Thursday, December 21, 2017

Follow-up answers on Bitcoin - Abu Khaled al-Hejazi

Assalamualaikum, Some follow up questions regarding the bitcoin Q&A

My question on majhool is- what do you mean the source of Bitcoins in unknown. Do you mean that the mining is done by unknown entities or that the actual founders of Bitcoin (i.e. Satoshi) was anonymous?

Answer

To reiterate what we said in the QnA previously as well, cryptocurrencies such as bitcoin are ‘assets’ issued by an unknown (majhool) source which have no real value and no real backing and Majhool here is related to the subject of the issuing the currency.
The shari view towards the issuance of currency is that It should be issued by a centralized authority which undertakes the responsibility of issuing the currency (dirhams and dinars) i.e it is a known body and not unknown (majhool). This is one of the major problems with cyptocurrencies such as bitcoin. So Majhool is not linked to Satoshi or one particular miner, rather it is linked to the whole mining community which is an unknown entity.

Question
So what about whether bitcoin constitutes a valid asset? You mention in your ijtihad that it is a digital asset. 

It is finite etc. But the questions that come to my mind are:

1) whether or not it has 'commercial value' from a shari perspective
2) is it an asset which can be invested in (conceding that it is not a currency)?

Answer

When we say digital asset we don’t necessarily mean it has an intrinsic value. We call it as a digital asset as opposed to a real asset i.e we are calling it a virtual asset. 

For it to have any commercial value it should have an intrinsic value i.e it should be able to provide benefit to the one who holds it. Bitcoin as you know does not fulfill the conditions of what constitutes a currency nor does it provide any benefit to the one who owns it so that it be considered as an asset. There is a very interesting discussion about value of a commodity in the book economic system by Shekh Nabhani. 

So in principle from a shari perspective it doesn’t have a commercial value, this is for the one who argues that the bitcoin is a commodity and not a currency. 

And as you know dealing with any item which doesn’t has any value is considered as gharar, this is what we have discussed in our q&a as well. Let me quote,

Muslim reported in his Saheeh from abu Hurairah who said
أخرج مسلم في صحيحه عَنْ أَبِي هُرَيْرَةَ، قَالَ: «نَهَى رَسُولُ اللهِ صَلَّى اللهُ عَلَيْهِ وَسَلَّمَ عَنْ بَيْعِ الْحَصَاةِ، وَعَنْ بَيْعِ الْغَرَرِ»
"The Messenger of Allah (ﷺ) forbade Gharar transaction sand Hasah transactions "
Tirmidhi also reported a similar hadith from abu Hurairah
وأخرجه كذلك الترمذي عن أبي هريرة..."بيع الحصاة" 
وَمِنْ بُيُوعِ الْغَرَرِ بَيْعُ السَّمَكِ فِي الْمَاءِ وَبَيْعُ الْعَبْدِ الآبِقِ وَبَيْعُ الطَّيْرِ فِي السَّمَاءِ وَنَحْوُ ذَلِكَ مِنَ الْبُيُوعِ ‏.‏ وَمَعْنَى بَيْعِ الْحَصَاةِ أَنْ يَقُولَ الْبَائِعُ لِلْمُشْتَرِي إِذَا نَبَذْتُ إِلَيْكَ بِالْحَصَاةِ فَقَدْ وَجَبَ الْبَيْعُ فِيمَا بَيْنِي وَبَيْنَكَ
The prophet prohibited the ‘hasah’ Transactions. The  Hasah sale is when the seller says to the buyer: 'When I toss the pebble at you, then the sale between you and I is final.' "The Gharar sale i.e (the sale of ambgious & unknown (majhool, ghayr maloom)) includes selling fish that are in the wate, selling a slave that has escaped, selling birds that are in the sky, and similar type of sales and all of these are prohibited.

I hope it clarifies

Abu Khaled al-Hejazi

1 comment:

Anonymous said...

Askm Sheikh,

What if crypto currencies are accepted by other nations as a valid legal tender and accepted by the majority of people. Will the Ijhtehad change based on reality or remain same?

Also could you explain how will it differ from USD when we know both (bitcoin/USD) are neither backed by dinar or dirham?