founder of HBS Trading Company today we have guests Dr Farooq assalamualaikum welcome to HBS and thank you so much for having me here Dr Farrell I'm business person and already like two three years I was interested to the crypto industry and as a business person I saw the opportunity but when I start something when I do something I always think it's two person one is a as a business person another one is a Muslim and as you know there is a Hadith also Muslim it's a business point of view I saw a lot of opportunity and crypto and stock trading in Forex Trading because
it's the market for all for whole world but in Islam point of view uh I had some doubts that's why we we want to talk to you to understand more about about that what's your point of view of crypto crypto world or Bitcoin let's see I think that it's a very important questions because a lot of people are very much interested in the crypto phenomena and uh they are looking into this phenomena to to earn money to to get profit but of course at the same time they are aware of the Halal and Sharia rulings and uh 50 rulings as well and because of that I know that they have some concern
s they have many questions about it whether Bitcoin is halal or not it's a very famous question and uh and then some people ask about other altcoins and the other other crypto assets as well so to to answer directly your question about whether Bitcoin is halal or not we have to understand a lot of things number one for example uh how Bitcoin is created how it is being used and uh and what is the reason behind it so why it has come to uh existence and also uh what are the practical impact and the Practical aspect of Bitcoin right now how can we use it so in that manner we can un
derstand and the from the and Sharia perspective we have to understand that how Sharia approaches maal for example what is property what is the definition of an asset whether the asset should be tangible or intangible or whether it can be digital as well or another thing is like what is the usage of that asset and how it is being transacted for example when we talk about Bitcoin as Halal or Haram commodity t or a subject matter then it means that we are only looking at Bitcoin number one and then there are another thing there is another aspect that how do we transact with it whe
ther can we sell it whether can we buy it whether we can mine it for example so these are the questions surrounding whether Bitcoin is halal or not to start with let's see that whether Bitcoin qualifies as a as a property or an asset or not so suffer this is the first question so Bitcoin if you look at it's a digital asset it represents some value and it can transfer that value from one party to another party from the Sharia perspective a definition of of a property and Mal is that that it mayamilu in Arabic we say that people inclined towards it inclined towards uh having it
so if you look at the discussion of kaha like foreign so if you look at it if you combine the discussions of all these four of schools School affect then you will find that there should be four main characteristics of Mal or property or acid number one is it should have a commercial value which means that people are ready to pay the price for it if there is no commercial value for that then it cannot be Mal for example desert sand desert sand if people are not willing to buy it they are not willing to pay for it then it means that there is no commercial value for that and you
cannot consider that it is small uh sometimes Sharia puts another condition that okay it should not have a commercial value also this is also another thing for example in Sharia najas or or or impure things they are they don't have commercial value because of the Sharia restriction it also happens uh and then uh second feature is about ownership so if you cannot establish your ownership on something then it cannot be considered as smart by Nature it is like that that you cannot own it uh for example Taj Mahal or Eiffel Tower so these are seven wonders of the world and then no
body owns them so because of that you cannot establish the ownership on them because of that you cannot consider them as Mal you cannot treat them third thing is about uh possession that can you possess it and can you basically take it under your liability this is also another important point so if let's suppose that for some reason you cannot possess this then of course like uh uh it cannot be considered as Mal for example uh uh fokaha said about air in the in the atmosphere so you cannot possess it you cannot have establish your possession on it because of that it cannot cons
ider it as Mal of course there are now because of the scientific advancement and Technology you can liquefy gas and then put it in cylinders and then sell those cylinders this is different now this if you can do that then of course like you can say that like it is now a carbon cup like possess you can you can establish your possession and then you can transfer it from one party to another party because of that it's small but other than that if it is here in the in just in just the atmosphere then of course like it is not marked last and fourth thing is about transferability so
if it can be transferred from one party to another party then of course you can say that it is it it is small now I give you has talked about a lost an example of a lost camel so because the person has already lost it it he cannot sell it why because after that he cannot transfer it to uh the other party uh so because of that they say that okay it is not mal anymore and you cannot sell it so transferability is also another important factor for example and also for example if let's suppose I have a property somewhere but because of some reasons government has put a restriction o
