Crypto is often discussed as if the only question is technology.
Can the network move value?
Can the ledger resist tampering?
Can users hold assets without a bank?
Those are useful questions, but Islamic finance asks a prior question: what is being traded?
If the thing being bought and sold is supposed to be money, wealth, or an investable asset, then it must pass a harder test than technical transferability. It must have recognised value, lawful utility, real economic substance, and a level of certainty that protects people from speculation disguised as trade.
That is why many Islamic finance scholars are cautious, and often negative, about most cryptocurrencies. The issue is not that an asset is digital. Bank deposits are digital. Shares are recorded digitally. Sukuk can be issued digitally. A land registry can be digital.
The issue is that many crypto tokens are digitally scarce claims to nothing in particular.
They may be transferable. They may be traded. They may have a market price. But a market price is not the same as Shariah-recognised wealth.
The Maal Test
In Islamic commercial law, maal broadly means property, wealth, or something of recognised value that can be owned, protected, transferred, and used for a lawful benefit.
The exact technical definition differs across legal schools. In the Hanafi tradition, which is especially important in South Asian Islamic finance, jurists often connect maal with things that people naturally desire, store, and recognise as having lawful benefit. Other schools have sometimes taken a wider view, recognising certain rights and usufructs as property where they carry real value and benefit.
That difference matters for crypto.
A token does not become maal merely because people speculate on it. It must be more than an entry on a ledger with a fluctuating price. It should represent one of the following:
- A useful thing in itself
- A recognised right with enforceable value
- A claim on a real asset or service
- A widely accepted medium used in genuine exchange
Many crypto assets fail this test. They are not claims on productive assets. They do not give ownership of a company, land, commodity, or receivable. They do not reliably purchase everyday goods and services without first being converted into fiat money. Their price often depends on the hope that another buyer will later pay more.
That makes the Islamic finance objection economic, not emotional.
Money And Trust
Money has changed form many times.
Human societies used commodities, cattle, grain, salt, metals, coins, bills of exchange, paper notes, bank deposits, card payments, and mobile balances. The form changed, but the social function remained stable: money works when people trust that it can settle obligations and preserve enough value to coordinate exchange.
Modern economics usually describes money through three functions:
- Medium of exchange: people accept it in payment.
- Unit of account: prices and debts are measured in it.
- Store of value: it carries purchasing power through time.
The Bank for International Settlements makes the same point in its 2018 chapter on cryptocurrencies: money is a coordination device, and its usefulness depends on stable value, scalable payments, and institutional trust.
This is where most crypto struggles. A token can be technically scarce and still fail as money if it is not a stable unit of account, not widely accepted in the real economy, and not trusted for final settlement by ordinary users.
Monetary History
Islamic law did not begin in a world of abstract digital assets. It developed in a commercial society that understood trade, credit, partnership, risk, fraud, debt, and currency exchange.
Gold dinars and silver dirhams were historically important because they were recognised, divisible, portable, and valuable. They also had physical substance and broad commercial acceptance. Classical jurists developed detailed rules around exchange of gold, silver, and staple commodities because these items could function as money or near-money in society.
The well-known rules of sarf required care in currency exchange. Where money-like items were exchanged, jurists were concerned about delay, inequality, and hidden interest. The point was not nostalgia for metal. The point was justice in exchange.
Over time, Muslim societies used copper coins, state coinage, paper instruments, banknotes, and modern fiat currency. Scholars debated these changes. Fiat money has no intrinsic commodity value in the way gold does, but it is generally tolerated because it has legal recognition, public acceptance, unit-of-account status, and deep economic necessity.
This is an important distinction.
Islamic finance can criticise fiat money and still treat it as usable money because society has adopted it as money through law, custom, taxation, wages, prices, debts, and payment systems. That social recognition is known as urf, or accepted custom.
Crypto has not reached that level for most people. In most economies, it is not the main unit of account. Salaries are not normally priced in it. Taxes are not normally assessed in it. Groceries, rents, school fees, and business invoices are not generally denominated in it. Most users still think in dollars, pounds, euros, rupees, riyals, or local fiat currency.
So the stricter question becomes: if crypto is not functioning as money in lived economic reality, what exactly is it?
Crypto’s Problem
No Substance
Gold can be used outside its monetary role. Land can be lived on or farmed. A share can represent ownership in a company. A sukuk certificate can represent beneficial ownership in an asset, usufruct, or project. A warehouse receipt can point to goods.
Many crypto tokens do not point to anything beyond the token itself.
