Trading of cryptocurrencies like Bitcoin has been declared forbidden for Muslims by the national council of Islamic scholars in Indonesia, as the popularity of digital currencies grows in the world’s largest Muslim-majority country. How Indonesian Muslim crypto enthusiasts find a way around Islamic fatwa, Erwin Renaldi and Hellena Souisa said on ABC News.
- There are more crypto investors in Indonesia – 6.5 million people – than share market investors
- Social media has helped the growing trend in cryptocurrency among young people
- At least two religious bodies in Indonesia are against the cryptocurrency ruling
During a recent online forum, Indonesia’s quasi-governmental Ulama Council declared a fatwa, or a non-binding religious ruling, that cryptocurrency is haram – forbidden under Islamic law.
An Ulama is a Muslim scholar who is recognized as having specialized knowledge in Islam.
According to Islamic law, a transaction should follow certain requirements, such as having a physical form and definite value.
“Cryptocurrency as currency is forbidden because it has elements of uncertainty, harm and doesn’t meet the Islamic requirement according to Shariah [law],” KH Asrorun Niam Sholeh, the council’s head of religious decrees, said in the forum.
However, Mr. Sholeh added that although cryptocurrencies as a currency are forbidden, they could be traded as a commodity or digital assets if they meet requirements.
The council has served as an authority on Shariah compliance in Indonesia, but they have been criticized for another controversial fatwa.
In 2018, it issued a fatwa raising concerns about a measles-rubella vaccine due to it containing traces of pork and human cells.
The council also issues halal certificates – the opposite of haram – for food and other consumed products in the country.
Nahdlatul Ulama (NU) is one of the world’s biggest Islamic organizations with around 90 million members and followers.
In October, its East Java branch also issued a fatwa declaring cryptocurrencies haram.
Deputy Chairman of the East Java NU, Ahmad Fahrur Rozi, known as Gus Fahrur, told the ABC the fatwa was based on the results from a forum discussion of issues on Islamic jurisprudence.
One of the conclusions that came from the discussion, attended by both crypto and Islamic legal experts, was that crypto trading tends to involve “fraudulent practices and gambling”.
“Just like it’s not allowed for a person to buy indistinct objects, like ‘fishes in the sea’ or ‘birds in the air’,” Gus Fahrur told the ABC.
He said cryptocurrencies were also similar to gambling because people speculate about the value without knowing the cause.
Practices such as gambling are not allowed in Islam, since the value and price are indefinite and could financially and physiologically harm those involved.
In comparison, he said stocks had a clear value and the price increased or decreased depending on the company’s performance.
Because of the huge elements of speculation over the value of cryptocurrencies, they considered it “inappropriate to be used as an investment instrument”, he said. “It can increase by 1,000% or 5,000%, but it can also be zero. It’s not an investment.”
The booming trend of crypto in Indonesia
According to Indonesia’s Ministry of Trade data, the number of crypto investors in the country had grown from 4 million people at the end of 2020, to 6.5 million people by the end of May 2021.
It has exceeded the number of investors in the share market, which is around 2.4 million according to Bank Indonesia – the central bank.
Putri Madarina, a certified financial planner and founder of Halal Vestor, a Shariah financial planner and education service in Jakarta, said the flourishing interest in crypto investing in Indonesia was partly due to social media, especially TikTok.
“It is even booming during the COVID-19 pandemic, we are actually in the second wave of the crypto trend,” Ms. Madarina told the ABC, referring to the crypto boom three years ago.
Ms. Madarina has been investing in crypto since 2017 and said the Islamic decree hadn’t deterred her from continuing to invest in crypto.
“What we bought is a digital commodity, like a collection that we consider valuable,” she said. “The price is driven by the higher appreciation from the people, like vintage cars.”
She also considered crypto as a ‘mal’ – an Islamic term for property – which can take in many forms.
“So, as a medium of exchange, I think it’s not a problem,” said Ms Madarina, who is also a treasurer of an Islamic fintech association in Indonesia. “As a property, I don’t see any Islamic ruling being violated, unless it was made to be a means of deception, which is also an external factor that we can’t control.”
‘I am a Muslim, I follow the fatwa’
Ainun Najib is an Indonesian NU member based in Singapore who works in IT.
He only started investing in cryptocurrencies in January 2021.
He said he knew about the halal and haram controversy, but there was no official fatwa from any religious organizations at that time.
He considered buying Bitcoin just like buying land or gold, but in a digital form, which was protected by “mathematically impenetrable encryption”.
“I initially intended [to keep Bitcoin] as an asset, as my long-term savings. By long term, I’m talking about 10 to 20 years.”
But in less than a year, Mr. Najib decided to release all his Bitcoin assets worth $45,000 in total.
“Because of the fatwa [from NU East Java],” he said, explaining the reasons behind his decision.
He said although he understood the blockchain technology used in cryptocurrencies, for him the fatwa was an “expert recommendation”, like how doctors recommend a patient with a high risk of cancer to quit smoking and drinking alcohol.
He feels that given he has no knowledge of religious law, he needs to hand those decisions over to experts in the field, like the Kyai – an expert in Islam – or religious scholars.
“I am a Muslim. In the context of Islam, I follow the fatwa,” he said. “[But] it’s our choice whether to follow it or not. But I think the right decision would be to follow it.”
Fatwas may change in the future
Cryptocurrency is still being discussed widely among Islamic scholars and institutions around the globe.
In 2018, the Grand Mufti of Egypt banned Bitcoin trading as it was prone to risks for the traders due to the price fluctuations.
Haitham al-Haddad, a British Muslim scholar, also considered cryptocurrencies not halal since it is virtual currency with “no tangible worth”.
Similar views have also been shared by individual Muslim scholars in countries such as Turkey, Malaysia, and Saudi Arabia.
But others have taken the opposite view, including South Africa’s Darul Uloom Zakariyya, Pakistan-based Shariah Advisory Muhammad Abu Bakar, and other Muslim scholars in Qatar and the United Arab Emirates.
Ms. Madarina said cryptocurrency was such a “hot topic” in the Muslim world.
She added the new Islamic decree would less likely impact the decisions of cryptocurrency investors, and instead be “an eye-opener” for investors or those who are about to enter the market.
“The more people wanted to know whether it’s halal or haram, the more they are going to learn about cryptocurrencies,” she said. “And I haven’t seen yet a drop in numbers of interest.”
Gus Fahrur said fatwa were not rigid and the views of Islamic scholars on crypto trading may change.
“The fatwa is dynamic. If [cryptocurrencies] no longer contain an element of speculation and … if there is an official regulation from the state which protects it from speculators, then we will have no issues.”
He emphasized the fatwa at the moment was aimed at protecting the community.
“Everyone wants to make a profit, right? But please don’t speculate,” he said. “What if cryptocurrencies collapse because they were not built on a valid and strong foundation, what will happen?
“That’s why we have to be careful.”
And for Mr. Najib, there is a possibility for him to get back into investing in cryptocurrencies in the future.
“When the expert changes [their] view, it’s fine, we can also follow it again … if there is an updated fatwa, then I will follow it again.”