n it that there is an embargo on it you cannot transfer it to another part illegally so again it it is because it will become non-transferable because of that now it is not considered Mall because I cannot transfer it to you I cannot basically put it that's why I didn't know that yeah so these are the things basically where if all these four characteristics are combined then we say that this is Mal this is property further divide the the concept of this Mal into into two now this is what is means that you can benefit from it Sharia allows you to benefit from it is when Sharia d
oes not allow you to benefit from it I give you an example of wine wine has commercial value right wine because some people are ready to buy it and pay the price for it now it is it ownership can be established on it it is if it is in a bottle you can say this bottle is this belongs to this person it can be transferred also one from one party to another and it can be possessed right so all the four characteristics of Mal is there on on Vine but it is because Sharia does not allow you to benefit from it so hanafi School of fix says that okay it is although like it is Mal but fo
r Muslims it is you cannot it is not valuable for Muslims is something which is valuable and you can also benefit from it Sharia allows you to do that for example house car fruits Apple so these are basically things which you can benefit from also these are Ma so this is now after understanding this let's apply this analogy on bitcoin so if you say Bitcoin has a value yes of course initially I told you about the the definition of the of Mal so it means that people are inclined towards it if I tell you that I will give you one Bitcoin you will be very happy right okay perfect
yeah so because of that it means that people are inclined towards having it number one and it has a value if I ask you what is the price for uh for Bitcoin today so you will tell me it is around sixteen thousand dollars right what does it mean it means that people are ready to pay 16 000 to acquire one Bitcoin it has a price it has a market and it not it is not only few people there are so many people are willing to do that so and if it goes to 15 000 more people will come in and then they will start buying it fifteen thousand is still a big value so it means that it has a comm
ercial value it has an economic value number two it can be it can have ownership you can save it in in your uh now possession ownership and transferability all comes together how when you buy one Bitcoin I can transfer it to you from my wallet to your wallet digitally and then you can exactly see that okay now it has left for rook's wallet and after the verification it has arrived into my wallet so it transfer it has been transferred now you can possess it and say that okay this is my Bitcoin it is not everybody else Bitcoin you can have it in your bit in your wallet also so it
means that you can establish your ownership and possession both so Miles definition is uh is applicable on bitcoin now the question is whether it is Sharia allows you to benefit from it or not mostly is something which is impure or it has intrinsic Haram factors internally it is built upon Haram factors if it is not built upon Haram factors then of course there is a way to benefit from it for example wine I have given you an example it is impure because wine so it it's impure in itself and that's why you cannot benefit from it pork is also same right so these are but other
than that if you see you will see that there is a way to benefit from different things in a Halal manner as long as you can benefit from it in a Halal manner it will be acceptable in Sharia now you look at Bitcoin if you look into the structure technological structure then there is no Haram Factor blockchain itself is not Haram I haven't seen any fatwa or any Sharia scholar saying that blockchain technology is Haram okay number one number two is it's a digital token which basically generated through a software Bitcoin software is there and it generates the a token and why it
generates a token basically is because so many people are actually validating the transaction through the process of mining and when they do that they compete with each other and try to complete a block of of different transactions once the block is completed the system actually Issues new Bitcoin right now uh the system issues 6.25 new Bitcoins for each block right and it will it will become half again after after every four years that's a different story but this is how the Bitcoin the Bitcoin system works that you validate the transaction you put a lot of effort in it only t
hen you will be able to retrieve it so the whole process if you look at it there is no intrinsically Haram factor in it you are validating the transactions you need to provide Computer Resources you need to have a cooling system you need to pay for the electricity there is a cost for mining Bitcoin and once it is being bit one block is mined only then you will be able to get new Bitcoins or there is another incentive basically what you do is when you when one party uh transfer Bitcoin to another party they pay a fees also so this fees is also the the reward for the miner so the
