Handling cryptocurrencies in Islamic law: Is mining permissible or prohibited?

In recent years, the Muslim world has witnessed heated debates regarding the legitimacy of dealing with digital currencies, particularly the issue of mining and its Islamic ruling. This complex discussion has not been limited to academic circles but has extended to official fatwa bodies and major religious authorities across the Arab and Islamic world. Since the emergence of Bitcoin and the spread of cryptographic technologies, scholars have been divided over whether it is permissible for Muslims to invest in these technologies or not.

What is Digital Mining? Definition and Mechanism

Before delving into Islamic rulings, it is essential to understand precisely what mining entails. Mining digital currencies is not a physical process as the name might suggest; rather, it is a complex computational process whereby individuals solve large mathematical equations using computational power.

In reality, miners work on adding new blocks to the (Blockchain), the digital chain that records all transactions. When a block is successfully added, the miner receives a reward in the form of new coins or transaction fees. This process requires highly advanced devices, especially when mining heavy currencies like Bitcoin.

Miners can operate independently or join mining pools that provide shared processing power. This variety of methods has, in turn, raised multiple Islamic legal questions.

Divergent Jurisprudential Opinions on Cryptocurrency Mining

Major Islamic institutions have not reached a consensus on mining; instead, multiple and differing viewpoints have emerged:

First Viewpoint: Prohibition and Ban

Several religious authorities have issued fatwas forbidding dealing with digital currencies in general, including mining operations. Among these:

Saudi Position: Several members of the Senior Scholars Council issued fatwas declaring cryptocurrencies haram. Sheikh Abdullah Al-Manea based his fatwa on the fact that these currencies are intangible, lack backing in gold or silver, and are not issued by a responsible government entity. Additionally, they are considered usable in usurious transactions.

Al-Azhar’s Position: The Al-Azhar scholars’ body discussed this issue in various fatwas and seminars, concluding that cryptocurrencies carry significant economic and Sharia risks, including ambiguity about their sources and the absence of legal and financial oversight. Therefore, Al-Azhar considers dealing with them unlawful in their current form.

The Egyptian, Jordanian, Kuwaiti, Turkish, UAE, and Qatari fatwas all issued similar prohibitions.

Second Viewpoint: Conditional Permissibility

On the other hand, some scholars and specialists believe that mining may be permissible under certain conditions. This stance is based on several arguments:

The website “Islam Question & Answer” considers that the permissibility of dealing with digital currencies depends on the availability of specific Shariah controls, such as immediate transfer of ownership and true possession of the currency, avoiding margin trading. Based on this understanding, if the currency meets these conditions, mining it can be considered a permissible investment activity.

IslamWeb states that the Islamic Fiqh Academy affiliated with the Organization of Islamic Cooperation recognizes that fundamental issues remain unresolved, such as classifying cryptocurrencies themselves: are they commodities, benefits, or financial assets? Given this ambiguity, this viewpoint emphasizes the need for caution and not rushing to a final judgment.

Cloud Mining: A Distinct Islamic Ruling

In recent years, a new model of mining called cloud mining has emerged, where one rents processing power from specialized companies instead of purchasing expensive hardware. A Shariah study from the Faculty of Islamic and Arabic Studies for Girls in Alexandria examined this model and concluded:

Cloud mining via leasing contracts is considered a contract for the benefit of devices, which is originally permissible as long as it is free from prohibitions. However, if it involves suspicious mechanisms such as pyramid marketing or lacks transparency in contracts and profit distribution, it becomes forbidden. The study set strict criteria for the permissibility of cloud mining:

1. Clarity of the legal contract type (Is it leasing or partnership?)
2. Full knowledge of financial details and expected returns
3. Avoidance of pyramid schemes or opaque programs
4. Verification of the company’s reputation, trustworthiness, and profit-sharing mechanisms

Main Cloud Mining Platforms

The market currently works with several relatively reliable platforms:

Binance Cloud Mining: Offers leasing of processing power for Bitcoin and other currencies, but its fees are relatively high and limited to Bitcoin, Litecoin, Ethereum, and altcoins. The main advantage is ease of use.

Genesis Mining: Specializes in long-term mining, offering various options for different currencies, but profits take longer to realize.

NiceHash: Functions as an open marketplace for renting processing power, providing high flexibility, but users face significant price and return fluctuations.

Bitcoin Under the Islamic Microscope

Among the most discussed cryptocurrencies from a religious perspective is Bitcoin. The stance of scholars specifically regarding Bitcoin:

Some scholars have declared direct dealings with it as haram because:

• It is a virtual currency without a backing authority
• It exposes users to the risk of losing their money
• It opens the door to speculation and gambling not compliant with Shariah
• There is no Islamic or economic supervision over its issuance

Fatwas from Egypt, Jordan, Kuwait, Turkey, UAE, and Qatar have all declared dealing with Bitcoin as impermissible. Based on this broad consensus (and not entirely), the mining of Bitcoin is considered to have the same ruling and is deemed not permissible in Shariah.