Bitcoin is often defended as “digital gold”, but the comparison is limited. Gold has physical properties, industrial and decorative demand, long monetary history, and broad civilisational recognition. Bitcoin has scarcity by protocol, but scarcity alone does not create intrinsic utility. A scarce database entry can still be economically empty if its value depends mostly on resale demand.
The BIS made this point sharply: cryptocurrencies are no one’s liability and cannot be redeemed; their value depends on the expectation that others will continue to accept them.
In Islamic finance, that is a weak foundation for maal. A price chart does not prove substance.
Too Much Gharar
Gharar refers to excessive uncertainty, ambiguity, or risk in a transaction. Some uncertainty exists in all trade. A farmer does not know the exact future market price. A merchant does not know whether demand will rise or fall. That normal commercial risk is tolerated.
The problem is excessive uncertainty.
Many crypto buyers cannot clearly explain what they own, what the token entitles them to, who is responsible if the system fails, whether the project has enforceable rights, or what economic activity supports the price. Tokens are sold through whitepapers, Discord groups, exchange listings, memes, influencer campaigns, and liquidity promises that may disappear overnight.
This is not ordinary business risk. It is often structural ambiguity.
A Shariah-compliant transaction should make the subject matter, ownership, delivery, value basis, and rights reasonably clear. With many tokens, those foundations are blurred.
Maysir Risk
Maysir is gambling or gambling-like speculation. Islamic finance allows profit from trade, enterprise, labour, and risk-sharing. It does not allow gain that is primarily extracted from chance, hype, and another person’s loss.
Most crypto activity is not people using tokens to buy real goods and services. It is trading.
The behaviour is familiar:
- Buy because the price is rising.
- Hold because social media says a larger move is coming.
- Sell before the crowd exits.
- Repeat with another token.
That pattern is closer to zero-sum speculation than investment. One trader’s gain often depends on another trader entering later at a worse price.
Islamic finance is not anti-profit. It is anti-detachment: profit should connect to real trade, asset ownership, service delivery, production, or shared enterprise risk.
Weak Accounting
Money must make pricing easier. Crypto often makes pricing harder.
If a laptop costs 0.018 BTC today, but that same amount may represent a very different purchasing power next month, the token is not working well as a unit of account. Businesses do not want to reprice every hour. Employees do not want wages whose purchasing power can collapse before rent is due. Suppliers do not want receivables in a token that may move 20 percent in a week.
This is not only a convenience issue. In Islamic finance, fair exchange depends on clarity. If the measuring stick itself is unstable, the transaction can become uncertain and unjust.
Unstable Value
Crypto supporters often argue that Bitcoin’s fixed supply makes it a superior store of value. The difficulty is that fixed supply does not guarantee stable purchasing power.
If demand rises sharply, price rises. If demand falls sharply, price falls. If leverage unwinds, exchanges fail, regulation changes, or sentiment turns, the token can lose value quickly.
Money does not need perfect stability. Fiat currencies inflate. Some governments mismanage currency badly. But most everyday money is supported by legal systems, tax obligations, central bank operations, banking rails, and broad social use.
Crypto usually lacks that support. Its value can be more narrative-driven than economy-driven.
Limited Acceptance
Many crypto networks can transfer value globally. That is not the same as being money.
For money to work, people must accept it without needing an immediate exit route. In most places, merchants that “accept crypto” still price goods in fiat and use a payment processor that converts crypto into fiat. That means fiat remains the real unit of account and settlement preference.
The crypto asset is a payment route, not the money standard.
This weakens the argument that most crypto has become thaman, or recognised money, through public custom.
Fiat Money
Crypto advocates often ask a fair question:
If fiat money is also unbacked, why is crypto treated more harshly?
The answer is that Islamic finance has never been fully comfortable with fiat money either. Many scholars criticise fiat currency because it can be inflated, manipulated, and used to support interest-based debt systems. The end of the Bretton Woods gold convertibility era in 1971 intensified these concerns because major currencies became fully fiat.
But fiat money has something most crypto does not have: settled public function.
Fiat money is used to pay taxes. Courts enforce debts in it. Workers receive wages in it. Businesses price accounts in it. Central banks manage payment systems around it. Governments recognise it. Commercial banks create deposits denominated in it. Society uses it because avoiding it is almost impossible.
That does not make fiat perfect. It makes it socially established.
In Islamic legal terms, necessity and custom matter. Crypto is not yet comparable. For most users, it is optional, speculative, and externally priced in fiat.
Not All Crypto
It is too simplistic to say all crypto assets are identical.
Bitcoin
Bitcoin is the strongest candidate for a monetary crypto asset because it is decentralised, scarce by design, liquid, and historically significant. It began with Satoshi Nakamoto’s 2008 whitepaper and the 2009 launch of the network.