re are two rewards for the miner in that sense if you look at the whole process there is no intrinsically Haram factor of course you can argue about that it can be used in a Haram transaction but that is a different story that is an external factor it's not internal Factor it is not built in the system itself so I think that if after that it will be clear that Bitcoin is uh Halal as a subject matter now then we can they always debate and discuss that whether how it can be used for Halal purposes but itself is halal Bitcoin project we can look at them as a digital assets okay bu
t that's what can we use it to other coins also yeah okay so if we are talking about something being a digital asset so we need to understand that Sharia and Shari us I have seen some of the fokaha and Sharia Scholars arguing about that Bitcoin is a digital asset we cannot see it we cannot touch it and because of that it's Haram but I think that this analogy is not correct why because uh there is a concept in Sharia which is which is which says that something can be existent and non-existent foreign so which means that if something doesn't exist it is superficial it is only in
your mind it is we call it for the or khayali so which means that it is only in your mind you are just creating it of course you cannot sell that thing but here the case is different because we are not talking about something existent or non-existent we are talking about something physical and digital so Sharia accepts intangible assets as a valid asset as well I give you an example uh when I for example rent for for ajara contract is basically something intangible services are intangible if let's suppose that I I have a house and I allow you to live in it for a rent so I am
taking some money from you every month right as rent and what what you are getting it you are not getting the ownership of the house you are actually getting a benefit from the house the benefit of living in it right so that benefits is also intangible so in in another sense if you look at it I am selling this benefit to you and you are paying me for that benefit that benefits is intangible again I give you another example that Focus also discussed about copyright IP intellectual property so this can be also secured and it will have a market value from the from the iof uh iof
perspective also Sharia standards intangible assets are recognized as compliant if they are compliant then they can be recognized so here we are talking about an intangible asset not a non-existent asset it's not in my mind it's there in the blockchain and you can see it you can see and track it how it was when it was created and how many hands it has changed so far and now who possessed that Bitcoin so you can see the whole record of that Bitcoin on blockchain so it is not something in my mind but it is existent but it's a digital asset and Sharia never says that if you cannot
touch it if you cannot see it then it means that it is directly considered as non-existent and you cannot sell it so it's a digital asset intangible asset intangible assets are being recognized in Sharia for example rights or Coke are recognized in Sharia and manafia like benefits they are recognized uh in Sharia okay there are two ways to look at the crypto first the crypto phenomena some Sharia is Scholars they locate from the asset perspective that they say that it's an asset it's a digital asset some Sharia Scholars they see it that it's only a currency it's a they call it
cryptocurrencies that's why for that reason I actually support the first view why because I see first view is about that crypto assets are not only currencies of course part of it is currency but then there are some other asset forms as well that's why I say that it's an asset class because I tell you an example that there are so many types of crypto which are not currencies let me give you an example governance token is not a currency it's used as a voting right so you base if let's Suppose there is a project and it has a dow decentralized autonomous organization to run that
Dao they issued governance tokens these governance tokens are actually not currencies they are not payment tokens they are specifically governance tokens only for example uni swap uni swap is a governance token it only comes with a with a voting right it is not a payment token so it is not a currency but it is still a crypto I give you another example is nfts so nfts are crypto assets but they are not payment tokens you don't pay with Crypt nfts non-fungible tokens right so again uh this is because of the that it's an asset but it's not a currency security tokens security token
s are strictly not payment tokens security tokens means let's suppose that you have a piece of real estate and then you fractionalize it and tokenize it through blockchain so you will have a small fractions of that real estate in the form of tokens each token will represent a a piece of or a portion of of that real estate right and then you have gone through all the security so it will become like a share when it is a share a security token is not a payment token by the way so you can have it as an asset you can buy it you can put it in your portfolio but it doesn't mean that y
ou can pay with it so I have given you several examples where a crypto token is not a currency token because of that I believe that now crypto phenomena although it started as a currency like Bitcoin Litecoin initially were payment tokens but then now it this phenomena has grown into uh into something very different and it's an asset class at the moment it behind that there are so many other things so this is number one differentiation you have to understand distinguish uh distinguishable Factor number two is so the Sharia Scholars who are saying that it's only a currency there
