Mustafa Umar – Bitcoin & Cryptocurrency in Islamic Law
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the recorder.
Alright.
Alright. Bismillah rahmanirrahim.
Alhamdulillah. Wassalaat wa salaamu ala rasulillah
waba.
So today's topic is gonna be,
a topic on a contemporary issue, and that
is specifically on cryptocurrency.
And we're gonna be talking about Bitcoin, which
is one of the first cryptocurrencies
or decentralized cryptocurrencies that was formed.
And this is a topic that people a
lot of people have been asking about.
But I just wanna get a quick, you
know,
gauge of the audience. How many of you
are familiar with cryptocurrency?
Okay. So quite a few people, especially on
the men's side.
How many of you feel that you really
understand how cryptocurrency
works very well?
Almost nobody. Okay. That's good. So that's insha'Allah
what we're gonna try to do. But this
program today insha'allah, it's not just about
the question, is bitcoin halal? So this is
the first question that many people will be
asking. And what's happened is since 2017,
this is a common question that Muslim scholars
are getting.
Is Bitcoin halal or is Bitcoin haram?
And I don't simply want to give an
answer to that. It's not a yes or
no answer. It's not a it's a halal
or it's a haram quest you know, answer.
But instead, in this session, we want to
see how a Muslim scholar
or Muslim scholars
try to process issues
which they've never come across before.
And so this is not just gonna be
giving you an answer about bitcoin and cryptocurrency.
It's gonna teach you something about how Islamic
law functions,
how it's more complex than many people actually
think,
and what are some mistakes that people will
make along the way because they don't have
a good understanding of of how the Sharia
or how Islamic law is supposed to be
processed.
So we're gonna do that in this exercise
while looking at cryptocurrency
as an example
of how a new issue like this should
be processed. Because there's many new issues coming
out. There's cloning, there's stem cell research,
so many issues in biomedical ethics, so many
issues in economics, this being one of them.
There's issues in morality, there's issues in, you
know, so many things that we've never seen
before. You know, what are you gonna do
when,
you know, which direction do you pray with
if you're in outer space? You know, all
these things which
you won't find a an answer
from a scholar that lived in the 19th
century or maybe even in the 20th century
because they never faced these issues. So there's
a way to process these things. So I
wanna,
talk about cryptocurrency,
but at the same time,
kind of make you understand the process
through which Muslim scholars are supposed to be
going through or going through to understand this,
and then you maybe will appreciate better Islamic
law.
And also you'll appreciate
why it takes some time
before
clear answers are formulated.
And sometimes, you know, people may jump the
gun and then modify their fatwa later on
because they understood things in a different light
afterwards. So that's what we're gonna try to
do today. So the first question is, is
Bitcoin halal? So when somebody asks a Muslim
scholar this question,
the first thought
of a Muslim scholar in their mind
is going to be to question the question
that was asked.
That's the first thing that they're supposed to
do, and we're trained that way, and rightfully
so. So what kind of questions are we
gonna ask as scholars
when this person asked a question about whether
bitcoin or cryptocurrency
is halal. The first question we ask is
what caused this person to ask this question?
What is the reason why
they asked this question? Like, what's the motive
behind asking it? That's very important to understand
before you can give that person an answer.
The second question that we're gonna ask is,
what exactly is bitcoin? Right? And how does
it work? Somebody asked, you know, is it
halal? So, okay. Well, what exactly is it?
Do I fully understand exactly how it works
and how it functions?
And then the third question they're gonna ask
is once we have a good understanding,
are there elements that we know already in
the principles of Islamic law
that we can apply
to say that there are some haram elements
or forbidden elements inside this thing that the
person is asking. And of course, we're gonna
see how this person is gonna use that
as well. So this is what goes through
a scholar's mind. Okay? And they ask more
questions than this. I'm just summarizing
it. Now there are some mistakes.
Some mistakes can be made
when giving an answer to a question on
Islamic law or about the Sharia
for a number of reasons.
Common mistake number 1 is that the scholar
or the person being asked does not understand
the motive of the person.
And it's very important to answer according to
the motive.
So I'll give you an example. One of
the great companions, the scholars among the companions,
Abdullah ibn Abbas,
he was asked by a person.
He says, if somebody commits murder in Islam,
and then they ask Allah for forgiveness,
can Allah forgive them?
And he said,
no. So his students were shocked.
And they after the guy left, they said,
how can you say that? You know, imam,
we learn in the Quran that Allah subhanahu
wa ta'ala can forgive any other sins besides
associating partners with Allah. Why did you say
that? He said, because I saw in this
guys in this in this guy's eyes evil.
What did that mean? Meaning, this guy
was not asking me a question because he
wanted to know the theoretical answer in Islam.
This guy wanted to kill someone.
And he asked me the question with the
motive that if I say, yes, you know,
if you ask Allah sincerely,
then Allah will forgive you, the guy will
go and kill someone.
And I could see it in his eyes.
Therefore, I gave him an answer that was
appropriate for his circumstance because of the dire
consequences that would result.
So understanding the motive of the question
is really important as well.
And when it comes to cryptocurrency
and bitcoin and things like that, understanding the
motive of why people are asking this question
is extremely important.
So one question we have to ask
is that bitcoin was introduced
in January of 2009.
You ask any Muslim scholars,
nobody was asked in 2009
about bitcoin,
2,010,
2011,
2012. Almost nobody is asking.
All the questions come in in 2017.
Why in 2017?
Because in in the beginning of 2,000 and
17, Bitcoin was valued at $1,000.
One Bitcoin was a $1,000.
By the end, it jumped to $11,000.
So it became something that people wanted to
trade speculatively
on. Right? So that's people wanted to just
make some money off of it. That's why
all of a sudden became very popular. So
the question is not so much about the
technology,
what are the pros and the cons of
the technology. Nowadays,
the question why many people are asking
about bitcoin specifically
is because they see it as a way
to make some money
quick, and a lot of money, potentially. Right?
And there's a lot of people who made
a lot of money, there's a lot of
people who lost a lot of money. So
that's reason number 1. And I think in
America,
most people are asking the question due to,
you know, investing or speculation on the currency
trading.
The second type of people who ask the
question are people who live in countries, primarily
Muslim predominant countries,
which are really at the
the cutting edge of trying to develop an
alternative Islamic finance product.
Right? Or an Islamic
economy
that is closer to Sharia standards than than
anywhere else. An example of that would be
like Malaysia.
Right? So when people ask the same question
in Malaysia, they're not just interested in making
a trade. They're asking because this Islamic finance
industry is booming in certain countries, and people
are trying to come up with innovative ways
to develop something which would be a currency
that is closer to being in line with
Islamic principles. And this is something which many
people are interested in. They're interested in blockchain
technology and all of that. They'd rather have
something that's either tied to gold or not
so much riba based, interest based type currency.
So there's 2 different motives. The motive of
the average, I would say, the average American
is usually in the first category. Right? So
understanding the motive
is gonna help you give the answer
in terms of what exactly do you intend
to do
with your answer of is Bitcoin halal or
haram?
So we have to understand that clearly. The
second common mistake
is,
allowing the questioner
to explain
how something works. And this is something which
scholars may make a mistake in. So someone
will come to someone who like a scholar,
for example, who's never heard of bitcoin or
cryptocurrency.
And the person will ask, is it halal?
And they'll say, okay, well, why don't you
tell me how it works? They'll say, well,
it's the electronic system where you can send
this to or you send money to another
person, and this and that. And then the
way the person will explain it,
based upon the explanation
of that person,
the scholar will give an answer.
But that person may not be giving an
accurate explanation
of that thing.
And that's a common mistake that happens. Right?
So that's one issue. And another issue in
this field is if the scholar who's trying
to, you know, give an answer, they they
try to understand
some new technology, whether it's cloning or cryptocurrency
or whatever it is, but they don't fully
understand how it functions.
Because
it's not so much their field or they've
read a paper on it, there's some debate
on it, and they read the wrong paper,
or they read the wrong papers, or read
the wrong research.
It's gonna lead them to give an incorrect
answer on that, and then you may end
up finding that they changed their position several
years later because they have a different understanding
of it. So that's problem or mistake number
2. That's very common. Mistake number 3
is that the scholar
may not
understand the underlying philosophy of the Islamic economic
principles,
that they were taught in their seminary education.
K. Now, I'm I'm not trying to, you
know, criticize
scholars and their education. But the reality is,
if you ask the average person who's graduating
from a Muslim seminary, you say,
the way that you studied wudu,
the way that you studied salah, the way
that you studied fasting in Ramadan,
the way that you study all these rules,
how
how much depth in-depth did you go into
the economic parts of studying the hadith, and
the verses of the Quran, and the principles,
and and how well were you able to
understand that in light of
modern economic practices.
And I think many scholars would honestly tell
you that that's not something that we're very
strong in, because our curriculum
is not very strong in that either.
Right? And that's unfortunately one of the problems
where it becomes difficult for asking an average
person who's considered to be a sheikh, or
an imam, or whatever it is. They have
a seminary education. They have a degree in
Islamic law, in Sharia,
but they may not be very strong
either in understanding the principles or applying the
principles to modern day economic realities. Because that's
not their field, and they didn't specialize in
that really.
So that's problem,
number 3. K. So these are some common
mistakes
that are made,
and you have to understand that, and you
have to understand that may be something that
can potentially change things. K? So with that
said, let's move on to principles. So a
scholar gets asked a question,
is Bitcoin halal? Is Bitcoin haram or whatever
it is? The first thing is they go
back to certain is
or certain Islamic principles, principles in Islamic law.
One of the principles in Islamic law, which
maybe many Muslims don't know,
but it's very important to know, is that
the default
in Sharia, the default is that everything is
halal
unless it can be proven to be haram.
Some people think the opposite actually, right? Because
they feel like everything is made haram until
we can prove it's halal. Maybe that's you
feel that way because of the attitude of
some people, or certain discussions you had, or
maybe you always wanna just do haram things
and that's why it feels that way. Whatever
reason it is, you may feel that way,
but the actual principle that is agreed upon
by all Muslim scholars, there's no debate about
this. Alright. That pretty much in everything, for
the most part, is that the default position
of something new
is that it's halal, unless you can prove
that it's haram. You don't have to prove
that it's halal. You have to prove that
it's haram in order for it to be
haram or prohibited in Islam.
One ex just to give you a random
example, you know.
Anyone been to an oxygen bar?
It's not a bar. Okay? So you're gonna
be like, astaghfirullah.
You think I'm gonna raise my hand in
the masjid that I went to a bar?
An oxygen bar is where you just inhale
oxygen, it's like flavored oxygen.
Has anyone seen an oxygen bar? Has anyone
seen flavored oxygen?
A few people. So this is like it's
a pretty it's not a new trend really.
It's been around for like over a decade,
maybe 15 years or 20 years now. There
are there are bars,
they don't sell alcohol at all, they're called
oxygen bars. You go in there, you put
on a little mask or you put something
over your mouth, and you inhale flavored oxygen.
Now this is not something that people used
to do in the past. Right? Inhaling oxygen
and, you know, this is like something you
sit down and you do.
But there's oxygen bars and they're in many
different places, and people inhale that. So the
first time someone comes across this and you
say, hey, is that halal?
The word, it's a bar. You know, how
can you go into a bar? Well, the
bar is not serving alcohol, number 1. Number
2, no one has ever inhaled oxygen before.
So this is a question that no one
has, you know, really come across before. A
scholar would never have come across this.
So but the first thing in their mind
is not,
don't go there until we can prove that
it's halal.
The first thing in their mind is,
this is should be halal
unless we can find something that is haram
in it.
