose sanctions or make threats to the economy of countries where Bitcoin has turned into a common currency. The following graph shows the limited number of shareholders of Bitcoin.


Another issue that ensues the exchange of bitcoin in the economy is that it provides a fertile ground for currency speculation. Speculation is an economic activity that aims to achieve profit by predicting price fluctuation of commodities, securities or currencies. The main motivation of speculators is to earn profits from trading various goods and assets.

From the standpoint of personal jurisprudence, if speculation is implemented in accordance with religious laws of trade without committing any act prohibited in the Islamic law such as deception and misleading, hoarding, collusion, spread of false rumors, fake transactions, etc., it will be permissible from the point of view of jurisprudence.

It is worth noting that speculation from the standpoint of governmental jurisprudence, if accompanied by a disruption of the economic system and causing damage to the economy of the country, will not be endowed and validated from a the perspective of jurisprudence


Therefore, based on arguments such as prohibition of detriment rule, cherishment rule, dissipation rule, and expediency rule, all of which preclude improper monetary policies and detrimental changes in the flow of money, it is essential to preclude the entry and legitimacy of virtual currencies in the real world until appropriate controlling measured are adopted by the administration to monitor virtual currency in the real economy. Undoubtedly, the existence of these currencies in virtual communities, if devoid of any disruptive effect on the real economic order, would be permissible and legitimate.

Nonetheless, if the arrival of these so-called virtual currencies into the real world triggers events such as changing the volume of money, wastage of people’s property, and adverse consequences such as the outflow of the currency from the country and proliferation of crimes, according to these rules of jurisprudence, which are more closely associated with governmental jurisprudence, the institutionalization of bitcoin into the economic system of the country can be problematic from the perspective of sharia and law.

About Ali Teymoori

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