is this all the crypto assets are currencies then they have the problem whether government is backing in or not but even then there is no Sharia issue why because if you look at uh Islamic history if you have read uh these are the Islamic historical books so although like fokaha has never and the Sharia Scholars have never talked about it at a very in a very deep didn't go into a deeper discussion about what is currency how it should be used because for them it is only a famine which means like it's a price and it's a medium of exchange only and the main objective of a transact
ion is to acquire the subject matter not the price price is just a medium of exchange so because of that they did not talk about about much about about the price or the summon itself but if you look at the historical books then you find that okay even gold coins silver coins were used in the in the in the Islamic cities and Islamic countries previously which were not backed by the Islamic government themselves even like initially in the in the era of the Prophet Muhammad sallallahu alaihi wasallam and also in the era of Abu Bakr siddiq and uh um even like all the Khalifa rashidu
n So they did not actually issue a government backed token at that time gold back tokens and Silverback I mean gold tokens which were called Dinars and the silver tokens which were called the rahims were used which were issued by another government Byzantine and other assassinate governments not directly from the Islamic government the first coin which was issued in the Islamic government was in in the era of Suleiman bin Abdul Malik he was the first one who issued an Islamic coin so it has some writing Islamic writing on it and then it was a goldback coin before that like the
the the Muslims were using gold coins or silver silver coins which were issued by other governments and even those coins had a different uh stamp on it or like different uh pictures and things like that so from this Islamic perspective it was objectionable but it was used now after that even if you look at the the Islamic history there were so many other currencies which were used Community currencies were used also which were basically characterized as foulouse foulouse-like fills like so they were like sometimes it was a copper coin sometimes it was an iron coin so these we
re also used by the different different communities and not issued by government so because of that I can say that having a government backing is not a fundamental requirement for any currency from the Sharia perspective of course if you are talking about or if you are talking about masale like the benefits of the society to to save people from fraud and scams of course we need to have a legal tender we need to have a government-backed currency but it doesn't mean that it's a fundamental requirement from the Sharia perspective to to consider something as a currency it was not a
nd then also I I can also tell you that they said that issuing a currency is a right of government it's an exclusive right but Imam Imam Abu hanifa he says that as long as there is no harm for the people then it's not an exclusive right for the government even like private entities can issue currency it's from the Imam Abu haniba perspective and also you need to understand why they were saying that it was an exclusive right for of the government because in that time let's suppose we are talking about dinar which was a gold coin yeah so the fear was that like if a private entit
y or an individual issues it then they might basically reduce the quantity of gold and because of that people will get scammed I mean there will be a fraud deception Etc through gold coins because of that they say even if you do not reduce the quantity of the gold you are not allowed to do that because people will get confused people will lose trust in the market and the and the gold coin itself but here we are not talking about it why because we have US dollar we have Saudi riyal or UAE Dirham so Bitcoin is not saying that I am we or or any other crypto projects is saying that
we are issuing US dollar they are not issuing US dollar they are issuing a different currency whether you want to trust them or not it depends on their own fundamental and your opinion about their fundamentals and technical analysis or whatever it is so it's a different currency at that point in time when we are talking about historically that fokaha is stopping people to issue currency and they were saying that okay only government can issue currencies because they will be a confusion but here there is no confusion you know that Bitcoin is different from US dollar or Saudi riy
al or you either so I I believe that even for those Sharia Scholars who say that it's only a currency uh still government backing is not a fundamental requirement to become a currency if we look at the Bitcoin is a currency but if you look at the digital assets already like this there is different fatwa right yeah but Bitcoin for me so like I said before there are various types of crypto assets so I call it first an umbrella terminology I use an umbrella terminology which is an asset then under that asset you have cryptocurrencies as a type so Bitcoin falls under that stable co