And that's how they apply the principle. That's
how scholars think, and they're supposed to think,
and that's how they're trained. It may not
feel that way for some of you depending
on where you come from and who you
interact with, but that's the reality. That's how
every single scholar is trained, and no one
is gonna disagree on this. Right, Khaleel? This
is this is the principle. Right? This is
the general principle that we learn in seminaries.
So that's the way we should be dealing
with things. So that's principle number 1. So
the first thing is when it comes to
Bitcoin, cryptocurrency, it's brand new. Before we understand
it, we say, okay, this might be just
fine.
Let's see if we can identify anything clear
cut that causes it to be prohibited or
or haram in Islam. So then we have
2 more principles. Alright?
The first principle
is
what this is an kind of an economic
transaction when it comes to currency and economics.
So in economics,
there are two main principles that could make
a transaction
That's the only thing that can pretty much
cause it to be
It either has elements of riba,
riba is interest,
or it has elements of
Alright?
Means something that is,
there's uncertainty
or a high level of uncertainty in it.
Or if something is like, for example, there's
unknown, there's something is uncertain.
So if you look at all the rules
pertaining to Islamic economics,
it's gotta have either riba or ghur inside
of it in order to be prohibited. Otherwise,
most likely,
it's going to be considered
halal or permissible in Islam. K? So I'm
gonna
go into a little bit of detail here
because I know this is being recorded, other
people are watching this. Even some scholars are
gonna be watching this later, so I'm gonna
do a little bit more detail, so bear
with me. So a scholar will go back
to his books, and they'll open up some
of their books on Islamic law, their books
of fiqh, and they start to go and
say, okay, well, let's look at some of
these principles. Let's see how some of these
principles apply. So among the principles that they're
gonna look at, they'll go to a book
like this.
This is a book called by
Ibn Rushd. Ibn Rushd is a famous scholar
by the name of Averroes.
He's known among non Muslims in in universities.
He's famous for being a philosopher,
translated the works of Aristotle and, you know,
not translated, but he commented on the works
of Aristotle.
But he's also a Muslim jurist. He's a
he's a specialist in Sharia as well. So
he has this book. Here's a translation for
you.
So bear with me, but he kind of
goes to the philosophy
of how economics works in Islam. So I'm
gonna give a little bit explanation of this
here. He says each transaction between 2 individuals
is an exchange.
So what is an exchange? It's when you
when you transact between 2 individuals,
either of corporeal property for corporeal
meaning an actual object for an object,
or of corporeal property and object for a
corresponding
liability.
Right? For I'll do some favor to you,
or I owe you money, or something like
that.
Or
of a liability for another liability.
So it could be a debt for a
debt, or I'll do you a favor and
then you do me a favor later. It
says each one of these 3 is either
delayed or immediate.
So when you trade something, either you do
it immediately, you trade right now, or it's
delayed. So you can say, I'm gonna give
you this now, you give me that later.
Or we'll both delay this trade later. And
then he says
where'd it go?
Or is immediate,
sorry. Each one of these, again, is either
immediate for both parties,
or delayed for both parties, or immediate for
one party and delayed for the other party.
You can see he's a philosopher. He looks
at every single potential scenario that could happen.
Right? And then he
says where's my mouse? The kinds of sales
that emerge are thus 9 in number. So
permutation, you get 9 potential types of sales.
Delay from both sides is not permitted by
consensus or ijma'ah.
All Muslim scholars say that if you have
a delay from both sides in the transaction,
it's not gonna be permitted, whether it's in
corporeal property, actual objects, or whether it's in
liabilities
because it amounts to a prescribed
not prescribed. Does anyone know what prescribed means?
No.
Forbidden.
Right. So it's not allowed.
Different than prescribed. Opposite. Right? So something that
is forbidden,
exchange of a debt for a debt. So
in sharia, in Islamic law, you cannot exchange
a debt for a debt. So if you
have this type of delay, then it's gonna
be a problem. Then he says,
the names of these sales are derived from
the condition of the goods that are being
exchanged
and the form of the contract of sale
itself.
Thus, when 2 commodities are exchanged, 2 objects
are exchanged,
one may serve as a currency
and the other as a priced commodity. He
talks about the idea of a currency and
how you can use a currency to exchange
something for an actual commodity,
or both of them can be currencies. You're
exchanging dollars for dollars, or bitcoins for dollars,
or something like that. When And we'll talk
more about what a currency is. When a
currency is exchanged for a currency,
the sale is called sarf. When a currency
is exchanged for a price commodity, the transaction
is sale proper, meaning it's it's a it's
a sale, bare.
Similar is the sale of a price commodity
for another price commodity where you're bartering goods
with each other, upon conditions that will be
mentioned later,
when corporeal property is exchanged for a liability.
Right? When you put something there, and then
you're gonna be getting that thing later on.
So you give them something, but you're gonna
get the thing back later on, the sale
is called salam. Alright? We'll talk about that
a little bit later. If an option is
introduced in the sale, that's not important.
Next page.
Then he base This is the most important
part. So if you didn't get that, don't
worry about it. This is the really important
part. So he's
saying that
when the causes
due to which legal prescription,
if
not being allowed, has been laid down or
considered,
and these are the general causes of vitiation,
they are found to be 4. So there's
basically 4 things
that can cause something to be haram
in Islamic economics, pretty much. He's like summer
giving you the high level summary, and then
the rest of his book talks about that.
So he says, 1, the prohibition of the
commodity itself. So if the thing that you're
selling is haram, you're selling alcohol or something
like that, it's gonna be haram. Number 2,
if it has usury, if it has riba.
If it has riba or interest in it.
That's number 2. Number 3,
3rd is hazard or uncertainty.
There's a level of high level uncertainty or
hazard in there, it's gonna be forbidden in
Islam. And the 4th are stipulated conditions that
lead to 1 of the last 2 or
both simultaneously.
So anything that can lead to one of
those 2, or both of them, is also
gonna be considered to be,
you know, forbidden in Islam.
That's
basically among the most important things, and then
he talks a little bit about, you know,
rish and, you know, deceiving people and, you
know, lying and then causing injury.
This is important, actually, because we're gonna well,
actually, this is really important for bitcoin. So
let me read this sentence.
Among those in which the prescription,
the the the not being allowed, is linked
to an external factor
are misrepresentation.
Meaning you're you're stealing from people, you're money
laundering,
you're you're doing something along those lines, or
injury.
You're causing harm, whether it's individuals or you're
causing harm to society. Right? Or sale in
a period of time assigned to a more
important activity.
That's example of not being able to sell
during Jummah, and and sale prohibited in itself.
So what he's saying is that
intrinsically,
4 things can exist in in a Islamic
economic transaction which can cause it to be
prohibited. And then there's external factors like, you
know, you lied about something or this thing
caused harm. That's not specific to the transaction
or the object itself. It's something outside of
that.
All of these things
are gonna play a role when we look
at cryptocurrency,
the discussions
that Muslim scholars have about cryptocurrency.
So that's kind of what happens. So I'm
just explaining to you the process. So Muslim
scholars will go back, they'll look at books
like this, and they're not just gonna read
the introduction, by the way. This is like
the 2 page introduction. They're gonna go and
read through all the other principles in the
rest of the book and it's a nice
big fat book. Right? So
that's, that's kinda what's gonna happen. Okay?
The third the third principle
actually is is mentioned here, So
I mentioned there's three reasons. Right? Three principles.
The default is permissibility,
unless you can prove it's haram. In Islamic
economics,
it's gotta have either riba,
interest, or gharar,
you know, uncertainty, or one of these other
two things that he mentioned which are not
that relevant to us.
Or
number 3,
there's gotta be dharar.
There's gotta be some major harm that this
thing causes. So for example, you know, selling
weapons
in a war zone
to people who you know are gonna be
killing each other, and they're totally, you know,
not in control of themselves,
is is something which is gonna become forbidden.
Not because selling weapons
is forbidden in and of itself,
but due to some external factor
of what's gonna happen when you actually are
selling. Okay? So
now,
that gives us a little bit of the
principles that we need to know. Let's talk
about the history of currency and money. So
before we try to understand cryptocurrency,
right, the scholar has to ask, what exactly
is currency?
How does it function? What do we consider
to be a a legitimate currency, and how
does it come about and all of that?
So very brief history of how currency functions.
Okay?
So currency is basically, you know,
people needed goods and services, that's something natural,
and you want something that you can value,
so that you can trade that thing with
a wider array of actual goods. So looking
at history,
in the beginning,
commodity money was adopted a long time ago.
So in ancient Mesopotamia,
we're talking, you know, 1000 and 1000 of
years ago,
they came up with a measure of currency
called a shekel. And a shekel was
160 grains of barley,
and they had a measure of that, and
that became a currency which they used to
use to trade in order to get goods.
And of course that has an intrinsic value.
Right? Because if you can't trade it, and
and you you decide, you know what, I
have all this money with me, I have
this currency with me, what can I do
with it? You can just cook it and
eat it. Right? So it's it has an
intrinsic value for you because people would use
barley, and that's food, and it's it's edible.
In some other societies, they adopted different currencies.
Like for example, in the Americas and in
Africa, they adopted shells. There are certain type
of rare shells that they would find along,
you know, in the near the ocean and
the water and all of that, and they
would use those shells
as a currency to be able to trade
something. So if someone has,
I don't know, carpet or,
whatever, like, you know, some bowls or pots
or something like that, and you don't have
any other pots to trade or you don't
have any other physical thing to trade, you
wanna have some currency that actually
you give value
because of the rarity
of the availability
of that thing,
and that becomes a currency. So shells used
to be used in the past as well.
And then you have, you know, other things
which were used, other foods sometimes,
but then you have gold and silver.
Gold and silver became the primary currency throughout
much of the world. And the reason why,
it should be fairly obvious, is because one,
it has certain properties,
there is a limited amount of it. It's
this it's difficult to find, so this, you
know, limited amount, like I said, and then
it's obviously shiny and cool looking and all
of that stuff. Right? And it plays other
roles. So there's something rare about it, and
therefore it became a currency. So you can't
just have random people just coming up with
everything becomes a currency, then it has no
real value.
What happened after? This is called commodity money.
What happened afterwards
is this developed into representative
money
or promissory notes. So what ended up happening
was people
used to keep all their valuables, their gold,
or their val their stuff inside of a,
like, a vault. Like a a vault, a
bank vault or something like that. And when
they put their money inside that vault, they
were given a deposit slip. So when they
come back, they know that they're gonna be
able to get this much back. So they
get this slip. So what ended up happening
was, eventually,
they started taking this slip and say, okay,
well, instead of if I wanna go buy
something, instead of me going back to this
vault and pulling out all of the money,
and then going, you know, all of my
valuables, and then giving it to someone else
in order to get that thing from someone,
I can just give them this slip. The
slip transfers over to them, and they can
go to the vault now and get exactly
what was written on my slip.
And that's how you pretty much get,
you know, bills, like, that way, like we
use today. So then we have
currency
being a bill
that is backed by an asset, by an
actual, you know, physical thing which has value
in that society.
So what happened was this gold standard
was the gold standard where the bill was
backed by gold
became very prevalent throughout 17th to 19th centuries
in Europe, and then started spreading throughout the
world in different parts as well. So what
happened was, these paper notes, you can convert
them back into a fixed gold amount anytime
you wanted to, pretty much.
Now in the 20th century, almost all countries
adopted the gold standard. So almost everyone in
the entire world is on the gold standard.
They're using bills, the bill is backed by
gold. In 1971,
the United States ditches the gold standard and
says that from now on, our bills cannot
be converted back to gold.
What you they don't have they're not gonna
be commodity backed anymore.
So you say, well, what value do they
have? They used to have some value and
the value is given by commodity. They said,
no.
Our currency is not commodity currency anymore, it
is fiat currency.
Fiat
means is a word which means, let it
be done. Meaning like it's a it's a
it's a command.
