Mufti Saad Ali Chippa

Digital currency refers to electronic money that serves as an alternative currency. This includes cryptocurrency, which is an alternative currency that is not controlled by central banks or backed by a national currency.

The various currencies that are in use in the world today are not wealth per se; they are just pieces of paper with a nominal value.

That is for two reasons:

Firstly, because behind them are the economic things of the country, that is why the economic growth and decline of the country has an effect on the value of the currency, that is, the value of the country’s currency increases or decreases due to the economy itself.

Secondly, every country is the guarantor of its currency to the people. This is the reason why, when a country freezes its currency, the currency becomes a mere paper note and has no value or status.

Now the question is, what is behind the digital currency, due to which its value is determined and its growth and decline causes the value of the currency to increase or decrease? Similarly, who is the guarantor of this currency? Also, what is found on the back of the currency? is it really controlled by the guarantor of the currency or is it just a fictitious thing?

Many experts still think that digital currency is just a fictitious thing and its title is just for show like ivory and in reality, it is a form of betting and profit- hunting trading like we see on the internet, such as forex trading etc. In fact, there is no genuine seller in trading nor are there any Shariah conditions fulfilled for the justification of sale.

What is Bitcoin?

Bitcoin is a cryptocurrency, which you can also call a digital currency. It is different from the traditional currencies used around the world, such as the dollar, pound or rupee, because it is not controlled by an authoritative central bank.

Perhaps, this is the reason why people believe  that  a  currency  that  is  not controlled by an institution gives them financial freedom, but on the other hand, the value of this currency is subject to uncertainty.

After a record low, the price of Bitcoin started to rise again in February 2024 and today it has reached historical levels. And while this is great news for those who hold the currency, it’s also worth noting that just a short time ago, Bitcoin’s value plummeted, and this has happened several times in the recent past.

Blockchain

Blockchain is the technology that not only underpins all cryptocurrencies, but Non- fungible tokens (NFTs) are also powered by it.

In common language, it can be said that it is a spreadsheet on which the buying and selling of cryptocurrency is recorded. These buy and sell blocks exist on the sheet, which are connected to each other in the form of chains.

Each cryptocurrency transaction is recorded on the blockchain with the help of a network of volunteers, and these volunteers also verify the purchase and sale of the currency through computer programs.

The benefit of Bitcoin network volunteers is that whoever verifies the transaction first is rewarded with Bitcoins.

This lucrative process is called “mining”, but it is also controversial, as people around the world race to be the first to be confirmed and waste electricity.

There were 19,573,975 bitcoins in existence as of Dec. 18, 2023. Since the cryptocurrency has a limit of 21 million, there were 1,426,025 bitcoins left to be rewarded. By design, the number of bitcoins minted per block is reduced by 50% after every 210,000 blocks, or about once every four years. No additional bitcoins will be generated when the Bitcoin supply reaches its upper limit. Bitcoin miners will likely earn income only from transaction fees.

The Bitcoin halving takes place about every four years and reduces the block reward by 50%. This lowers the supply of bitcoins entering the market, which increases scarcity and can act to raise its price if market conditions remain the same.

Exchange Traded Funds

Exchange Traded Funds, or EFTs, are portfolios that allow investors to bid on multiple assets without buying cryptocurrencies. They are traded like shares on the stock exchange and their value depends on how the entire portfolio is performing. These portfolios can also be a combination of technology and insurance companies.

Cryptocurrency can be bought directly at the current price through an exchange- traded fund. Some EFTs contain bitcoin, but the US officially approved it in January 2024.

This move by the US has allowed new investors, such as major companies like BlackRock, to step into the world of Bitcoin without having to worry about the status of their digital wallets or crypto exchanges.

Crypto Exchange

A crypto exchange is a digital platform where investors buy and sell cryptocurrencies.

Like a traditional business model, a crypto exchange works like a brokerage house, where people can withdraw their funds from banks and convert dollars or pounds into cryptocurrencies such as Bitcoin or Ethereum. Investors also often have to pay fees to convert traditional currencies into digital currencies.

Crypto Wallet

A crypto wallet is a place where investors store their cryptocurrency. It has two types:

1. Hot Wallets
2. Cold Wallets

The Hot Wallet is connected to the internet, which means that it is faster to access and easier to transfer funds. Whereas, a cold wallet is like a device, usually a USB. Cryptocurrency can be stored in this device for long periods of time.

Ethereum

Ethereum is said to be the world’s second largest cryptocurrency after Bitcoin, which is supported by the Ether token and is also powered by the blockchain.

Its system is similar to Bitcoin and other cryptocurrencies, but in 2022, it was moved to a separate operating system, which requires fewer computers and consumes less energy.

Investors are hopeful that in 2024, the price of Bitcoin will once again skyrocket and the digital currency will once again regain its lost value. After decline in value in 2022, the value of Bitcoin has been increasing ever since until now.

The price of the leading cryptocurrency Bitcoin is currently touching an all-time high and one Bitcoin is worth more than 69 thousand US dollars.

A question arises from Shari’ah point of view that digital currency like bitcoin is haram or halal. The consensus view is as follows.

“Bitcoin” is just a fictitious currency. It does not have the basic characteristics and conditions of a real currency at all.

The business that is being done on the internet and in the electronic market in the name of buying and selling is not Halal and legitimate. It is just or very nearly a fraud.

It does not actually contain anything material and it does not hold anything of intrinsic value. There are just some numbers in the account and it is a form of usury and gambling like most kinds of speculative forex trading. Hence, taking a cautionary stance, “Bitcoin” is not permissible for investment.

It is advisable to avoid so-called business of ‘digital currency’ and to engage in buying and selling of such digital currencies. (Encyclopedia of Trade Issues: 2/92)

It should also be noted that the religious scholars of the Jamia have been deliberating on the different types of these currencies for a long time. It has also been evaluated from other technical aspects including the invention and creation of this currency and mining.

But, so far the justification of declaring them as currency or regular goods has not been found up to the desired level of confidence, clarity and satisfaction. Therefore, one should avoid making money by investing in such digital currencies unless more clarity and transparency is reached.

Government of Pakistan and State Bank of Pakistan have also not allowed Bitcoin trading as yet even within conventional legal framework. As of now, State Bank of Pakistan has not authorized any individuals or organizations to carry out the sale, purchase, exchange, and investment of virtual currencies, coins, and tokens.