ins they are currencies actually so I cannot say that okay these are assets so stable coins and as let's suppose uh for example usdt usdc and there are some algorithmic uh stable coins also they are currencies because they are they are issued and their main objective is to become a payment token right so so because of that it's a currency but of course like there are some other types for example we have utility tokens we have commodity back tokens utility tokens they have some attack some right attached with them or maybe a discount or a governance right then you have commodity
backed tokens for example gold back token Silverback token precious metals back tokens you also have security tokens security tokens Can Be of various types for example you have real estate back tokens if these are security tokens you can issue stocks in the form of tokens so these are actually uh Securities and different type of tokens they are not utility tokens they are not cryptocurrencies and then you have nfts for example so there are so many different types and Sharia actually looks at uh at them from different angle so cryptocurrencies which are payment tokens should b
e looked from the angle of biosurf like currency exchange if you are talking about utility token so you have to look at it from at a different angle and see that what is the utility whether the utility is sure you're compliant or not and then if you are talking about commodity back tokens then you have to look at the commodity whether this is an Israel compliant how the token is attached with that commodity some I have I have seen some of the projects which were completely non-charia compliant for example so even if you say that it's a utility token but the project behind it is
not Sharia compliant because of that the utility token will also be not Sharia compliant FDX is an example so which is uh which is now in the news so ftt was considered as a non-sharia compliant token because FTX is was a derivative exchange initially so they were actually in issuing leverage tokens also so the main business is derivatives like Futures options Etc swaps so because of that the project was not Sharia compliant and their token was also not Sharia compliant you just mentioned about the gold and the silver my next question was deleted to that because gold and silver
it has a value what about cryptocurrencies value okay uh I have a long debate with many scholars of Islamic economics and Sharia Scholars and Islamic Financial expert and I I never got a clear answer for that that people say that okay first of all gold silver were not Islamic currencies they were used by Muslims but it doesn't mean they were Islamic currencies some Isla at some point in time Muslim government or Islamic governments started issuing their own tokens but if you look at it gold and silver coins were used before Islam right as a token number one so uh so the the
thing is first of all we have to clear this that okay it was not Islamic currency because in Islam the currency anything was accepted as long as it is halal and it it is it fulfills the requirement of maal being with a worm Etc so it can be accepted as a payment for example Muslims also used dates Tamil for uh for exchange right for salt also was used as well and that's why there is a Hadith like and then there was so like so this Hadith was actually according to Imam Shafi was saying about the what is summon in in Islam so like you have dates you have uh sharir which is barley
and then you have salt and other things gold and silver were also included so what I'm trying to say here is that those things were also used as a price as a medium of exchange right number one my number two point is that gold and silver were not first point my my first point is gold and silver were not exclusively Islamic currencies they were used by Muslims but it doesn't mean that it was Islamic it was Halal in a very good way to exchange things it was a medium of exchange for a long time and before even before that there was a it was medium of gold and silver were medium o
f exchange now so my second point is uh what gives gold its value this is my argument counter argument to the Islamic economics I whenever I talk to them I say okay if you look at gold it's what is its current usage if you look at the industrial usage of gold it's only 10 percent ninety percent of gold is being used by women uh for for for it's used for or at being an ornament or a jewelry or for decoration for things like that it's only that like people like to have gold right and that's it so actually people are creating the demand for gold gold does not have a intrinsic
value if I can say it has a utility of course intrinsic utility but it people are creating that demand right so it does not have intrinsic value itself if you look at the utility behind economic utility it's very very less 10 of it is being used for in industrial purposes that why it has a value is because of people's intention they would like they like to have gold that's it so people are creating the the demand for gold and because of that gold has value sometimes even if you see the price fluctuates for gold right it depends on two things only number one is demand when people
the demand goes down in the market then the price will go down also and sometimes the supply goes up if you have a lot of gold in the in the supply then of course like the price will also go down these are the two main economic factors for gold right so that's why gold has a value now I tell you same analogy can be applied on bitcoin for example or any crypto exchange or cryptocurrency a crypto asset that uh Bitcoin if there is a demand for it people want to have it then it price will go down go up if they do not want to have it this price will go go down also it has a utility