What does that mean? It means by the
power of the government,
we're telling you that this paper that we're
printing has money, it has value.
And you're simply gonna believe us, you know.
And we'll we'll we'll make you believe us
if you don't believe us. And because of
our power, we're able to give this paper
a certain type of value.
So this is kind of what happened. Okay?
So now,
the the money that you have in your
pocket, the bills that you have, if especially
if you're in America or most of the
world as well, you're on fiat currency.
Right? So this actual paper,
the value that it has
is generated by the fact that the government
is telling you that it has a certain
type of value.
It doesn't have any commodity value. I mean,
you can you can blow your nose with
it, or you can make a paper airplane
with it, but that's not very good value.
K? So that's where we are right now
in terms of fiat currency.
Now what happened was,
somewhere along the lines,
banks
that were having money deposits into their vaults,
they realized that, you know what?
Most people who put their money inside the
vault with us, they don't really withdraw all
of their valuables. They just kind of leave
it in there with us.
So what we can do is, we can
make money
by loaning out the valuables that they leave
inside of our vault,
while they're gone because they're not likely to
come and get it. So we can loan
it out, and we can collect interest, which
is money on the valuables that we're giving
out, and we can
collect that interest and make a lot more
money than just paying like guarding fees for
our vault.
And what we'll do on top of that
is we'll go ahead and give a little
bit of the interest that we make to
the person who's depositing money, so they deposit
more money, and they're more likely to keep
it in there for a long period of
time. So they can make a lot more
money. So the first,
central bank that was doing something like this
started in 16/68.
That was the Swedish Riksbank.
And what they did was they set a
reserve requirement. In order to prevent a bank
run from happening, you have to have a
certain amount where you say, we have to
keep this much money inside our vault that
we don't loan out to other people. Because
if all these people come and say, I
want my money right now, and then you
don't have all of it because you loaned
it out, can have what's called a bank
run and now you're gonna have a problem.
You're gonna default.
So that's where that's kind of the next
development in banking.
The latest development, the development after that became
what's called fractional reserve banking.
This is extremely important to understand
in order to answer the question on cryptocurrency
and its value. So fractional reserve banking,
we have to understand the difference in currency
and money.
They're not the same thing. Maybe they were
the same thing in the past, but they're
not. So what happens is fractional reserve banking
basically works like this. I'm oversimplifying it, but
this is from books of economics.
You have $10,000.
You put $10,000
into the bank. Okay?
How much money do you own?
It's You still own. Technically, you own $10,000.
Right? So the bank, being a bank, will
take that money that they have in there,
and they will loan $9,000
of the money that you put in the
bank to someone else.
Okay?
You still have $10,000.
The company The the person that the bank
loaned the money to, they have how much
money now?
$9,000.
Right? So now the company, they will use
the $9,000
to pay 9 of its workers or something
like that. Each of them gets a $1,000.
All of them take $1,000
home with them. You still have
$10,000.
Each of the workers has
$1,000.
Each worker goes and puts the $1,000
back into a bank,
and then the loop starts over again.
So what's happening is,
more money is being created
than actually exists
in its current form, in the form of
currency.
That is a fractional reserve banking system, which
means basically that if you have a, whatever,
10% reserve limit or something, you put $10,000
in the bank, the bank can take
9,000 of your $10,000
and loan it out to someone else.
And that money become that that adds to
the money supply
of the actual country.
So this is the way money supply works.
Now, this is
Some of you are like, you know, what
is How does money just magically appear on
a number? Where does this money come from?
Well, it's something that's recorded on a register.
This is how money functions in our economy
today.
Okay? So the money supply
of any country, let's take United States, is
the amount of currency that exists
added to
bank money, which is what is bank money?
Bank money are just numbers in a ledger,
in a transaction record.
And you add those together and that becomes
the money supply of a country.
So let me give you an example
of what that looks like in America.
In December of 2010,
in the United States,
there was
$8,800,000,000,000
in the broad money supply, which is what's
called m 2.
915,000,000,000,
which is about 10% of that, consisted of
actual physical coins and paper money.
So the other 90%
is not in physical existence.
This is gonna be a very important point
because
one of the, you know, one of the,
arguments that people make against Bitcoin or against
cryptocurrency
is that it doesn't exist in reality. It
has no you can't feel it, you can't
touch it, it has no tangible reality. And
you can't take it out for, you know,
something physical.
So therefore, it has no existence.
If we understand
how fractional reserve banking works, we understand how
the money supply of a country actually works,
we see that we have to give an
answer in light of
the current economic system that we live in,
and we function with, and we deal with,
and we don't really
complain so much about it. K? So this
is something that I wanted to explain about
the history of currency and money. How many
of you knew all of that, by the
way?
Okay. So we have
about 10%, not even 5% people who knew
that. That's good. So this is important to
know. This is the way it functions. Okay?
So now, let's move on to the history
of cryptocurrency,
what it is and how it functions.
Okay. So,
there was,
so let me go back to a little
bit history. You know, the idea of digital
cash, or having it, the idea of having
a digital currency
is not new.
It's actually a very old concept. There was
a guy, you know, there was many many
people in, you know, different computer science departments.
One of them was in Berkeley, he wrote
a paper on it in 19 eighties.
This guy came, I'll just give you there's
a bunch of companies that were launched.
One example of one company of digital currency
was called DigiCash.
DigiCash was launched in 1989.
This is a long time ago. Right? This
is way before all of this. So what
he did was, he says, we're gonna use
cryptography
to prevent
either the bank
or the government
from tracing online payments. So internet was around,
people were using the internet in 1989, not
too many people, but people were using it.
And he says, but these transactions that we're
doing online, they're traceable.
So we want to use cryptography,
which is a way of, you know, mathematical
algorithms to kind of disguise things, so kind
of like a secret message you can say.
We wanna use that technology
to do what specifically? We don't want banks
and we don't want governments being able to
trace the online payments that we have. So
they invented a company, they launched a company
called DigiCash in 1989.
This became actually accepted.
It was accepted by Deutsche Bank in Germany
and another bank, which is a really big
thing. Right? Like a Deutsche Bank is a
really major bank,
in the world. So this was accepted,
it was acknowledged, it was approved,
but it shut down The company shut down
in 1998.
What was the main reason why it shut
down?
People were not ready for this technology. Like,
you know, people It took the internet a
long time for people to kind of, you
know, get used to it. People, you know,
they're not comfortable with it. I remember people
used to always say, I'll I'll never trust
online banking. And now everyone does online banking.
Right? They're like, I don't trust putting my
money in there. It just takes time for
things to develop. This was not the right
time.
The eighties
and the nineties were not that time.
So what happened was,
is that this was not a major issue
because it was not a decentralized currency.
It was a digital currency,
in a way,
but people just weren't ready for it, but
it didn't become a big issue. Now what
we have is, the idea of having a
digital currency
is there in existence. You know, PayPal has
been there for a long time.
Venmo, those of you who use Venmo to
send money to people, things like that. There's
a lot of different, you know, you can
call you can say kind of digital currencies
or digital cash or something like that.
So when it comes to this cryptocurrency and
bitcoin,
there's nothing new about digital currency.
The only thing that's new
and innovative, and something that no one has
ever really seen,
is the idea that is decentralized.
Right? And I'm gonna explain to you what
that means. Right? What decentralized means is that
in the past,
before,
anytime you wanna send money to someone else,
right, how does that money transfer over?
You have to have a third party.
So if I wanna send money to Ali,
right,
digitally,
what's gonna happen is that
I will, you know, do some kind of
transfer from an app or something like that,
which money had for me, and I transfer
it over to Ali,
and I have to have a third party
to verify
that my money has transferred over again to
the other person.
Now, the issue is this. Right? We have
to have someone in the middle
because if you look at digital files,
files don't transfer per se, they copy.
Like, if you have you're working on a
document,
and your friend says, hey, send me that
document. You email them the doc I'm trying
to make it easy for you. Right? You
email them the document over.
You can keep a copy of that document.
Right? So it doesn't just transfer over to
the person, and now you don't have it
anymore.
Now, what's gonna happen is, if you have
a digital currency,
how do you ensure that when you send
it over to someone else,
it's not in your possession anymore, and you
didn't keep a copy.
And what's gonna happen is, this is called
the double spending problem,
that I can go and after I send
it to you, I still have my copy,
I can go and spend it with someone
else.
So,
until 2,008,
as far as I know, no one was
really able to figure out or solve what's
called the double spending problem.
How do you resolve this issue
without having a third party? What does a
third party do? You know, you take Mastercard,
or you take the government, or a bank,
or whatever it is. They're gonna verify. I
sent you the the file, like PayPal, for
example.
I send Ali a certain amount of money.
PayPal is the 3rd party who's watching and
saying, hey, you transferred this money over there.
What we're gonna do is you have a
ledger,
a record. Right?
We're gonna subtract this number from your record,
and we're gonna add this number to the
other person's record
to ensure that you don't keep a copy
and you're not gonna try and double spend
that. So you have to have this third
party,
you know, mediating between you. So that was
kind of the issue.
Alright? Now what happened was,
something really big happened
in 2,008,
in the world. It was a major world
event.
Right?
Outside of
me graduating from Islamic school and coming back
and becoming an imam, there was another major
world event. I'm just kidding. There's another major
world event that happened. Does anyone know what
that event was?
Financial meltdown. Financial crisis.
Right? And why the financial crisis happened? I
mean, that's gonna be a whole another, you
know, another hour lecture.
Why the financial crisis happened? A lot of
it had to do with deregulation
from the government, and it led to,
and and banks' misuse and all of that.
It led to distrust
around the world, even in America,
about the role of the government in banking
and economics,
and the role of banks specifically.
And this is like the biggest, you know,
one of the biggest, you know,
crimes,
probably the history of the world, in terms
of how much money, you know, was lost
and everything. And how many people went to
jail for it?
None. Almost none. Like one little small guy.
That's it. Everyone else, they all just got
bonuses and raises, and they got bailed out
in the bailout plan and all of that
stuff happened. You you this is, you know,
you should you should look into that. This
is a very important world event.
So
what happened in 2,008, what was leading up
to that, people were really upset.
And now, you have a group of online
hackers,
right, who are really good with computers.
They start looking back into this idea, which
was popular since the nineties and the eighties,
of digital cash and digital currency and all
that. And they say, we need to figure
out a way to cut out the government
and cut out the banks
from being that third party,
because we,
1, we cannot necessarily trust them.
So it started the idea started gaining momentum
because look how they manipulated things, and it
led to a financial meltdown, and people were
losing their houses and their jobs and almost
everything. So they're saying,
there was a loss of trust that happened.
That was 1.
And then 2, you know, there's just obviously
all these trans having a third party causes
transaction fees.
So what happened was, there's a guy by
the name of
Satoshi Nakamoto.
He's not a real person. This is his
fake name. He may be a group of
people. Right? Nobody knows, really.
He kinda disappeared when someone or his partner
said, I wanna go and present this idea
to the CIA. He just disappeared.
No one ever heard of him again. He's
very paranoid, obviously.
So he publishes a paper in 2008.
And this is a very important paper. Now
a lot of people are investing in bitcoin
and all that, they don't understand
how it really functions, they don't understand what
the philosophy behind it was, the motive behind
it. It's important for a scholar, a Muslim
scholar, to understand the motive behind things because
then they can understand the philosophy behind it,
and then they can see how that philosophy
lines up with the philosophy of Islamic law.
So this is all very, very important for
a scholar. I'm not just doing this because
I'm, you know, interested in a history lesson
or something. So Satoshi Nakamoto published this small
paper, it's like 10 pages.
