Trading cryptocurrencies unlawful under Islamic law: Fatwa

Trading cryptocurrencies unlawful under Islamic law, Sulaimani Fatwa Committee — Islamic Fatwa committee, Sulaimani city, Iraqi Kurdistan, February, 2025. Photo: dengiamerika.com

SULAIMANI,— The head of the Sulaimani Fatwa Committee in Iraqi Kurdistan has issued a statement declaring that dealing with cryptocurrency or similar forms of digital money is not permissible under Islamic law.

Dr. Mohammed Penjweeni, the committee’s leader, emphasized that electronic currencies without government backing, legal frameworks, or institutional support are not legitimate and should be avoided by the public.

A fatwa, which is an Islamic legal ruling given by a qualified religious scholar, holds significant weight in guiding Muslim practices.

In his statement, Dr. Penjweeni told Voice of America that for a digital currency to be considered lawful in Islam, it must be supported by an official authority, such as a government or an established financial institution. He made clear that without such support, these currencies are essentially unregulated and should be seen as unlawful.

“Dealing with cryptocurrency or similar digital currencies, like gambling, is not permissible according to Islamic law,” Dr. Penjweeni said.

“For any form of electronic money to be legitimate, it must have a transparent legal foundation and be backed by a recognized institution or government,” he added. “If you can exchange electronic money for goods or services, that is fine. However, if there is no such support, it should not be considered valid.”

The Sulaimani Fatwa Committee’s stance aligns with the broader Islamic perspective on financial transactions.

Islamic law prohibits activities that are considered speculative or ungrounded in a legal, tangible asset. In this case, digital currencies, particularly those without formal regulation or government recognition, fall under this category.

Dr. Penjweeni also explained that digital currencies like Pi Network, which is decentralized and mined through mobile phones without an intermediary, raise particular concerns.

Although the Pi coin has millions of users, it remains unlisted on major cryptocurrency exchanges and lacks transparency about its ownership and funding. Experts, including those from Stanford University, support the project, but concerns about its legitimacy persist.

According to Coin Telegraph, Pi Network has been criticized for several reasons. Many see the project’s lack of a detailed white paper or technical documentation as a major red flag. Without this information, it’s difficult to understand how the network operates or how the coins are distributed and used.

Additionally, Pi Network has faced accusations of functioning like a pyramid scheme, as it encourages users to invite others and earn rewards for bringing in new members.

There are also concerns regarding the project’s funding, with many speculating that the lack of transparency about its finances could point to a “pump-and-dump” scheme.

Despite these concerns, supporters of Pi Network highlight its innovative mining mode and strong community, justifying the project’s slow development by stating that it’s a cautious strategy for long-term success.

Kurdish experts in the financial and banking sectors have echoed concerns about cryptocurrencies. Financial consultant and banking analyst, Gulala Sidiq, warned against engaging with cryptocurrencies. “Cryptocurrencies are highly speculative and often lack any legal backing,” she said.

“In many developed nations, cryptocurrencies are not legally recognized, and their untraceable nature makes them susceptible to illicit activities. As a result, they pose significant risks to investors.”

Sidiq advised the public to exercise extreme caution when dealing with cryptocurrencies. “I recommend limiting any investment in these digital currencies to small amounts, no more than $100,” she stated.

“Investing larger sums without a legal framework or proper backing could lead to significant losses.”

While concerns regarding many cryptocurrencies are widespread, Bitcoin (BTC) remains one of the most widely recognized and trusted digital currencies.

According to industry analysts, Bitcoin is the only truly decentralized and independent cryptocurrency, often referred to as “digital gold.” Unlike other altcoins, Bitcoin is not controlled by any government or corporation, making it an exception in the digital currency space.

Bitcoin’s decentralized nature and its status as a store of value have earned it a reputation as a secure investment. It is often considered an unconfiscatable currency, with analysts citing its resistance to manipulation as a key feature. This has led many to regard Bitcoin as a safe haven for long-term value storage.

In recent developments, several governments have moved toward adopting Bitcoin as legal tender. El Salvador became the first country to recognize Bitcoin as such, and other nations are exploring its potential as a reserve currency.

Donald Trump at Bitcoin 2024 conference — Republican presidential candidate and former President Donald Trump leaves the stage after his speech at the Bitcoin 2024 conference on July 27, 2024, in Nashville, Tennessee. Photo: AP

The Trump administration is also considering adding Bitcoin to the U.S. strategic reserves as part of an innovative approach to national wealth. This growing recognition of Bitcoin’s legitimacy contrasts sharply with skepticism surrounding other digital currencies.

In contrast, most other digital coins, known as altcoins, face skepticism and are often labeled as scams. These coins are typically centralized, and their value can fluctuate drastically, sometimes to the point of becoming worthless if a project collapses or its leadership is compromised.

Experts agree that Bitcoin is the only cryptocurrency that can be considered fundamentally sound, with a clear and decentralized framework. Other digital currencies, despite claiming to offer similar advantages, are often seen as high-risk ventures without the long-term stability that Bitcoin offers.

As digital currencies continue to gain attention and evolve, experts stress the importance of exercising caution and understanding the risks involved.

Whether it is the unregulated nature of cryptocurrencies like Pi Network or the enduring reliability of Bitcoin, investors must be well-informed before making financial decisions in the growing digital currency market.

(With files from VOA | Agencies)