as well just like gold it has a utility why because you can easily transfer the value from one party to another in few seconds with a complete record and it is fully transparent and fully auditable now beside Bitcoin if you look at any crypto project then you will find it will have more utility also for example it has to offer more benefits so that the value of the token can can be stabilized in that sense now Bitcoin is one thing but if you look at ethereum ethereum blockchain gives you a complete during complete solution which means that like you can run any software on it y
ou can actually write a smart contract for any purposes so this is a huge advantage of ethereum right so because of that there is a utility added utility in the ethereum blockchain and because of it is reflected in the price of The Ether same goes for any other project so like any free project now coming in the market I am not saying that there are no scams they are not frauds but beside that every project offers a an extra utility and because of that extra utility it is translated into the price of the well so there we I can say that like there is something behind a crypto proj
ect behind a crypto token it's not nothing even right now if I tell you miners of Bitcoin what they do there is a mining process and they validate the transaction right now the cost of mining Bitcoin is higher than the price of the Bitcoin itself so they are losing money miners at the moment they are losing money because right now it's all the the price of Bitcoin is almost around sixteen thousand dollars so I was reading one research just last month so across the the globe across the world the Bitcoin mining cost is actually from twenty thousand dollar to twenty five thousand
dollars mining costs Mining cost so it means that the miners are losing money so there is a value so if you say that Bitcoin is being created out of thin air I don't buy it why because there is a huge effort behind it and there is a cost to it and some people are losing money even when they are mining Bitcoin because when we start we saw like whales manipulating the markets and many people are kind of instead of trading the kind of gambling so what's your thought about that okay so first of all I would say that there is an internal understanding of Bitcoin or any crypto asset
that how it works what is the project behind it and what are the objectives behind this crypto asset so this is very very similar to any publicly listed company because when you start a business you you have Vision you have your mission you have objective what product you are going to offer in the market for example so all this thing so it's very similar all the business aspect of a crypto project number two is like what you are talking about is basically secondary Market trading that as a Trader when you go and buy a crypto token then there are so many big players also in the
market institutional players they try to manipulate the market but I would say it is more of a market characteristics rather than the crypto project characteristic so it is different it's an external factor and these manipulations are there in Forex also in commodity Market also in a stock market in even if you go to any any Market these manipulations are there even in real estate market if you go so big players always try to manipulate the prices they always try to manipulate the customers Etc so I am not saying that this is okay or I am not saying it is acceptable from the Sh
aria perspective but what I'm trying to say here that it's an external Factor number one so because of that we cannot say crypto becomes Haram because of the market manipulation number one number two you also mentioned and use the term game gambling and many people ask that okay if there is a huge speculation right now in the crypto market so because of that it is like a gambling uh practice so I would say first of all we need to understand what is gambling in Quran for example Quran uses the word and uh and myself so what are the meanings of temar and myself first because I h
ave seen this argument people use this terminology bluntly they don't understand the meaning so what is the meaning from my research in Islamic finance and Islam economics and Sharia what I have found is like gambling or Kemar is something when two factors combine together in one transaction one is zero-sum game Zero Sum game I I will explain what is it and the second factor is game of chance so zero-sum game means that you one party cannot win unless the other party loses so it means that if one party loses only then the other uh the other part the first party can win there i
s no chance that both party can win there cannot be a win-win situation right and so which means Zero Sum in Zero Sum games one party has to lose so that the other party can win and second factor is game of chance which means that you do not control the outcome of the transaction it's all depend on the chance so if these two factors combine together in one transaction only then it becomes premar or Miser or gambling now I give you an example then it will be very clear that if you throw a dice so which and then you have let's suppose that you have put some money that if six come