It's not a, you know,
I would it's not difficult to read if
you have a little knowledge of
computers
or a good knowledge of computers. Little It's
it's not that difficult to understand. But it's
absolute ingenious paper. So I'm gonna go over
the introduction with you, so you have a
good understanding. You understand where this is coming
from. This is his abstract. This is his
overview of the idea.
I'm gonna give you tafsir of this too.
Don't worry. Okay? I'll give you the explanation.
So he's saying, a purely peer to peer
version of electronic cash
would allow online payments to be sent directly
from one party to another
without going through a financial institution. So you're
saying, if we can figure out a system
where I can send you money directly without
having to go through the 3rd party financial
system, whether it's PayPal or Visa or Mastercard
or a bank, if we can if I
can figure out how to do that, this
is what we're gonna do in this paper.
We're gonna outline a model for that. So
he's saying digital signatures provide part of the
solution,
but the main benefits are lost if a
trusted third party is still required to prevent
double spending. So I told you about the
double spending problem. So he's saying, you can
have all these digital signatures and everything, but
you have to have this third party. How
do you cut out the 3rd party and
how do you solve the double spending problem?
So he says, we propose
a solution to the double spending problem using
a peer to peer network. Right? So basically
what's gonna happen, this is gonna be a
distributed system of computers
all around,
and different people are gonna be running this
software. I'm trying to simplify simplify it for
you. The network time stamps, transactions,
by hashing them into an ongoing chain of
hash based proof of work, forming a record
that cannot be changed without redoing the proof
of work. So basically, he's talking about what
some of you have heard. Who has heard
of the word blockchain technology?
Alright. So quite a few have heard of
it. He's basically coming up with the idea
of the blockchain here, in 2008.
So he's saying, look, we're gonna figure out
a way
to put
put all these transactions together in a long
chain,
and there's no way you can somehow mess
this chain up. That's basically what he's saying.
He's saying the longest chain not only serves
as proof of sequence of events witnessed,
but proof that it came from the largest
pool of CPU power. So what he's saying
is that, you know what? Look, people are
gonna try and hack this. Right? They're gonna
try and break in and mess up the
whole computer system and everything. See, I'm gonna
give you all these safeguards to protect it
and prevent it from being hacked. So this
is his idea. So his idea is, as
long as the majority of CPU power is
controlled by nodes
that are not cooperating to attack the network,
they'll generate the longest chain and outpace attackers.
Right? Now, this is very this is a
very important statement here.
This is philosophically,
it's very important.
What he's saying is
that we're gonna develop a system
that as long as the majority of CPU
power of all these different computers
that different users are using this software on
throughout the entire world, as long as they
all are not cooperating
to try to hack the entire system together,
it will not be it cannot be hacked.
Why is this so important?
It's important because
the idea of having decentralized currency means that
you're not trusting the government, and you're not
trusting the banks. If you're not trusting the
government, you're not trusting the banks,
they are kind of like the elite people.
They're a small group of people. So what
are you doing? You have to trust somebody.
Someone, somewhere along the line has to be
trusted, otherwise, you cannot have currency.
So he's redistributing
the trust that's required for any currency,
especially a fiat type of currency,
for it to actually have some value. So
the trust is redistributed from
the elite government slash banks,
distributed across
anyone who wants to participate in the system.
And the assumption is kind of democratic. Right?
The assumption is, as long as you have
all of these distributed computer computers
working at the same time, as long as
they all don't team up together, or the
majority of them don't team up together to
try to overthrow this chain,
then it's you cannot hack the system.
You have trust
in the people
who are just running this, that they're not
gonna all collaborate together. And basically, this is
a revolutionary
idea,
saying that we have more trust
in a distributed network of of people
who are interested in this idea,
then we we have more trust in that,
then we do in specific people who may
be elected to government or may be in
charge of banks.
And that's where this idea becomes very revolutionary.
And then he says messages are broadcast on
our best effort, nodes can leave and join
rejoin the network at will. Anyone can join,
basically. Anyone can become part of this, and,
you accept the longest proof of chain as
work of what happened. So that's that's the
basically the philosophy of what Satoshi is coming
up with. Okay? So
that's the idea that he came up with.
K? So a few things to note here.
There is no Bitcoin company. I hear this
from I'm trying to dispel some myths here.
There's no bitcoin company, doesn't exist. It's a
technology.
There is no building.
Right? There's no bitcoin building where if you
have bitcoin or cryptocurrency,
what if that building gets bombed? You lose
all your money. There's no building, specifically. It's
distributed across the world, and people can be
added to it. There is no server. There's
no computer system that you can like shut
down, because it's a distributed network across the
world.
So
that's a few aspects of,
Bitcoin.
He made this blockchain ledger. It's a distributed
ledger that goes across. A ledger is something
which you record transactions in. So normally, the
ledger
of any other normal currency
that's, you know, centralized currency, is run by
government,
is gonna be controlled either by the, you
know, Federal Reserve Bank or the Central Bank
or something like that. They have all these
records and obviously they have backup copies and
everything. They keep track of this. This is
an automated system
that is automatically gonna be keeping track of
this, and he figured out a way to
do this, and it's a little bit complicated
to explain.
Encryption technology is gonna be used to regulate
the currency. So 2 things are gonna happen
with encryption. Crypto is coming from encryption.
What is encryption gonna do? What is technology
gonna help here? Number 1, it's gonna regulate
the generation of currency.
So normally,
the generation of currency
or the generation of money is regulated by
the government.
And like we said, you know, the the
government generally has no limits on how much
money
they can create. We talked about creating money
in fiat currency and fractional reserve banking. The
more currency that's created, the more money that's
created,
what happens to the value of your money?
It devalues. Right? It's inflation.
So so he's saying, we're gonna use an
encryption encryption,
let me explain how what is encryption. We're
gonna use computer technology
to figure out, we're gonna regulate and have
a very clear way to generate currency,
and also we're gonna use encryption to verify
the transfer of funds,
to make sure that
the this person cannot double spend when you
transfer money, but there's no central there's no
third party that's needed in this entire process.
So that's kind of an overview of kind
of how it works.
To give you a little bit summary,
there's 3 ways to attain cryptocurrency.
Number 1, you either take
fiat currency that you have, you take dollars
for example, you go to a bitcoin exchange
and you buy bitcoin, and they take your
money, and then you get it in your
bitcoin wallet. Number 2, you can transfer from
another user who has bitcoin. You can give
them cash or whatever it is,
or or you can transfer Bitcoin to Bitcoin.
And then number 3 is mining.
Okay.
I'm thinking whether I should explain mining, because
this is getting long.
I'm not gonna go into details about how
mining works, but basically, there's a maximum number
of bitcoins and that's 21,000,000.
Once it reaches that number, there cannot be
more. So what ends up happening is you
cannot keep on creating more and more of
these things.
Therefore, there's been arguments
that and there's a 2040, you know, 2,000
year 2040 limit.
There's an argument that this could potentially be
a much more stable currency
than a fiat currency because you cannot just
keep on, you know, adding more and more
to it whenever you want to.
Alright. So without going into more details,
what happened
historically?
Okay. Historically,
bitcoin comes out as the first cryptocurrency. So
it's the first one that's established.
Satoshi,
right after the few weeks after the fall
of Lehman Brothers, major bank, investment bank,
he says we need to program this thing
quickly. He comes up with the idea, he
makes it functional, and he he launches bitcoin.
So what happens is in the beginning there
were 2 types of people who cared about
bitcoin. They were either computer enthusiasts, they just
liked the idea of, you know, this cool
technology and we're gonna make something new. And
then there were libertarians.
These are people who don't trust the currency
that we have right now, and they're more
about having a stable currency, should be gold
backed. People like Ron Paul and, you know,
Rand Paul and all of that. So there
was 2 people who were primarily interested in
in that.
But bitcoin was primarily
supposed to not be exchanged back into currency
and then changed back because that's gonna actually
take you back into the system. So the
libertarians and other people who don't trust
the currency that we use today,
they had a different idea or understanding. Okay?
Now this some of this history is important
to understand the fatwas that are coming on
from different councils.
So what happens?
2011,
or a little bit earlier before that, I
forgot the year. There's a website called Silk
Road which is launched.
How many of you heard of Ebay?
Okay. Heard of Ebay, right? Like Craigslist, Ebay,
you can sell stuff online. So Silk Road
is
like Ebay,
but
it's anonymous and it accepts Bitcoin only. So
the transactions are anonymous.
So you can sell almost anything you want
on on Ebay,
except
things like drugs,
things like weapons,
things like things you shouldn't be selling basically,
which are not allowed.
Silk Road opens up, it's anonymous, it uses
the Tor browser, it has a dot onion
URL, I won't get into that. And
primarily it's being used to sell drugs. Because
you could sell all your other stuff on
on on eBay.
Now obviously the transaction costs are a lot
lower, you don't have to pay, you know,
eBay the same amount of money that you're
paying, or Craigslist or whatever. Craigslist is not
doesn't cost money, but So what happens is
Silk Road
proves
to the world
that people are willing to adopt this technology.
Not for very good reasons, you know, because
they're buying drugs. But they prove that the
technology works,
they prove that
people are able to do it, you know,
it's functional, it's working, people are using this
as a currency, and they're using, you know,
they're they're doing all sorts of weird stuff.
They're buying drugs, there's a guy who's a
hit man and he's like, I can kill
someone for you, you know. Pay me in
bitcoin and it's not traceable, and you know,
I can take care of that. And you
can go on this website and you can
do that. So obviously, Silk Road was shut
down.
Now what happened was in the beginning, if
any of the scholars, they knew about Bitcoin
in the beginning,
when they found out that
Bitcoin was being used for Silk Road to
sell drugs primarily,
what do you think their fatwa is gonna
be?
What is the what what kind of technology
is this? So just so these people can
sell their drugs, you're obviously gonna get a
haram fatwa. Right? And there's very few of
those fatwas early that early. But what's really
interesting is when Silk Road was shut down,
the FBI
confiscated
$13,500,000
worth of bitcoin at that time.
When they confiscate it, what is the FBI
supposed to do with it?
They they don't want just wanna, like, throw
it away.
FBI, you know, they need they need their
money too. Right? So what do they do?
They auction it
and they sell it.
What does that do?
Right? What that does is, it shows that
an American governmental
institution
legitimized
the value
of a digital
decentralized
currency.
And that's a maybe, you know, they probably
didn't think about what the ramifications of that
were, but they're showing that there's some legitimacy
to this. Right? So that was a really
big thing.
Later on,
2014, government said that if you own bitcoin,
you have to pay taxes on it. Because
they were concerned, people have bitcoin and they
have money, like we're losing on taxes. People
are cutting out taxes. So they said, you
know, they issued the American
government fatwa. Right? They said, you gotta pay
taxes. So what does that do? Again, the
government is not supposed to like this idea.
The government is Whoever works for the government,
generally, they don't
like the idea of decentralized currency because it
reduces their power.
Right? But what happens is they're like, but
we're losing taxes. So we at least say,
hey, you gotta pay taxes. What does that
do? It partially shows more legitimacy
to the fact that this is becoming a
currency,
and it's something that actually has value. In
2015,
US government launches something called bit license,
where they're trying to regulate
the use of bitcoin,
and then there was some scandal about all
of that stuff. I won't go into it.
And then what happens is basically now we're
in 2017,
the price
sky skyrockets on Bitcoin,
and now we have people who took
the code that was used for Bitcoin and
they made alternative cryptocurrencies.
So if you go to coinmarketcap.com,
there's about 1500
cryptocurrencies
there today.
And so many of them are just being
made, you know, on a daily basis.
What that basically means is, if you shut
down Bitcoin,
right, if someone says we're gonna absolutely shut
it down and we're gonna stop it from
happening, and, you know, some people have argued
that potentially the NSA
has the computing power, maybe,
to actually
attack. You know, Satoshi said you can't attack
and everything. They have so much computing power,
they could potentially attack it and maybe shut
it down.
