A new research paper from Indonesia has reignited debate over whether Bitcoin is compatible with Shariah law. Microfinance firm Blossom Finance released a 22-page working paper concluding that Bitcoin qualifies as Islamic money unless its use is prohibited by local governments.
A long-running debate in Islamic finance
The question of whether Bitcoin is halal or haram has divided scholars and market participants for years. Islamic finance imposes specific rules on profit-sharing, loss-bearing, safekeeping, leasing, and other financial activities. One of its best-known prohibitions is against riba, or interest on loans. Because of these principles, cryptocurrencies have faced close scrutiny from Muslim scholars and users seeking clarity on their religious permissibility.
Blossom Finance founder Matthew J. Martin and the company’s Shariah adviser, Mufti Muhammad Abu Bakar, argue in the paper that Shariah is not a single universal code but a scholarly discipline shaped by differing interpretations. Their study was written in response to what they described as incomplete and sometimes contradictory fatawa on Bitcoin from prominent clerics.
Bitcoin seen as “customary money”
The paper says Bitcoin can be treated as customary money, which supports its compliance with Islamic monetary principles. At the same time, the authors stress that national law supersedes Shariah permissibility in practice. In Germany, for example, Bitcoin’s legal recognition supports its treatment as Islamic money. In Indonesia, however, payment rules require domestic transactions to be conducted in rupiah, limiting Bitcoin’s role as a payment instrument.
Blossom noted that this should not be read as an anti-Bitcoin position. Under the same legal tender framework in Indonesia, gold, silver, U.S. dollars, and euros also cannot replace the rupiah for payments, even though buying and selling Bitcoin remains legal.
Blockchain praised, ICOs viewed cautiously
The study also argues that Bitcoin’s design aligns with the Shariah objective of reducing excessive uncertainty. According to the authors, blockchains can verify ownership of assets and prove that a sender actually possesses the funds being transferred. By contrast, conventional banking’s money creation through lending is described as inconsistent with Shariah principles of money.
While the paper is broadly supportive of Bitcoin, it takes a much more cautious view of initial coin offerings. Blossom Finance says ICOs are highly uncertain and not advised, mainly because many token sales fail to clearly define what investors are buying and what rights they receive. Under the Shariah concept of avoiding gharar, or excessive uncertainty, many such offerings may not qualify as permissible investments.
Rather than offering a blanket judgment on all digital assets, the study draws distinctions between Bitcoin, blockchain technology, and token fundraising models. That suggests the discussion over crypto and Islamic finance is far from settled and will likely continue to evolve alongside regulation and scholarly interpretation.