s then I will win if five comes I will the other party wins and then we throw the dice and see that okay what is the outcome now you can see that there is a pot of money over here only one party can win and one party how it the one party can win the other party has to lose right only then the other uh the first party can win number one number two the eyes we are not controlling the outcome so whether it will come uh it can show us six or it can show us five we we are not in control of it so it's a game of chance number one the outcome depends on the on a chance and number two
is about that it's a zero-sum game it's same thing happens in derivatives by the way that's why derivatives are not Sharia compliant because if let's suppose that in derivatives you you are betting on the price movement so if price movement goes in favor of you you will win if it goes against you then you will lose and uh both parties cannot win in derivatives so this is gambling now but if I am talking about a spot trading of a crypto asset then it price its fly price fluctuation will not become automatically gambling there are ways to do gambling on price fluctuation of cour
se but if simply put if I buy one Bitcoin from you hoping that after one second after one day after one week or after one month the price of Bitcoin will go up I am taking a possession over here I am taking the risk of uh and liability of the Bitcoin itself risk of the asset and and because of that uh I am hoping that I will make some profit it actually this Factor exists in every business transaction even if you buy clothes if you buy fruits if you buy a house if you buy a car same thing happens basically when you buy it you are hoping that its price will go up and then I will
make some profit but with that you are actually having Daman in Arabic we call it Daman and there is an Islamic Maxim which actually justifies it it's means that when you assume the liability of something then you are entitled for profits entitled to make profits out of it so when you are assuming the liability that I will get one Bitcoin from you and I will pay you 16 000 right so I am paying the price for it when I keep it after one second even after nanosecond or after one day the price goes from Sixteen thousand dollar to seventeen thousand dollar it is good because I make
a profit if price goes down then I am losing and this is business risk actually so of course I can tell that uh in crypto you have high risk and high return or the chances are very because it's a fluctuating Market it's a niche it's a new market because of that the prices are not as stable and uh and it can go wildly up and down but it's a business risk who people who understand it and are willing to take it can take it and people who are not do not have the appetite of this type of risk then of course like they should avoid it but you cannot say this is speculation and specul
ation is equal to is equated to gambling uh so we open topic about trading could we often talk about trading uh okay from about crypto as a fundamental we understand about Sharia but as a Trader for example once we start trade there's a lot of way of trading right now we are working on spot for buy but what I saw there's a lot of people are doing the shorts and there is margins if you talk about shorts short is allowed or not allowed okay before that let me just tell you since I also have mentioned that crypto assets are of different types some of them are currency tokens payme
nt tokens to rules of sharia from from of currency exchange and by ourselves should be applicable on that for example if you are buying usdt with usdc so it has to be a spot uh uh what do we call it a spot transaction and uh it should be a direct position at the same time within the session of the transaction we have to follow these and also if you are talking about other crypto assets also so if you are trading them then you need to fulfill the requirement of a of basic transaction or a sealed contract for example a sale contract the main objective from the Sharia perspective
is that that you transfer ownership from one party to another number one and uh also The Possession should be transferred as well uh the the buyer should take the possession of of it and then also he would be able to use it actually use it or sell it further something like that so if these conditions are not fulfilled then we can question the sale contract itself that whether it has fulfilled its objective or not so that is why we say that if you look into the crypto trading as long as the crypto asset you have chosen for trading is Sharia compliant this is number one conditio
n then you have to do the spot only why because if now you look at other ways of trading for example short when you do shorts or Longs for example it is basically based on another Financial instrument which is called futures or forward so what is future future is uh uh you can say a contract between the two parties to deliver something in the future number one and the price will also be paid in the future okay so both the counter values are delayed number one is the subject matter and the price both and there is an extra charge premium for that feature for buying that future a
nd this is number one and then number two point for the future is that when you buy a future you are actually not interested in having finally the the the underlying asset you are only interested to bet on the market movement that okay if let's suppose Market more prices moves in prices move in in favor of you then you will make a profit otherwise you will you will you will make a loss and you want to also sell it to other people sometimes uh mostly uh what I have seen is like in cryptos they are Perpetual Futures right uh shorts and Longs so they are perceptual there is no expi