But the thing is,
they can shut down 1 cryptocurrency,
or they can shut down bitcoin or something
like that. Within the end of the day,
bitcoin 2.0 will come out.
And they shut that down, bitcoin 3.0 will
come out. Because this is an idea,
and you can't shut down an idea that
people are interested
in. So I'm saying this because people still
have this idea that, oh, this may just
go away. It may just a fad. It'll
just disappear.
As long as people are interested in it,
they're gonna keep it alive kind of no
matter what happens. K?
So that is a little bit about the
histories. Let's go to the pros.
So the pros
of cryptocurrency,
like bitcoin and all the other ones, the
pros are number 1 and why are these
pros important? I'm gonna go to the pros
and the cons.
Because many of the fatwas, the religious rulings,
that are saying it's allowed or it's not
allowed,
they're built on these things. And one of
the things that we saw, what Ibn Rushd
Avarowitz was saying, is that if there's gonna
be harm,
right, dollar or harm that is caused
by this cryptocurrency,
then it should be forbidden in Islam.
But you have to weigh between the pros
and the cons, between the harms and the
benefits that exist when you wanna actually understand
this currency. So let's take a look at
some of the pros. 1st, then we'll go
cons. So some of the pros, reduced transaction
fee. Right? The mid there's no middle man.
So when you're sending there's no bank involved.
Right? So when you send money to someone
else, you don't have to pay these large
transaction fees. So look at, for example,
Western Union,
MoneyGram, you're sending, you know, money to your
family back home. Bitcoin or a cryptocurrency
can replace that because you don't have that
third party asking you to pay all these
transaction fees. Let's take a look at some
statistics here.
$400,000,000,000
yearly
is transferred
from immigrants
back to their families in, like, the poor
countries where they had come from. And when
they transfer it, especially if they're in a
rural area, there's a 9%
service charge.
Now for some of you, you're like, I
could do 9%,
but those people can't.
Like, every percent or half a percent or
fraction of a percent is a very big
thing for them because they're poor. They don't
have the same type of money that we
have. So what's gonna happen
is that the pro of cryptocurrency
allows money transfer to be sent without a
third party, therefore, you can cut the transaction
fees
almost entirely or very significantly.
Okay?
One of the reasons now to defend
the third party a little bit, we don't
want to just keep throwing them under the
bus, The reason why they charge transaction fees
is because,
they have a certain type of insurance. If
you spend you can't spend spend money that
you don't have. If if something happens, there's
a problem, money is stolen from your account
or something, they'll give you some kind of,
you know they're like, oh, we'll take care
of it or we'll reverse a transaction or
something like that. But the good thing about
cryptocurrency is you don't need to convert it.
If the people wanna convert it back into
their local currency, they can. If they don't
wanna convert it back and they wanna just
go and transact between themselves, they can do
it. And this is what happened early on,
I mean, a few years back, in bitcoin,
is that people who started using it, there
were people from poor countries who did not
trust their own governments because their own government
sometimes starts printing so much money, it devalues
the currency. So they're willing to trust anything
else besides their own government, and you have
to understand that. So part of this comes
back down to which government do you live
in and how much do you trust your
government
compared to how much do you trust the
volatility
of a pro of of a technology or
a currency like cryptocurrency.
Alright.
Few few other things.
Most,
people who live in very poor areas, right,
they don't have traditional
bank branch facilities. They're living in farm areas,
rural areas. There's no banks that are being
built. It's very hard or very costly for
someone to set up these type of branch
institutions, they can't do that. With cryptocurrency,
they can be doing that on a digital
scale.
Also,
the idea of,
what was I was gonna say?
I lost my other point. But anyways, people
who are poor areas, they can benefit from
this a lot. The the second,
pro
is that crypto cryptocurrency
is actually
much more difficult to hack
than
other,
companies that have like one server. So the
thing is, this is a common question people
have, like, you know, what if it's hacked
and you lose your money? I mean, JPMorgan
has been hacked. Home Depot has been hacked.
Target has been hacked, and they stole all
the credit cards and all of that stuff.
When you have one server in one place
or in a few places, it's easy it
can be hacked.
Right? When it's distributed, it's a lot more
difficult to hack it. So technically,
you know, you can't shut it down just
by attacking 1 or a few targets. So
it's actually more secure.
You can make the argument that it's more
secure than
centralized,
you know, companies or something like that. Okay?
The 3rd pro is that you can prevent
government manipulation.
Okay. So those of you who followed news
not too long ago, few years back,
look at Zimbabwe.
Zimbabwe's government overprinted money, and their money became
worthless, completely worthless. All the people who had
their money basically became poor overnight.
Their their their Zimbabwe dollar went into like
a 100,000,000,000,000
for like, you know, 100,000,000,000,000 per bill or
something like that. So they overprinted money, you
get hyperinflation,
people lose all of their wealth. So what
happens is that people in Zimbabwe,
they love cryptocurrency.
They're very happy because they're they don't trust
the government to somehow not be prevented from
doing something like this again.
And they already saw what happened to them
or maybe to their parents, you know, just
like a decade ago or something like that.
So the question comes back down to, who
do you trust more?
Because a lot of fatwas that are coming
up by Muslim scholars, they're saying that we
cannot
say
that a decentralized
currency is halal because of the risk that
exists.
But this comes back down to, do you
trust your government more depending on where you
live? Or do you trust a p two
p distributed network around the world more?
That that's not an easy question to answer,
but that plays a role in giving a
final verdict
on what cryptocurrency is gonna be or what
Bitcoin is gonna be. Okay? So many countries
have these problematic histories. Right? So for them,
they don't care if the price is volatile.
At least there's some store of value for
for for cryptocurrency.
The next thing is, oh, yeah. That's the
other point I was gonna make on the
poverty.
Many people cannot open a bank account.
There are many people in the world, they
cannot open a bank account. So how can
they do any type of digital transactions or
something like that? This gives them an opportunity
to be able to participate in, you know,
quick transactions
without having to open a bank account. Let's
say you have a dry cleaning business, for
example,
and you wanna start accepting,
payments from people, digital payments.
What will you have to do normally? You
have to apply
for Visa account, you have to get the
machine,
You know, you have to pay the transaction
fees,
or you could just say, hey. We accept
cryptocurrency.
You know? And then you just have a
cryptocurrency reader there. You can just grab it
from your phone and they can pay you
immediately
very minimal transaction fees. So this becomes very
easy for people to process transactions.
Okay?
And the last pro
again comes back down to trust. So this
happens in history again. In 2010,
there was a website, and there's still a
website, called WikiLeaks. Anyone heard of WikiLeaks?
WikiLeaks basically leaks information about government scandals and
corruption and all that. Whether you fully agree
with them or not, you know, that's that's
a whole another issue.
What ended up happening was in 2010,
the government, because they weren't happy with some
of the information that was being leaked out
about them,
they
suspended
donations to WikiLeaks
through PayPal.
So PayPal was given pressure by the government
says, you're not allowed to process
WikiLeaks
donations
anymore.
And that's how they relied on all of
their money. I mean, there's donation based organization.
So now,
WikiLeaks was thinking, okay, well what are we
gonna do? We're gonna shut down, the government
has forced PayPal to stop dealing with us
because we're exposing some government things.
So what did they do? They said, don't
worry, we're gonna accept bitcoin. And this was
2010, this is very early on. Right? It's
very new. So they said, we will accept
bitcoin, and they started getting
donations in the form of bitcoin. And even
people who did not use bitcoin, they can
convert their dollars into bitcoin or whatever currency,
and then donate back to WikiLeaks.
So they can continue doing the work that
they're doing, especially if you agree with that
work.
So what that does
is
that's potentially a pro, assuming that you support
WikiLeaks, which I, for the most part, do.
So what that does
is allows
people who are doing good work
to kind of go beyond and not be
regulated
by government, who may have
an agenda to, you know, to protect themselves
or cover up scandals or cover up things
that probably shouldn't be covered up in the
first place.
So so that
that was a very important thing. So these
are some of the pros of cryptocurrency.
Okay? Let's go to the cons
of cryptocurrency.
Alright. So some of the cons,
and we're almost done. We're not that far.
Okay?
We talked about Silk Road,
opened in 2011.
They started, you know, selling all this bad
stuff. So it's a problem.
You can do bad things with cryptocurrency.
There was a guy you heard anyone heard
of 3 d printers? You know, 3 d
printing? Right? So one guy came up with
an idea, he said, I'm gonna make,
he went on Indiegogo, which is like a
crowd funding place. And he said, I made
a schematic I'm making a schematic
for a gun.
I sell you the schematic, you put it
into your 3 d printer, and you can
print your own gun.
It's kind of cool, but it's kinda dangerous,
because then anyone can print their own gun,
and it's actually gonna be a functional gun.
So Indiegogo
shut him down and said, you're not allowed
to do this. You know, this is not
acceptable.
So if he wanted to go and say,
okay, well, I have Silk Road or I
have I'll accept Bitcoin. I don't need to
accept your money. I can go ahead and
continue to sell it. You say, well, there's
a con there. This allows bad people to
do bad things and it makes it easier
for them.
So that's in one argument that people are
saying when it comes to why cryptocurrency should
be forbidden in Islam from an Islamic perspective.
Of course, he could still go and sell
it, you know, to his friends for cash,
you know, if he wanted to. But this
just makes it easier. So it makes it
easier for good people to do good, and
it makes it easier for bad people to
do bad, and that's where you need to
kind of, you know, draw a line somewhere.
Right? So at what point does it become
so bad
that we need to say, hey, this is
something that should be stopped.
Like, I mean, criminals use email too. Right?
To do their meetups and stuff like that.
Are we gonna shut down email? Are we
gonna regulate things like that? So that's the
question. Governments who are shutting down social media
during protests and all of that. So that's
something. Another con
is that the,
what are they called? SubhanAllah. I'm drawing a
blank right now. The place where you exchange
Bitcoin.
This is another name for ex what exchange?
What is it called?
No. No. Not blockchain. Anyways, okay.
The the exchanges. Okay? The exchanges that exist
when people wanna exchange, one of them was
a big one was called Mount Gox.
Mount Gox basically is one example of a
big thing that happened where
we had
half a $1,000,000,000
of missing Bitcoins
from this company where people were storing their
Bitcoins. Right? So that's 6% of the total
circulation of Bitcoins,
and they're either stolen or they're lost or
they somehow disappeared. Now this is not a
problem in the Bitcoin network. This is a
problem in that specific exchange.
Right? And then they caught the guy and
they were trying to figure out, and the
guy was moved to Japan and he was
arrested in Japan and all of that. So
the issue comes back down to
these currency exchanges or or cryptocurrency exchanges,
they are a form of a third party
introduced into a decentralized
system that's not supposed to have a third
party for convenience.
So you have to be able to trust
your 3rd party. So you're gonna have some
people who are 3rd parties, which are Bitcoin
exchanges or or cryptocurrency
exchanges, and if they're not regulated well,
they can be ripping off a lot of
people.
And that's kinda what happened with Mt. Gox
probably, and that's what happened with a few
other cases. So the argument is made is
that when you have the government
regulating
banks at least, you have more protection because
there's a set of regulations there. Whereas when
someone's doing this and they're not being regulated,
there's a lot more danger for people to
get scammed and lose all of their money.
So that's another argument that feeds into it.
And the last argument, the last con, really
is that Bitcoin is very volatile.
Right? Has a market cap trading, you know,
very high.
Lot of bitcoin is basically held for speculation
purposes. So you see the price is fluctuating.
Like I said before, a lot of people
lost a lot of money, a lot of
people made a lot of money, or maybe
some people made a lot of money, most
people probably got too greedy and kept spending
and lost a lot of money. So
comes back down to
the purpose of money.