Other Digital Currencies: A Detailed View

USDT: A Possible Exception

The digital dollar (USDT) differs fundamentally from its counterparts. According to specialized studies, this currency:

• Cannot be mined by ordinary individuals
• Is issued exclusively by the US Federal Reserve or authorized entities
• Is subject to official oversight and strict legal conditions
• Is essentially a digital extension of the paper dollar

For these reasons, the digital dollar is treated as equivalent to the fiat dollar, and there is no objection to dealing with it in buying and selling as long as it is issued with official licensing.

XRP (Ripple)

XRP is the primary currency of the Ripple network, a global system specializing in payment settlement and currency exchange. Its features:

• Provides clear and legal services such as facilitating transfers and financing transactions
• Has no suspicious activities in its core structure
• Acts as a neutral intermediary between parties

Shariah studies have not identified any Islamic violations in using this currency, making it permissible. Therefore, investing in and dealing with it is allowed within general Islamic guidelines.

DOGE (DogeCoin)

DogeCoin started as a humorous project but has become one of the largest currencies. Main points:

• Free from suspicious or haram activities
• Most Islamic studies classify it among permissible currencies
• Can be owned or traded, provided Islamic conditions are met

Mining DOGE is subject to the same Islamic considerations as other currencies: it is permissible if transparency is maintained and it is free from riba and gharar; it is prohibited if associated with excessive risks or ambiguity.

Mining: Genuine Investment or Cloaked Gambling?

The critical question: Is mining a legitimate investment or a concealed form of riba and gambling?

Permissible - Halal Mining: If a person treats mining as a genuine investment, renting processing power or using their own devices, and obtains clear and known benefits, this resembles traditional leasing contracts. In this case, mining is a work based on effort and reward, not gambling.

Prohibited Cases: Mining becomes non-compliant with Shariah in several scenarios:

1. Suspicious Companies: Dealing with unreliable companies that practice fraud or lack transparency

2. Haram Currencies: Mining currencies linked to fraudulent activities or usurious transactions

3. Pyramid Schemes: Engaging in fake companies relying on pyramid marketing and referrals, where participants pay amounts without real value, only promises of profits from new recruits. This falls under riba and gharar, which are forbidden.

The correct measure is full adherence to Shariah principles: complete transparency, absence of riba, and avoidance of gambling and excessive risks.

Speculation in Digital Currencies: Islamic Rulings

Speculation with digital currencies is subject to the same rules as any other currency. Speculation is only permissible under certain conditions:

1. Actual or Shariah-judged Immediate Transfer: The transfer must be real, not virtual

2. Immediate Sale and Purchase: The transaction must be completed instantly without delay

3. Profit Sharing According to Ratios: If it involves partnership, profits must be distributed proportionally, not as a fixed amount

4. No Capital Guarantee: The speculator does not guarantee the capital unless through negligence or transgression

Overall Perspective: Is Mining Permissible in Islam or Not?

After reviewing various scholarly opinions, it becomes clear that the question should not be answered with a simple “yes” or “no.” Reality is more complex:

Critical Variables:

First, the nature of the currency itself: Is it a government-issued official currency or a decentralized one like Bitcoin?

Second, the mining mechanism and contract clarity: Is the process fully transparent or does it contain ambiguity?

Third, the company or pool involved: Is it trustworthy with a good record or does it have doubts?

Practical Summary:

Mining digital currencies may be permissible if it meets strict conditions: the currency itself is lawful, the mining process is fully transparent, the contract is free from riba, gharar, and gambling, and the company is trustworthy and transparent.

It may be considered impermissible if any of these conditions are violated: if the currency is haram, the process is ambiguous, it involves shady companies, or contains elements of riba.

Common Questions

Q: Is there an Islamic consensus on the prohibition of mining?

A: No, scholars have not agreed on an outright prohibition. Some have declared it haram, others permit it under conditions. The disagreement is genuine, not superficial.

Q: What about a Muslim who wants to start mining?

A: They should first verify the ruling on the specific currency they intend to mine, then ensure the company or pool is trustworthy, and finally confirm that the process is free from riba or lack of transparency.

Q: Is mining financially beneficial?

A: It depends on electricity costs, hardware expenses, potential profits, and the stability of the currency itself. Not all mining is profitable; investors may incur losses.

Q: Does the Islamic ruling differ between individual and cloud mining?

A: Yes, there is a difference. Cloud mining is considered a form of leasing for a benefit, with different rulings than individual mining with personal devices. However, both require adherence to core Islamic principles.