ry date from this understanding now you can see that it is not a sale contract because both the counter values are delayed they they will be promised to be delivered in the future the prices of that commodity is specifically and also the what do we call it uh the subject matter so even if let's suppose you buy a feature of uh of uh of Bitcoin then it means that you the actual price of the Bitcoin will be paid in the future number one and number two is like actual delivery of the Bitcoin will also take place in the future that is the future but you are also not interested in tak
ing the possession of and delivery of the Bitcoin and paying the price what you want to do is like you want to sell this future to another party right so number one point is both the counter values are delayed because of that there is a Sharia issue so it's not a sale contract number two is like what you are actually selling is it a promise it's a promise right that I promise you that okay I will pay you the price in the future and you promise me that you will deliver me the Bitcoin Bitcoin or any other crypto asset right whatever is the subject matter so it's a promise it's n
ot a contract and then you want to sell this contract to another party it becomes very very complicated and then we do not Sharia does not see this promise one as a subject matter of a valid transaction and it cannot because of that it cannot be sold to other parties so that is the main reason behind Futures that they are not Sharia compliant uh so that's why we cannot do it in in cryptos as well and basically generally you cannot Futures you cannot do it even in stocks or even in in commodity markets and there are various types of derivatives for example you have Futures and th
en you also have options options are also similar where you have you don't by the commodity right now or any subject matter but you buy the right to buy it or sell it because there is a call option and uh and a put option so so these type of ass options actually give you only a right to buy or sell that's it you are not actually buying the commodity but you are buying the right to buy that commodity or sell that commodity in the future so again from the Sharia perspective it cannot be a valid subject matter because it is just a right to buy right and because because this is no
t a valid subject matter and right now when you are doing that transaction you are just buying that right and you are paying the price for that so so it is an invalid transaction number one since it is an invalid transaction now you cannot go out in the market and sell it to other parties as well so you cannot do that because in the first place that option uh was just only a right to buy or write to sell and that right is not a valid subject matter there are other ways also to do crypto trading for example like some people they they do leverage trading which is like margin tra
de it is also called margin trading so how do do they do it now there are two ways to do it either there will be some interest involved because margin trading means that you are first having some Leverage it's like a loan so you are taking a loan and only then you are selling the subject matter to other parties when you are taking the loan from an exchange or from any entity which is offering this margin trading uh feature so it will charge you an interest number one sometimes it doesn't charge you an interest so if it charges interest then obviously it is not sure you're comp
liant because initially what you do is like let's suppose that you have only one Bitcoin but you want to take a position of five Bitcoins so 5x so then you will take a loan of like four extra Bitcoins right and then you pay interest to the uh to the to the entity from which you borrowed the Bitcoin and then you sell it in the market and you make the uh profit or loss whatever it is because of the interest Factor it is not Sharia compliant number one but sometimes those entities do not charge interest at all will it become Sharia compliant no why because still the problem is the
re is a loan which is a restricted loan you can only take that loan on that platform right number one and you cannot take out that loan from that platform also that for example if let's suppose that you take that loan from binance then it doesn't mean that like this 5x5 you you will get five Bitcoin in your wallet and then you can take out those five Bitcoins from from binance to another uh to another what do we call it to another exchange or any other platform you cannot do that so it's it's a restricted loan number one and although binance is not charging you interest but it
is actually benefiting from it indirectly because it will create volumes for binance and then because of that they can base it's not only binance by the way I'm just using binance as an example but there are some other exchanges so the crypto exchange actually uh benefit indirectly from that loan and as you know that kullu cardenja ramanfa is it's a Hadith which says that every loan which the the lender can derive benefit from is Reba so riba can be in in different forms in the form of Interest also in in the form of an indirect Financial benefit so in that way the exchange
which offers you an interest-free uh loan is actually benefiting indirectly from the transaction itself so because of that again it will be not Sharia compliant
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