What is the purpose of money? Money has
3 purposes according to economist. Number 1, it's
a measure of value.
In that sense, to summarize bitcoin, like other
type of currency, is a measure of value.
It has a fixed value even though it
fluctuates, and it helps measure things for people.
Number 2, it's a medium of exchange.
Cryptocurrency
is an excellent medium of exchange
because there's no third party and transaction cost
it's quick transactions,
and the costs are very very low,
because of that technology.
And then the third,
you know, the third purpose of money is
that it's a store of value.
Something where you're gonna keep it for a
long time, and you hope that it continues
to maintain its value.
The problem
with cryptocurrency
right now is that it's extremely,
volatile. So it's not a very good store
of value currently, right now.
But it's been argued in many papers and
all of that, Journal of Islamic Economics
had a paper on this,
that because
inflation
exists in the other fiat currencies,
and that's just the way the banking system,
you know, functions, because there's a cap on
the amount of bitcoins that could be produced
and other cryptocurrencies may have their own, you
know, versions of things,
that it could potentially serve in the future
as a better store of value than the
current currency that we actually have if it
stabilizes.
Okay. So
the last thing
is we have a few questions about Islamic
legality. So we talked about the principles,
we talked about the philosophy behind currency and
money and what it means, and then we
talk about the philosophy of Islamic principles which
could potentially make it haram.
These three things have to all be understood
before we come to a conclusion on something.
So
few questions that people have,
that comes out and make arguments. Right? Number
1,
the question that we have to ask is,
how is
cryptocurrency
different enough
from fiat currency
that makes 1 halal and the other haram?
I mean most almost everyone says that fiat
currency is halal. Whether you think it's intrinsically
halal or halal because by necessity,
we use it. Right? No scholar is gonna
come and say, you know, the $100 bill
that I have in my pocket, that's actually
haram. You know, because they have to, you
know, use currency as well. Not gonna function
in life. So the question is now, it's
not about what is ideally Islamic.
How is cryptocurrency
different from a fiat currencies,
such that one could potentially be halal, which
is fiat, and the other one could be
haram? That's a question
that
I think people are not giving a very
clear answer to when they say that it's
haram, and I'll come back to that. Number
2,
objection comes is that it's just digital. It
has no real value.
It has no physical existence.
As I mentioned to you before,
money in today's economic system,
fiat currency
has no real value either.
I'm sorry to say, there's no actual value,
commodity type value for that thing. And then
when it comes to the idea has no
physical existence.
Right? The money
inside the banking system with the fractional reserve
system, the 90% or whatever, it has,
it has no physical existence either. It's a
number in a ledger, which is exactly what
cryptocurrency
is. It's a number in a ledger, and
that ledger is distributed.
And the difference is the ledger of a
central government is kept in, you know, is
is controlled by a central system. So
the next question that gets asked is, how
do you classify
cryptocurrency?
Is it a digital asset?
Is it a commodity currency?
Is it a representative currency?
Or is it a, fiat currency?
So the answer
alright. Let's work through it real quick. Is
it a commodity currency?
No. Because it's not tied to any commodity.
Is it a representative currency?
No. Is it a fiat currency?
Because there's no government. Right? No fiat. Is
it a digital asset?
Is it an asset?
This is where it matters. Right? So the
answer is, is it a digital asset or
is it a digital currency?
Why does this matter?
This plays a very big role in giving
the Islamic answer. Because if it's an asset,
you're allowed to have what's called riba on
it. Riba meaning you can charge a profit.
Because an asset, you can charge a profit
on top of it. If it's a digital
currency,
you cannot have currency switched with another currency
for more value because that's the very definition
of interest.
So defining it as being a currency versus
an asset is extremely important. And you find
a lot of different papers coming out on
this from different, you know, Muslim scholars in
different think tanks saying one that it's an
asset, therefore we're actually allowed to charge, you
know, a type of interest or this additional
profit on it. The other one is saying,
no. You cannot do that because it functions
like a currency. It was designed like a
currency. Its original purpose was to be a
currency. So how did you all of a
sudden give it to be the idea of
a digital asset? So I think that
it's a very weak argument personally, the to
to classify it as a digital asset. So
the idea, do the rules of riba actually
apply,
to it
because it's digital currency?
The answer is the meaning the prohibition of
riba, does it apply to it? Can you
trade 1 Bitcoin for 2 Bitcoins,
you know, on deferred payment or something like
that? The answer is yes. The rules of
riba apply to it, meaning you're not supposed
to be doing any type of interest on
it. Alright. The next question is,
a lot of fatwas have come out saying
that
if you do not have government control of
a currency,
the fatwa should be that it's haram because
of the amount of harm that can come.
This is
the most common thread that I've I've gone
through about, you know, 10 different papers and
like, you know, 10:10
more different articles on it by different, you
know, Muslim scholars. This is one of the
very common arguments that you find throughout most
of the papers. Is that do you need
to have
government
controlling currency
in order to say that it's safe enough
to not cause a great amount of harm
in society?
I think this is very debatable, and this
is something that really we need to be
working this out. Because what's going on here
is that
we have a lot of things that government
don't necessarily have control over. Even in America.
Like for example,
anyone use Tor browser?
Tor?
So Tor is a browser.
It's called the onion relay, t o r.
It's an anonymous browser. It was developed by
the government.
Developed by the government.
And when you use it, you cannot be
traced back. You can make an anonymous website,
you can, you know, you know, surf anonymously,
and it's very, very difficult, even for NSA
or someone to actually be able to trace
where you're going through FBI and all of
that stuff. Right?
But it's allowed.
It's not banned.
Right? And in many places, it's there. There
are, you know so so we need to
be very very careful. And I say we,
I mean like, you know, Muslims in in
general in our attitude and our outlook, before
we say before we become pro government versus
anti government, we need to really weigh the
pros and cons. And I know that people
come from different backgrounds. We're in Southern California,
I think a lot of young people,
they're very anti government. They're like, you know,
anarchy, we're gonna take over, you know, we
can't trust these governments. The other people are
very pro governments, and you know, you have
to have government to regulate things and keep
things in control and order.
Both of these things are true. We have
to have a a balance between them.
But when you're out of balance, then
there's a problem. Right? So that's where,
in my opinion,
Muslim scholars need to be
very very careful
of taking a side on this political issue,
which really varies with time and place. It
varies from country to country. It varies with
political circumstances when you're assessing harm versus benefit.
K?
The next,
argument is that there's no spending protection. So
when you spend,
bitcoin, or let's say someone comes and robs
you, and they put a gun to your
head, which happened recently to 1 guy,
actually happened in Turkey, recently.
Took $3,000,000
$3,000,000
worth of bitcoin from him,
forced him to log in to his password
and and do it. Now if they did
that somewhere else,
at least you have a centralized, you know,
bank or a a third party can come
in and kinda reverse the transaction or trace
the transaction. Here it's very anonymous.
So that,
is a potential objection that people you cannot
reverse the transaction.
You you pretty much can't trace the transaction
exactly.
But then
the flip side to that is
what is the flip what is the answer
to that objection?
Anyone?
That's like cash.
You can't do it. I mean, if you
give someone comes and you have a lot
of cash on you, they're gonna steal it
from you too, and you can't reverse the
transaction.
And you can't trace the transaction because there's
no, you know,
tracing mechanism on that cash. Right? So it
makes it easier. Like I said, it makes
it easier to do good and it makes
it easier to do bad.
And we need to be careful where we're
supposed to draw the line there. K? The
next thing is, what if someone shuts it
down, you lose all your money? I've already
addressed this issue. What amount of regulation So
this is my question. To people who say
that it's forbidden, it's haram
because there's no regulation on it. The question
is, what amount of regulation would make it
halal?
There's no clear cut answer here, but this
is a question that I'm throwing out.
What amount of regulation is needed? To what
extent has has it to be regulated in
order for it to become halal, whereas on
the other side it crosses, you know, the
haram thing. And then of course, it's it's
anonymous. So if it's anonymous, then, you know,
how you know, it's a it's a problem.
Cash is anonymous too. In fact, cash is
technically more anonymous than cryptocurrency
because at least there's a ledger of cryptocurrency.
Even if you can't trace it back, it
exists. The transaction logs exist,
whereas cash doesn't exist. K?
So conclusions, and then I'll take questions.
So there have been several claims of cryptocurrency
being haram, and there's a few claims of
cryptocurrency being halal, right, which was the default
position.
So among the people who declared it haram,
I've come across several,
clear cut
answers. Grand Mufti of Egypt declared it haram
in January 2018.
The director of religious affairs, Diana, in Turkey
in 2017
declared it banned, basically, and and haram.
And,
there's other scholars. One research paper came out
of Madinah University declaring it to be haram,
and a few others.
Few people,
Diovan as well. Yeah. Diovan actually
was really on this long time ago, saying
that it's also, forbidden.
Then we have some Islamic councils in Malaysia.
We have few people like Sheikh Joe Bradford,
some other people who said, no. It's actually
halal as a as a technology.
Now be careful. As a technology
in terms of the transaction. K. So what
are the reasons why did they say it's
haram? Comes down to these answers. Number 1,
they say that there's a risk of fraud,
and you can cheat because there's no centralized
surveillance.
So you need to have centralized surveillance to
protect risk to fraud. Number 2, it can
be used to fund terrorism.
Number 3, it helps you know, it's easier
to launder money, so it engages in money
laundering. Number 4, there's a high level of
volatility, so it's always going up and down.
There's a lot of risk. This can potentially
this is ghhar, uncertainty because of the high
amount of risk and volatility.
Number 5, it's issued by an unknown body
or an unknown group. So we don't know
who who controls it. I mean, that's that's
a I think one of the poorest arguments
because
you don't need to know control it's not
it's not controlled by someone. It's decentralized.
Decentralized means it's not controlled by anyone, specifically.
Number 6, it has no tangible reality.
We talked about that.
And number 7, they say most countries don't
accept it. So if they don't accept it
and it's not recognized,
then we should say it's prohibited. But then
of course, what happens when it does become
recognized? So then there's a fatwa change. So
these are some of the,
elements
that that people have said, for this reason,
it may be forbidden.
Now this is talking about
the concept of cryptocurrency
using cryptocurrency.
Now the idea, like I mentioned before, people
have different reasons why they ask. So when
we're talking about the selling or the purchasing
or the trading
or the mining of cryptocurrency,
It may be permissible, it may be impermissible
depending on all the Islamic laws that exist
on currency speculation,
and things like that. Okay. So basic
principle on currency speculation and trading in currencies,
This is from forex's website.
They basically they say
that,
currency exchange
currency exchange
is permissible in Islam as long as there's
no interest element involved in it, number 1.
Number 2, it's made hand to hand or
spot,
and there's ways to translate that depending on
Islamic forex exchanges.
And number 3, that the exchanger
has a valid reason
to anticipate a probable profit
based upon an analysis
that does not rely upon the psychology of
gambling.
K. So what does that mean exactly? That
means that a lot of people, they're speculating
on the market and they're trading currencies,
and it's akin to gambling.
Because they're trying to make a quick buck
and trying to buy right now, and they're
gonna try to sell when it goes up
a little bit.
I I didn't say it's gambling, I said
it's akin to gambling. It's like gambling. So
what ends up happening is the idea that
Ibn Rushd mentioned about 2 things can cause
or 4 things he mentioned, but 2 main
things. Riba and ghhar are intrinsic
to a transaction which can cause it to
be prohibited in Islamic law.
Ghhar means uncertainty.
Part of uncertainty, and there's a whole chapter
on it, part of the uncertainty
is
involving in a certain type of speculation
that relies on the psychology this is the
good phrasing because it's broad, relies on the
psychology of gambling
which would cause it to be prohibited.
