Scholars' opinions on the ruling of mining digital currencies in Islam

With the widespread emergence of cryptocurrency mining in the Arab region, fundamental questions have arisen regarding the Islamic ruling on this investment activity. Opinions among religious institutions and scholars vary significantly; some permit mining cryptocurrencies under specific conditions, while others prohibit it entirely based on significant economic and Shariah risks.

What is meant by the mining process?

Mining refers to the process of creating new coins within the digital currency network, where miners add new blocks to the blockchain according to certain rules. In return for this effort, the miner receives rewards in the form of digital currencies, which they can invest or benefit from as their value appreciates.

Mining cryptocurrencies like (BTC) requires solving very complex mathematical problems using massive computational power. Miners choose between two options: owning specialized mining hardware or joining cloud mining pools that provide this capacity collectively.

Shariah ruling: differing opinions and their foundations

Scholars have not reached a consensus on the ruling of mining cryptocurrencies. Some jurists see mining as a legitimate investment activity, where the miner provides effort and equipment for a clear reward. Others consider it prohibited due to issues related to the nature of digital currencies themselves, especially the lack of a tangible backing and their issuance by non-official entities.

###Official Religious Bodies and Institutions’ Positions

The Senior Scholars Authority in Saudi Arabia:
No definitive unified fatwa has been issued regarding cryptocurrency mining yet. However, Sheikh Abdullah Al-Manea, a member of the authority, issued an opinion prohibiting digital currencies, explaining that they:

• Are not traded hand-to-hand
• Lack gold or silver backing
• May involve usurious transactions
• Are not issued under the supervision of the ruler

Al-Azhar Senior Scholars:
Focused on potential economic and Shariah risks such as gharar (uncertainty), jahalah (ignorance), and lack of financial and legal oversight. They concluded that dealing with digital currencies in their current form is not permissible.

Islam Question & Answer Website:
Clarified that dealing with Bitcoin is surrounded by much ambiguity and risk, advising against investing until its true nature is clarified. However, it indicated that dealing with digital currencies may be permissible if certain Shariah conditions are met, such as immediate hand-to-hand transfer and avoiding margin trading.

IslamWeb Website:
Mentioned that the Islamic Fiqh Academy affiliated with the Organization of Islamic Cooperation discussed the issue in a scientific seminar, concluding that the ruling on mining requires further research before a final verdict. Key unresolved questions include classifying digital currencies: are they commodities, benefits, or legitimate financial assets?

Cloud mining: between permissibility and caution

Recent Islamic legal studies, especially those issued by the Faculty of Islamic Studies at Al-Azhar University, indicate that the ruling on cloud mining varies depending on its type:

Hosted Cloud Mining:
Considered a contract of leasing a service for the benefit of hardware, where the miner rents processing power for a fee. Most scholars permit it if it is free from risks.

Mining using Hash Power ((Hash Power)):
Treated as a permissible business activity, and is allowed according to the preferred opinion, provided that it adheres to Shariah controls and is managed based on fair sharing of effort and rewards.

Risks that render mining prohibited:

• Relying on pyramid marketing or suspicious referral systems
• Lack of transparency and fairness in profit distribution
• Unclear contractual terms

Shariah controls for cloud mining:

1. Clarity of the contract type ((Lease or Partnership))
2. Precise knowledge of financial details and returns
3. Avoidance of pyramid schemes and unclear systems
4. Verification of the other party’s integrity and transparency of profit-sharing mechanisms

Ruling on different digital currencies

###Bitcoin(BTC)

Contemporary scholars differ on its ruling between prohibited and permissible. However, most fatwas from Egypt, Jordan, Kuwait, Turkey, the UAE, Qatar, and some members of the Senior Scholars Authority in Saudi Arabia have issued fatwas prohibiting it. Reasons include:

• It is a virtual currency not issued by an official responsible authority
• It leads to gambling and unlawful speculation
• It lacks official guarantees and exposes traders to losing their money

Since most fatwas prohibit Bitcoin, mining it carries the same ruling.

###USDT###

It differs fundamentally from Bitcoin; it cannot be mined by individuals but is exclusively issued by the US Federal Reserve or authorized entities, under official supervision and regulation. It is essentially a digital extension of the paper dollar, making its Shariah ruling that of fiat money, and thus permissible to deal with.

###XRP###

The currency linked to the Ripple network, which acts as an intermediary for settling payments and exchanging currencies quickly. It provides legitimate services such as money transfers and transaction facilitation, and no suspicious activities have been proven in its structure. Based on Shariah studies, there are no violations in its use, making it a permissible currency.

Doge

Specialized studies confirm that it does not involve suspicious or Shariah-violating activities, and therefore it is an originally permissible digital currency. It can be used as long as major gharar (uncertainty) is avoided and transactions avoid usury. The ruling on mining it depends on verifying Shariah controls such as transparency and absence of riba (interest) and gharar.

Is mining an investment or usury?

In principle, mining is a legitimate investment activity if an individual rents mining power or uses their own devices for a clear benefit, similar to permissible leasing contracts. The transaction is free from gharar and riba, with a known and clear reward.

However, it becomes riba and a forbidden transaction in many cases:

• Dealing with suspicious mining companies that practice fraud or lack transparency
• Mining digital currencies with suspicious schemes or scams
• Engaging in fake companies based on pyramid marketing, where investors pay money with no return except promises of future subscriptions

The decisive criterion is adherence to Shariah controls: full transparency, absence of riba, and avoiding gharar and gambling.

Speculation in digital currencies

Speculation in digital currencies is subject to the same ruling as speculation in any other currency, provided that the currency itself is permissible and free from risks. Shariah fatwas stipulate:

1. Actual or legal transfer (tadawul) must be achieved in the contract
2. Buying and selling must be completed immediately without delay
3. Each party’s share of profits must be a known percentage, not a fixed amount
4. The speculator’s guarantee of the principal is only when negligent or transgressive

Summary and final conclusion

A general ruling cannot be issued on mining digital currencies. The ruling depends on two main factors: the nature of the currency being mined, and the mining mechanism itself. If the currency is permissible, and the mining process is transparent, free from riba, gharar, and gambling, then it may be permitted. Conversely, if the currency is linked to suspicious projects or transactions that violate Shariah, then mining becomes prohibited.

Frequently Asked Questions

Is mining digital currencies halal or haram?
The Shariah ruling is not absolute. It may be permissible if the conditions of Shariah are met regarding the currency and the mining process; it may be prohibited if linked to projects or transactions that violate Shariah.

Is it permissible for a Muslim to deal with Bitcoin?
Most fatwas prohibit dealing with Bitcoin in its current state due to gharar, gambling, and lack of guarantees. It may be permissible only if it becomes an official currency recognized by the state and meets Shariah conditions.

Is mining good or bad?
It depends on two factors: the Shariah ruling of the currency itself, and practically, on electricity and hardware costs versus expected profits and market stability. The benefit of mining varies from person to person based on these considerations.