Question

Is Crypto currency such as Bitcoin essentially prohibited because it is issued by unknown people?

Some argue that it is not tangible, being not made from anything
physical, except being backed by software.  Wealth cannot be created
from nothing, being prohibited in Sharī’ah.  Although paper
money in origin was based upon the gold standard, even though that link
is not there now, it is accepted as being legal tender, being issued and
controlled by central banks therefore having the backing of states, its
overall legitimately accepted widely and not contended.

Crypto currency and Bitcoin

Answer

Having analysed the matter, there isn’t specific textual evidences
cited that would make the buying and selling of this prohibited.  The
reasoning underpinning the adoption of a prohibition based upon its
perceived nature contains several analytical flaws which will be
commented upon in turn.  In short, the general ruling of permissibility would apply in this instance.

Reasoning

  1. To begin, the idea that Crypto currency is created from nothing is
    patently false. It is created from the solution of certain equations
    upon a blockchain. It is the combined action of human beings interacting
    with the programme.  In turn, that programme(s) have been created by
    human beings arising from complex mental processes and mathematical
    equations Crypto currency is minted in various ways, for example by
    proof of work, proof of stake or other types of initialisation. In the
    round, that cannot be termed as being ‘nothing.’  Admittedly, it is not a
    physical entity like gold or silver, but perhaps more in the realm of
    abstraction, and that is a type of existence. Not every type of
    existence, by necessity, needs to be independent from a certain mind. 
    Something exists called Bitcoin, it is an abstract entity, yet it can be
    perceived, calculated etc.
  2. While other Crypto currencies may be more complex, Bitcoin for
    example is obtained via solving certain mathematical and hash equations
    which involves considerable effort and electricity. We have witnessed
    that in certain areas, the mining of Bitcoin at times was prohibited
    because the electricity supply had crashed.  Thus, it is evident that it
    arises from human effort and activity.  The other aspect of the
    question, ‘produced by nobody,’ isn’t necessarily a primary concern.
  3. Wheat, according the ḥadith recorded in Ṣaḥīḥ Muslim, as well as appearing in the wider Sunan collections, is one form of exchange:

حدثنا أبو بكر
بن أبي شيبة وعمرو الناقد وإسحاق بن إبراهيم واللفظ لابن أبي شيبة قال
إسحاق أخبرنا وقال الآخران حدثنا وكيع حدثنا سفيان عن خالد الحذاء عن أبي
قلابة عن أبي الأشعث عن عبادة بن الصامت قال قال رسول الله صلى الله عليه
وسلم الذهب بالذهب والفضة بالفضة والبر بالبر والشعير بالشعير والتمر
بالتمر والملح بالملح مثلا بمثل سواء بسواء يدا بيد فإذا اختلفت هذه
الأصناف فبيعوا كيف شئتم إذا كان يدا بيد

Abu Bakr ibn Abi Shayba, ‘Amr al-Nāqid
and Isḥāq ibn Ibrāhim narrated to us, the wording of which is that of
Ibn Abi Shayba, Isḥāq said, ‘reported to us,’ and the others said, ‘Waki
narrated to us Sufyān narrated to us from Khālid al- Ḥudha’ from Abi
Qilābah from Abi al-Ash’ath from ‘Ubāda ibn al-Ṣāmit, he said the
Allah’s Messenger (may peace be upon him) said:

Gold is to be paid for by gold,
silver by silver, wheat by wheat, barley by barley, dates by dates, and
salt by salt, like for like and equal for equal, payment being made hand
to hand. If these classes differ, then sell as you wish if payment is
made hand to hand.

  1. This can be exchanged by hand with immediacy according to the
    different types and those similar to them. The production of the wheat
    at purchase, it is not necessarily known who has produced it. It could
    be from Canada or another country.  Ultimately, in origin, the producer
    is Allah the exalted.  Human activity is really only associated with its
    production.