A lot of that depends on the amount
of information the person has, the intention that
the person has, how long they plan on
keeping it, what they plan on doing with
with it, and all of that stuff. So
this is kind of
a vague answer, but it gives you the
overall principle of how it gets processed. And
then a more clear specific answer really depends
on
circumstances, it depends on the volatility, it depends
on other things. K. So my personal recommendation,
I mean I'm not here to give economic
advice, just so you know. But,
if you're using it as a store of
value, and you're gonna put your life savings
into it, I would be very careful
Cause it's not a very good store of
value right now because of the volatility, but
it's an amazing medium of exchange. And if
it's considered to be halal and there's no
prohibited elements
as a medium of exchange,
then that this is an emerging technology. There's
a few more arguments, by the way. It
uses a massive amount of electricity,
to be able to process all of these
transactions. So another argument has been made, there's
absolute waste of electricity.
The amount of electricity that it takes to
process,
bitcoins
is like the entire country of Pakistan uses
or the entire country of Ireland. That's a
lot of electricity. Right? The amount of kilowatts
that it uses per, you know, per bitcoin.
The thing though is,
you know, bitcoin might go away like I
said. The idea of cryptocurrency
is being built upon, is being developed.
Satoshi was the first one to come up
with a solution
to the double spending problem. But there are
other people who are gonna develop more efficient
methods
to, you know, result in a similar type
of, you know, benefit of of having, you
know, deregulated,
decentralized
currency.
So
from that perspective,
we shouldn't just shut the door quickly, and
we should see what other type of things
are developing.
The last thing I'll say is that, when
the Internet was first developed,
right, it
was just designed to share documents with people.
And look what the internet became now.
People are always very cautious
and very careful when there's a new technology,
and it can be very scary.
It has potential to do bad, and it
has a potential to do good. So I
think we as Muslims,
we should,
we should be cautious, we should tread cautiously,
but we should never close the door before
we understand
the real pros and cons of things
because
we might just This may be the thing
that Muslims have actually been looking for because
we know
that
our
economy is primarily based on interest, the entire
world economy is based on interest. And we're
pretty much one of the few religions left
in the entire world or people left in
the entire world who still say that, yeah
we shouldn't
be taking interest or paying interest. And our
money devalues, and in order to you know,
be able to have some stable currency,
we need some type of alternative in the
system somehow.
This may be
that alternative to the system we're looking for,
or it may not be. We don't know.
We should be careful before we close the
door,
and people should just be cautious about it,
inshallah.
So this is all I had to say
about that, inshallah. Any questions?
Yes,
sister.
Yeah.
Yeah. You're right. The so the criminal world
is going to use this technology, and they're
gonna use all other technologies
to do the bad things that they wanna
do. Right.
So let me let me respond to that
by saying there are Muslims who are actually
trying to do exactly what you're saying
through blockchain technology. So what they're trying to
do is they're trying to go back to
the gold standard
by using a cryptocurrency
that is actually
asset backed by gold even. So there's so
many things that are developing now in this
field that we shouldn't I think we shouldn't,
close our, our
idea
to what we're trying to achieve. So if
you're saying we need to go back to
the gold standard,
this could potential the technology itself, not bitcoin,
the technology itself could potentially be a means
to actually get people back to a more
stable type of currency like the gold standard
if that's what we're looking for. Just keep
that in mind.
Yes.
So the thing is when it comes to
stocks, if the stock is represented by something
that's considered to be an asset, there's a
difference between something that's considered to be a
currency in Islamic law. Right? And the reason
is the rules of riba apply and other
rules apply to it because they're viewed as
different things. Now, when we're viewing something in
sharia in Islamic law, we have to go
back to not only the way that they're
written, but their actual function. So if something
is viewed, it's called a commodity, but it
functions like a currency, we should be viewing
it as a currency
and vice versa.
Are you talking about for that specific instance?
Is yeah.
So I have not looked into those, so
I can't give you an answer.
Yes.
So so let me clarify. So I'm not
saying that it turns into
a gambling habit when you're trading cryptocurrency.
What I'm saying is, it's it's not that
it becomes a habit.
It's the
when I said the mental so when it
when it when it meant when I said
the mentality of gambling, it's not talking about
the addiction of gambling.
It's talking about the uncertainty
of making a decision
on a specific transaction, even if it's only
1 transaction. I just wanted to clarify that.
So sorry. Go ahead. Continue.
Right. So it when it comes to the
stock market, again, it comes to the it
comes down to the function of how a
stock is viewed versus how a currency is
viewed In terms of what what it is
and what its function actually is. There's a
difference between what's viewed to be a commodity
or a percentage share of ownership in a
company, which has a certain type of value,
versus a currency,
which doesn't actually have an actual intrinsic value
that's tied back to a commodity.
So let me clarify that. So,
trading currency with the intention of making a
profit
becomes a gray area.
It's a gray area.
Now from that gray area,
there's a lot of, you know, discussion amongst
scholars in terms of what causes it to
become okay and what causes it to not
be okay. Right? So,
you know, I unfortunately, I can't go into
the details of all of that because a
lot of different opinions, It's a very long
thing. But the the summary of all of
that is, it depends on
the
type and the amount of information that you
have,
that you're using
in order to make a decision on why
you're buying this currency,
combined with partly your intention of why you're
doing it in terms of you planning to
just sell because you're hoping that it reaches
certain value and then you sell.
These two things will determine whether
you move from the gray area to the
halal or to the haram.
I hope that just narrows it down. I
can't give you a clear cut answer, but
that just narrows it down for you.
Yeah. Yes.
That's
okay.
Let me repeat the question for the camera.
So among
the principles, among the cons of cryptocurrency
that we mentioned, which one of them are
fundamental to the cryptocurrency that cannot be removed?
I see. I see. Okay.
There is. There is. There are some. So
for example, the the risk of harm.
The risk of harm that they come up
with about, for example, money laundering and funding
terrorism and things like that,
risk of fraud, those things cannot be resolved.
They cannot be resolved for any currency, because
that risk is always gonna be there. Right?
Even if you regulate Bitcoin
exchanges in countries,
the vast or or cryptocurrency exchanges in a
country, which I think there should be some
amount of regulation,
most people are gonna use
cryptocurrency exchanges
because of convenience.
But you don't have to use cryptocurrency
exchange.
So in the criminal world,
they can still get cryptocurrency
without going through an exchange that exists in
their own country,
and therefore they'll continue to transact with it.
That is intrinsic to cryptocurrency
technology,
which cannot be removed from it. So that's
one example of it.
They can make it more difficult and just
make it more of an inconvenience
for people to go around there and get
their own thing. But you can just you
can go on their website. You can establish
your own, you know, bitcoin wallet.
The the question is, how are you gonna
convert your dollars
into cryptocurrency?
Right?
If you wanted to, let's assume, you know,
you were a criminal. This is not
like a wikiHow explanation of how to be
a criminal, but I'm just explaining to you
how it would work. If you wanted to
be a criminal, which you should not be,
what you do is you just go on
online, you'd establish your own bitcoin wallet without
going through an exchange.
You have your own, you know, you have
your own, you know,
place where people can send you money, and
you find someone on the street or you
find somewhere in a random part of the
world who is willing to trade your cash
on the street
to transfer bitcoin over to you on the
spot, and now you got bitcoin or you
got cryptocurrency in your wallet, and you could
do whatever you want with it. It's inconvenient,
very inconvenient,
but it can be done. Right? So that's
not that's in a way that reduces it,
because the more inconvenient you make it to
go around exchanges,
the more protection you have. But then the
problem is, if you over regulate
Bitcoin or cryptocurrency
exchanges in your country,
you've just removed the whole, you know, purpose
of
deregulation and removing the 3rd party. You just
threw the 3rd party back in and you
over regulated the 3rd party. So it removes
the benefits. So the more regulation you have,
the more of the benefits you're gonna lose.
But then at the same time,
people still use,
you know, bitcoin exchanges and cryptocurrency exchanges
because it's convenient. Because you wanna just do
a quick transfer and you want someone to
store it for you and all of that.
That's that's pretty much what it seems, but
then all the other arguments about electricity
and things like that.
Things
that are going to be resolved or actually
can't. Like yeah. Things that can be resolved.
Yes. Exactly. Yeah. You're right. Pretty much. Cover
virus.
Yeah.
In which aspect?
You're talking about volatility of the price.
You're talking about price volatility. Right? Yeah. Yeah.
So a lot of scholars have said the
price volatility. Now if the price stabilizes,
right, which it could eventually,
right, then it'll
the volatility
of cryptocurrency is not intrinsic to the currency.
It's because people are speculating on it. So
you can potentially make another type of cryptocurrency,
which one of one of our friends, we
were talking about. If you if you tie
it to something
or you you tie it to something that
will be more stable,
then you're not gonna have the same amount
of volatility. And there's a lot of Muslims
actually right now, Muslim organizations that are working
on something like this, that are
trying to tie it to either some commodity
or tie it to gold or have a
minimum value to it, which is gonna prevent
the amount of volatility that it could potentially
have. So what can happen what I'm trying
to say is,
this kind of in line with his question
is,
volatility is not intrinsic
to cryptocurrency
per se.
It can be reduced
or it can be
I don't know. Maybe not eliminated, but it
can be reduced to a significant thing, and
it's gonna have to do with the trend.
It has to do with the fact that
it's new and all.
No. No. No. No. You don't need government
control to be able to reduce the volatility
of another cryptocurrency.
That's not necessary per se.
Yeah. Yes.
For zakah?
Zakatul mal in cryptocurrency?
It's too difficult to cash out the amount
in terms back into dollars.
Like I said, a lot of poor people
use, Bitcoin. So you could just give them
Bitcoin.
Azure is like, yeah. They can go buy
a meal from it.
How you find a poor person?
Who has who has a who has a
Bitcoin wallet?
What we'll do, you go to Uplift Charity,
and what they'll do is they'll establish a
Bitcoin wallet for the people on their list,
they'll transfer Bitcoin over to them.
Why
not?
Via Bitcoin?
If there's a masjid that does accept Bitcoin,
yeah. You can give it to either a
relief organization or give it to a masjid
that it does accept Bitcoin.
IOC doesn't. Our university did at one point
in time. We were accepting bitcoin for our
enrollments. If you ever wanna register, you can
pay us through bitcoin, you know. So
but,
we currently don't, but there might be. And
if you maybe if you go to, Uplift
Charity or Islamic Relief and say, hey. Can
you guys set up a quick Bitcoin transfer?
It's not a difficult thing to do. I
mean, I set it up on our website
in 10 minutes.
Yeah. Yeah. That
yeah. That matters too. Yeah.
Okay. So good question. So question is,
you're asking if that's what happens?
So so the the so this is the
thing. So you're right. In a sense, when
you convert, there's a third party involved in
the conversion.
Right? But
but the transfer itself doesn't have a third
party. So so the the question is
is
once you've converted
into the cryptocurrency,
now you've eliminated third party.
Who who do you give that money to,
the cryptocurrency to? To anyone who's willing to
accept the cryptocurrency.
Yeah.
You okay. Let me give you an example,
a very primitive example. Let's say you met
Satoshi Nakamoto. Okay? You met him on the
street. And you say, look, Satoshi, I know
you got a bunch of bitcoins because you
started this entire thing. Right? I have a
$100.
I'm gonna give you this $100. You transfer
into my bitcoin wallet some bitcoin worth a
$100 from you. You take that bitcoin wallet
that you have, and you have family back
home. You tell them to open up a
bitcoin wallet for themself, which costs nothing, and
you send them bitcoin. They're gonna go let's
assume your family lives in Zimbabwe.