But from an Islamic finance perspective, Bitcoin still faces major objections: no intrinsic utility beyond network transfer, no issuer liability, high volatility, limited real-economy pricing, and heavy speculative use.
Ethereum
Ethereum is different because ETH is used to pay transaction fees on a programmable network. That gives it network utility. However, the Shariah issue does not disappear. If people mostly buy ETH as a speculative asset, and if the network hosts activities involving gambling, leverage, interest-like yield, or unclear tokens, then the practical use case remains mixed.
Utility must be lawful, clear, and economically meaningful.
Stablecoins
Stablecoins look closer to money because they aim to track fiat currency. But they raise their own questions:
- What reserves back the coin?
- Are the reserves actually held and audited?
- Does the holder have a legal claim?
- Are reserves invested in interest-bearing instruments?
- Can redemption fail under stress?
- Does trading the stablecoin involve prohibited lending, staking, or yield?
A stablecoin is not automatically Shariah-compliant because its price is stable. The structure matters.
Real Assets
This is where the conversation becomes more promising.
A token that represents verified ownership in gold, real estate, inventory, trade receivables, sukuk, or usufruct may have a stronger claim to being maal. The token is then a record of ownership or entitlement, not the source of value itself.
But the details are critical: custody, legal title, redemption rights, transfer rules, asset segregation, Shariah screening, and avoidance of interest-bearing income.
Blockchain can be useful as infrastructure. The Shariah question is whether the token represents a real lawful asset or only speculative air.
Better Tokens
A digital asset has a better Islamic finance argument when it has these features:
- Clear underlying asset or service: the token represents something identifiable and lawful.
- Recognised ownership rights: holders have enforceable claims, not just exposure to price.
- Low gharar: terms, custody, redemption, and risks are transparent.
- Real economic use: demand comes from use, not only trading.
- No riba structure: returns do not come from interest-bearing lending.
- No gambling-like mechanics: no lottery, leveraged speculation, or pure chance payoff.
- Reliable delivery and settlement: ownership can be transferred with legal effect.
- Widespread acceptance if claimed as money: it functions as a medium of exchange and unit of account in real markets.
This is why an asset-backed token, a regulated digital sukuk, or a tokenized commodity can be analysed differently from a meme coin.
The technology is not the ruling. The structure is.
Core Principle
Islamic finance tries to keep money connected to real economic life.
It permits trade. It permits profit. It permits entrepreneurship. It permits risk-sharing. It permits ownership of assets that rise and fall in value.
But it resists systems where money makes money without real trade, where uncertainty is sold to the public as opportunity, or where wealth transfers from late entrants to early insiders through hype.
That is why most crypto does not qualify as real money in this framework.
Not because it is new.
Not because it is digital.
Not because scholars dislike technology.
But because much of it lacks the qualities that make something sound money or recognised wealth: intrinsic or asset-backed value, stable public acceptance, clear rights, lawful utility, and protection from excessive gharar and maysir.
Final View
Most crypto is not real money from an Islamic finance perspective because it does not behave like sound money and often does not represent real maal.
It is usually not a stable unit of account. It is not widely accepted for ordinary exchange. It is not backed by tangible assets or enforceable claims. Its price is frequently driven by speculation. Its ownership rights can be unclear. Its risks are often difficult for ordinary buyers to understand.
That does not mean every digital asset is forbidden by definition.
It means the burden of proof is high.
If a digital token represents real ownership, lawful benefit, transparent rights, and genuine economic activity, it can be studied seriously. If it is merely a volatile token whose value depends on the next buyer, Islamic finance has strong reasons to reject it as money and to question whether it is maal at all.
The future may produce better structures: tokenized gold with real custody, digital sukuk, asset-backed settlement tokens, or payment systems that reduce cost without turning users into speculators.
But most crypto today is not there.
It is tradeable, but tradeability is not enough.
It is scarce, but scarcity is not enough.
It is digital, but digital is not enough.
For Islamic finance, real money must carry real trust, real use, and real economic substance.
References
- Bank for International Settlements. (2018). Cryptocurrencies: looking beyond the hype, Annual Economic Report 2018, Chapter V.
- Bank of England. What is money?
- Asmundson, I. and Oner, C. (2012). What Is Money?, IMF Finance & Development.
- Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System
- AAOIFI. Shari’ah Standard No. 57: Gold and its Trading Controls
- Usmani, M. T. (1998). An Introduction to Islamic Finance
- Cambridge Judge Business School. Cambridge Bitcoin Electricity Consumption Index
- IOSCO. (2023). Policy Recommendations for Crypto and Digital Asset Markets
- Financial Conduct Authority. Cryptoassets