Differing types of existence

  1. The question really seems to stem from quite a narrow-minded
    materialistic approach towards understanding the term ‘existence.’
    Someone could say, these hash equations that are derived in certain
    mathematics based upon particular axioms, if we assume that the general
    axioms of set theory, such as the theory of Bernays, that it essentially
    represents some form of absolute mathematics derived from the
    necessities of reason, we could say that these equations and their
    solutions actually exists in the knowledge of Allah even before the
    creation.
  2. They could have a more legitimate type of existence than say for
    example gold, which is the contingency of a possible universe which was
    not created yet, but only created by the will of Allah. So, if you go to
    the depth of existence, Bitcoin could have more of a genuine existence,
    as the solution to hash equations, having an existence in purview of
    knowledge of Allah the exalted. Gold is only contingent to this
    universe.  In another universe, there may be no gold or something else.
  3. Hence, dwelling upon the point of existence doesn’t essentially
    bring the matter forward to determining a legal judgement upon it. We
    have to depart from only having a materialistic approach.  This matter
    has its reality and it can be perceived by the mind and it has existence
    in the mind.  Although some things which may exist in the mind don’t
    necessarily always have a representative existence materially,
    nonetheless they exist in that format.  We have irrefutable evidences
    that the universe is not necessarily existing and it has optional
    variation, as set out in considerable detail in our book of Tawḥeed, the second volume (forthcoming).
  4. The universe has been created by a free agent, a being capable of
    the ultimate independent will; a necessarily existing being whose
    knowledge covers all possibilities and all contingencies, including the
    mathematical and logical absolutes, by necessity. All of these
    mathematical possibilities exist within the knowledge of Allah from
    eternity, they are not escapable from him.  Hence, they are not
    ‘nothing.’  But something that you cannot touch with your hand, doesn’t
    mean that this couldn’t be a currency.

Value

  1. In terms of value, for such things this is to be based upon human agreement. Look for example at the earlier hadith
    mentioned, which outlined the various types.  If they are the same type
    then they have exactly the same amount, or in the case of entities that
    are abstract, they are counted, like one Bitcoin for one Bitcoin.  If
    they different, you can exchange, as the hadith directed us to,
    ‘as you wish.’  What is that wish, where does it derive from?  It is
    from the perceived value, or the benefit perceived.  There will be
    sufficient people interacting within the market with offer and counter
    offer to balance things out overall.  But this wouldn’t negate the
    fundamental nature of a market to balance human wishes and needs in a
    reasonable way on average.

Concluding points

  1. Overall, the claim that ‘it is nothing,’ is not correct. The
    assertion that the people are unknown, has no substantive weight nor
    does it make sense.  Regarding the matter of falsification, evidently
    that would be prohibited, but then that is also prohibited in other
    domains too, such as debasing a physical coin-minted currency, as has
    happened on many occasions in human history, including at some junctures
    in Islamic history.
  2. If two parties were to agree to utilise the dollar as a mode of
    exchange between them for a transaction, that is not invalidated by
    previous falsification and cheating which occurred by politicians and
    central government towards the currency. Any cheating doesn’t invalidate
    it as a currency or mode of exchange.  The one cheating is to be held
    liable with compensation being asked, but that is of a secondary
    consideration.  For example, Nixon (US President, 1969 / 1974) divorcing
    the dollar from the gold standard making it a standalone currency.  The
    idea that it was ‘backed’ by essentially nothing, led to considerable
    decline, particularly in relation to gold as the markets recognised that
    it wasn’t backed.  By tricks arising from usury, active decline,
    stimulus and other mechanism, the US has sucked a vast amount of wealth
    from the world.  Hence the various aspects mentioned in the question
    hasn’t really been analysed deeply or properly.
  3. The nature of Crypto currencies and Bitcoin is that it is
    decentralised, overall giving the public actually far greater power than
    being totally in the hand of global central banks. The proof of work
    relating to Bitcoin, in relation to the consumption of electricity used,
    is indeed considerable.  Last year consumption was more than an entire countryCambridge University
    has done considerable work to monitor the mining and electricity
    consumption used for that. So, the mining work for that effort is not
    nothing, it is considerable.  In that respect, it is no different for
    the effort utilised to mine gold.  They are different types of
    existence.
  4. Placing Crypto within the network to stabilise and do various
    activities is fine, to verify transactions and receive proceeds or fees,
    is akin to participation and that is also fine. Some have argued that
    Crypto for the first time in history, allows financial power to be
    decentralised and not held solely by the central banks.  Purchasing
    power from Crypto currencies are coming forth and its impact will be
    great, particularly if it threatens the usurious power of the big
    central banks.

By Professor Muhammad ibn Abdullah al-Massari

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