They're gonna go to the store,
and everyone in Zimbabwe is skeptical for example,
because what happened recently in their government. And
you go, hey man, I wanna buy that
apple from you. You know? You say, hey
do you accept bitcoin? He says, of course
I do. Better than the $200,000,000,000,000,
Zimbabwe dollars that we had. And he'll go
ahead and accept it from you, and you
never need to convert it back to any
type of local currency.
So the only 3rd there's no third party
because you met Satoshi on the street.
The
what?
Yeah. Satoshi got the $100. Yeah.
How did he get it? You give him
the yeah. You give him the money.
You hand it to him.
He's not a 3rd party. He's second party.
There's no third party overseeing your transaction. That's
what the third party means. Right?
No. No. I agree. So Satoshi, if he
was smart, if he really believed in his
own system, maybe maybe he wouldn't want your
money. You know?
Right.
What that's
no. That's a question. So
what you what you what you're saying is
basically
the cryptocurrency is not gonna displace
the currency that you you you the currency,
fiat currency that you live in. Like, it's
not gonna replace the American dollar. Right? Even
though I have a quote from Ron Paul
here, by the way. This is pretty interesting.
Ron Paul anyone know who Ron Paul is?
Okay. Yeah. Former congressman Ron Paul. He said,
where'd it go?
Alright. Lost his quote. Anyways, he says that
Bitcoin is gonna, like, destroy the American dollar
or something like that. That's not likely gonna
happen in the near future.
Right? Most people say it's not likely gonna
happen, but this becomes an alternative currency that's
used as an excellent medium of exchange. So,
yeah. It's not gonna solve all the problems.
It's not gonna remove the entire system of
dollar and, you know, banks and all of
that stuff. They're not gonna disappear because of
this technology right now. And if
they did, it would actually be a problem
because
we don't have enough electricity to to actually
process all of that Bitcoin transaction. Right?
So,
yeah. You're right in that sense, but it's
a step in the direction of where they're
trying to go. K? In the back.
Yep.
Yep.
Sure.
Right.
Right.
Right. Right. So the question is how prevalent,
has this become and how many people are
using it? So, I mean, you know, there
Microsoft is accepting bitcoin. There are subway locations
which accept bitcoin. You could buy a subway
sandwich there. You know, there are ATM machines
where you can just withdraw, you know, you
can actually get your bitcoin right there. So
it's becoming more and more prevalent as the
days go by. Every year, there's gonna be
more and more people who are gonna be
accepting bitcoin. So when you have major franchises
and major corporations even accepting it, I think
it's, it's only gonna be a few years
before it becomes very very common, to be
to be accepting that. Many websites now are
integrating all the different types of
integrating all the different type of cryptocurrency, which
unfortunately is always being exchanged back and forth,
but it's being accepted by, a lot of
mainstream companies in America and around the world.
K.
Sisters stopped.
They're done. Okay. I didn't look at the
sisters' side for a while. So anyone who
has not asked a question yet? Anyone who
has not asked a question yet? You've not
asked a question.
Who's paying for the electricity? The people who
are running the computers. Why do they pay
for the electricity? Because they get bitcoin by
mining.
It's called my like processing the bitcoins gives
them bitcoins
for now. That's
it can offset it can offset their cost
because of Bitcoin value.
The money so right now, Bitcoin is not
maxed out. So it's still being generated, meaning
that it's being mined. It's not reached the
maximum 21,000,000.
Is it that you value the transaction
more than offset the services? Yes. Exactly. Yeah.
It offsets it.
Nobody owns the system.
Nobody owns the system. Nobody owns the entire
system.
So you have a computer, you can set
up and start mining bitcoin on your home
computer if you wanted to.
You're not gonna have very good processing power
though, compared to people who have like an
entire, you know, center of computers chained up
and everything. And now they're putting it in
like cold places like, you know,
Iceland and stuff like that, it automatically cools
the system. Southern California is not the best
place to be generating a lot of heat
and electricity. It's not gonna help you very
much. But, you could do it. You could
participate. Like there was a program, you know,
when I was in college, there was a
program called SETI.
Anyone know this program? S e t I,
search for extraterrestrial
intelligence? Basically what we used to do when
we were in the dorm is we would
leave our computer on all night, and when
we go to class, and we leave our
computer on at night too,
you can sign up for your computer to
be used by a centralized program to use
the CPU processing power to be searching for
extraterrestrial
intelligence.
I know that sounds weird and all that
stuff right now. Right? Maybe with SpaceX now
it's not as weird, you know, Elon Musk
trying to get to Mars. But
you can use your computer and you could
disconnect it anytime you want. This is old
technology.
Anyone ever used torrent?
Anyone used torrent technology? Yeah. I'm not gonna
ask you what you used it for, you
know. But but you use torrent technology. It's
the same thing. Torrents work the exact same
thing. It's distributed.
Obviously, there's a lot of software piracy and
video piracy and all of that. But how
does it work? It's distributed. So all of
you are uploading and you're downloading from different
nodes across the network at the same time.
It's not controlled by one specific person. It's
distributed across. And so that's how it functions.
Okay? You had a question.
In principle, is it haram to invest in
currencies? I answered this question technically. Is it
haram to invest in currencies for speculation?
The question is what do you mean by
speculation? Right. So there's 3 principles. 1, there
should be no riba
involved
when you're doing that trade, because sometimes there's
a delay.
Right? Number 2, it should be on the
spot, should be hand to hand. And number
3,
the the type of speculation that you're doing
and the type of information that you have
available is what determines
whether it's
allowed speculation or not allowed speculation.
Mhmm.
Okay. So it's not that it's different. It's
the same. So the ruling on investing in
Brazil,
Brazil's currency because you think the economy is
gonna change is the same ruling on investing
in cryptocurrency. It's not that it's different.
The question comes back down to what is
the answer on that question? And there's a
range of scholarly opinions. That's why I don't
wanna give you one specific thing,
because I'm myself not fully decided on where
exactly you draw the line here, but I
can narrow it down
to where this range of opinions
fall.
And the range of opinions fall, like I
said, it falls within a range of
the amount of information and the type of
information, whether you have fundamental information or you
have technical information
of a lot of people are buying into
this thing, therefore, I'm gonna go buy into
it, that's on the side of
excessive speculation.
If you actually have some type of more
inside information about
something that's going on is happening, and you
wanna get your own money out of your
own currency because you think it's gonna be
going down and you decide to put it
into another currency, this is not considered to
be excessive gharar or excessive
uncertainty.
And in between these two kind of extreme
scenarios is a gray area,
and that's where all the differences of opinion
fall within that gray area. So that's all
I can do for you now is hone
it down.
To
learn more about that gray area?
Yeah.
I'll give you an update at Fajr, inshallah.
Yes, brother, on the side. Yeah.
Sure. Who has not asked a question? You
haven't asked a question?
You wanna add one more?
That's considered riba, you know.
Go ahead.
No. It's always better to be safe if
something is in the gray area.
You already asked a question. Who? You asked
a question already? No. You did not, mister
Smith.
I will rephrase.
Are we there yet, basically? Okay. K. So
the question is, what is the prediction of
Muslim scholars on
the kind of the time where we have
to
run away to small villages and go on
mountain tops like Hadith says? The prediction is
that we're still far from that. We're not
we're we're not there yet, so don't leave
yet.
We we don't know. We don't know when
it's gonna happen.
So
but, the scholars will notify you when it's
time to leave.
And you will see them leaving.
Zohayb, in the back.
Yeah.
That's good. Let me just repeat that for
the camera. So,
so Heb was reminding us that when we
put our money into a bank account, we're
actually fueling the debt based system, because they're
loaning that money out. So people are trying
to be more socially conscious now, so this
is something that we should, you know, keep
in mind as well.
In the back, all the way in the
back.
Like the golden question of the night.
Golden question of the night.
So some of the scholars
who
gave a fatwa on this,
who kind of are
high level
in governments,
I think that their political affiliations
do affect their fatwas.
And then there are other ones who are
not,
directly affiliated with the government
per se or under the control of a
government.
And they
they came to similar conclusions
without the government pressure.
So I'll just I'll say that.
Yes. Who has not asked a question?
Anyone new wanna ask a question? You you
already asked. You already asked.
Okay.
The reference for Satoshi's article, it's on his
website. I think it's bitcoin.org, whatever. Just type
Satoshi Nakamoto original paper.
White paper. Yeah. White paper, and you'll find
it. Yeah.
It's a very interesting read, to be honest
with you.
Can you buy shares in companies and stuff?
As as as long as the company is
willing to transact with the cryptocurrency. Yeah. The
thing is, the cryptocurrency can do it can
do things that normal currency can't do. Right?
You can do micro payments. You you could
pay someone you you can't pay someone half
a cent, for example. Right?
With with with cryptocurrency, you can. Alright. So
can you imagine like a world where,
instead of having an Internet connection now someone
made this point. Instead of having Internet connection
or or even a cell phone connection, while
you drive around,
the the moment you get next to a
cell phone tower
of a different company you don't have to
sign up with 1 company. Every time you
cross
a cell phone tower,
they charge you for the amount of data
that you're using exactly in front of that
cell phone company, and they can take it
right out of your,
you know, right out of your wallet, and
you could pay a fraction of a payment,
for something like that depending on how much
you use it and just keeps multiplying. Right?
Like this is, you know, these type of
things cannot happen
with the normal system that we have because
of the transaction fees
that
are
associated with it. So there's just so many
potential uses for this technology that it could
develop into. We're gonna see in a decade,
like, where this can
actually go. It's like, today,
the Internet,
nobody thought the Internet really would be like
it is today. Right? Like, 20 years ago,
no one could imagine that this is what's
gonna happen with computers and Internet. And now
you're like, wow.
I'm telling you the same thing's gonna happen
in 10 years with the technology. Not not
necessarily Bitcoin, but the technology.
Right?
Right.
Mhmm.
Yeah.
Right. Right. No. That that's a good point.
So there's the 2 two points I wanna
highlight. One is you said,
there's a difference between
day trading and buying and selling these cryptocurrencies
because you're trying to make a quick buck
out of it,
and a difference between someone who says, look,
I know that this is the future. I
wanna, you know, put my money into this
thing and just put it away for 5
years, and I know that it's gonna be
something big later on. So that's a very
good valid point. The second point that you
mentioned about, you know, the importance of smart
contracts with Ethereum and other technologies,
you know, we want to make sure that
we're we're opening the way for innovation and
we're not stifling innovation.
So I'll put this last point in here,
and then we'll stop.
The idea of
having individual scholars,
who are usually
full time imams,
who are dealing with family counseling issues,
who are sitting there talking about, you know,
oh, my son is not listening to me,
and my daughter went off and
got drunk, or something like that.
Scholars don't have very much time to focus
on issues like this, which are extremely important,
as you can see, because they're so distracted
with so many other things.
And one of the things is, we as
a community, I would argue that as a
Muslim community worldwide,
we don't invest very much money and resources
into Islamic research like we should. And this
is part of the problem. So if you
want sophisticated
answers and you want sophisticated research,
we need to change our mentality, understand that
Islamic research councils
need to be well funded, need to be
supported, need to be developed, so that we
have high level capable scholars coming out with
high level, you know, in-depth research on issues
like this. So until the mentality changes,
we're just gonna keep relying and hoping we
have a few superheroes in the community that
just come along and kinda solve all the
problems for everyone. So I think we really
need to think about what our personal individual
role is in trying to solve this issue
and trying to, you know, create things for
the future. InshaAllah. Jazakamalaykiran
for that. When I close, you can I'll
stick around. You can ask me personally. InshaAllah.
We ask Allah
to increase us in knowledge and wisdom and
practice.
Ask Allah
to show us the truth is truth and
help us to follow it and show us
the falses, falses, keep it and keep us
away from it.
Please help with the chairs if we can
get the chairs put away.