Is Crypto Haram Due to Gharar (غرر)?

One of the major objections to Crypto being Halal is the implication that it enables or contains gharar (غرر). Many scholars believe that the volatility the Crypto market experiences is the same as gharar, and is therefore Haram.

Respectfully, we don’t believe this to be true.

Below is our reasoning written by Saifullah Abu Muhammad and edited by Haarith Sulaimaan for inshallah.network.

What exactly is gharar (غرر)?

In the Mudawwanah, we find Imam Malik defining a transaction as being “with gharar” when the presence or existence of the object of the transaction is unknown, or when the condition or attributes of the thing are unknown.

In his ten sub-categories of Gharar, the classical scholar Ibn Juzayy al-Kalbi lists elements such as: the impossibility to deliver the object, the ignorance of some essential features of the product, the ignorance of the product itself (”I sell to you whatever is in my pocket for 10 dollars”), or for example ignoring the quantity of items involved in the transaction.

Imam Malik in his Muwatta, quotes an authentic Hadith: “the Prophet صلى الله عليه وسلم has forbidden the transaction with Gharar.” Then the Imam gives an example to explain the concept:

Someone has lost a camel. Upon hearing this, someone else comes to him and offers to buy the lost camel for 20 dinar instead of the usual market rate of 50 dinar. This sale is haram due to gharar because the uncertainty is clear: the camel might never be found therefore selling it is impermissible.

Gharar is present in a lot of different contexts in our modern societies. For example: collectible cards when bought in packs. The actual content is not known. Similarly “surprise boxes” or “surprise pouches” containing various toys or sweets are good examples of Gharar. Gambling is also a form of Gharar: one side of the transaction is known (the money paid) but the other side is completely unknown, either in quantity or quality.

Does Crypto have gharar?

Based what has been explained, we can see that Gharar is a concept that can be applied to transactions and not to things. This is an important distinction: the prohibition of buying or selling a certain item will never be due to it “being Gharar” or “having Gharar”. Rather it could be impermissible because said item is impure, or because the seller knows the buyer wants to harm someone else with it (take a knife for example), or other reasons explained with greater details in the books of Fiqh.

When one goes on an exchange and wants to buy BTC, ETH or SOL, no Gharar is present here: the price is known, the token is known, it is not “lost somewhere” rather it is immediately transferred to the buyer’s wallet.

That being said, Gharar can be encountered in the cryptosphere, as well as it can be found outside of it: it is important for all Muslims to stay far away from any suspicious transaction, such as the ones looking like gambling. Some events or other marketing activations pushed forwards by exchanges can often fall in this category.

The main way to avoid Gharar is that one must be sure that all is known to him and his counterpart: price, type of item/token, the quantity, the capacity to deliver the good and so on.

One example of Gharar in the cryptosphere are presales where users send Solana to an address and receive tokens in return. In this exchange, both parties do not know what they’ll be receiving or what their return will be.

Someone sends 1 SOL to an address (and most likely an unknown person) and does not know the amount of tokens he’ll receive back or this token’s value.

This is a good example of Gharar in Crypto that does not really exist in traditional finances.

Hopefully, it is now clear that applying the concept of Gharar to all of Crypto is a very basic mistake that no seasoned scholar would do because Gharar is the quality of a transaction (the contract, to be precise) not of an item. Beside this question, one should still be wary when navigating the crypto “world” as Gharar can be found as it is present here just as anywhere else in the world.

Notes for Scholars

Cryptos a case of “gharar” ?

• In the Maliki school the concept of gharar has been defined in different ways that all go back to the same idea :

Looking at the Mudawwanah, we find in it that what imam Malik refers to as a transaction implying gharar is when the presence or existence of the object of the transaction is unknown, or when the condition or attributes of the thing are unkown.

Imam al-Qarafi defines it as follows : That which its occurence is not known, whether its attributes and condition are known or not, like a bird in the sky or a fish in water. In both situations the object of the transaction could be very well known and visible, but the risk and incertitude is related to the possibility to get it or not.

Imam ad-Disuqi says : the gharar is the incertitude, doubt (taraddud) between two affairs (amrain — bad translation), one in accordance to what is sought and the other at its opposite.

The underlying concept here is that at the time of the contract, the one paying is unsure of the outcome. He might very well have spent for nothing, or he might get what he paid for, but the outcome is completely uncertain. To be noted that imam al-Qarafi differenciates between gharar and jahalah by the fact that with the second one the outcome of the transaction is not questioned -the buyer will get the item- but he ignores what it is, or some of its attributes. Example of it is the famous mas’alah in the books of fiqh of one selling “whatever is in his sleeve or pocket” to someone ignoring what it is. According to that, both concepts share a communality, but a partial one only (”umum wa khusus min wajh”)

Ibn Juzayy gives ten types of gharar :in his book “Al Qawaneen al Fiqhiyah”

1 — The impossibility to deliver the product : like a lost camel

2 — The ignorance of the elements of the transaction (price-money and/or product) : like selling “what is in my pocket” to someone not knowing what is in it.

3 — The ignorance of the qualities of one of the elements of the transaction : like selling “a jacket I have home” without describing it. If it is based on a description it is permissible if a certain number of conditions are met.

4 — The ignorance of the quantity of one of the elements. Like if “I sell you this item at the price it has today” without the price being known.

5 — Ignorance of the date of the transaction, as when someone says “This transaction is effective when Zayd will arrive” and there is no known date for his return.

6 — To sell two products in one single transaction. An example would be someone selling a fridge and a table for X darahim, the price of each item not being known, but only the price of both combined.

7 — Selling something or someone we do not expect to live for long. Like selling a very old and sick horse to someone wishing to ride it.

8 — The transaction named of “al-hasaa” referring to a stone or pebble one would be holding and the transaction would revolve around the place where this stone will fall. The buyer will buy the clothe (for example) on which the stone fell.

9 — The “munabadhah” transaction : when one throws a garment at the other, and the other does the same, and this is what the transaction consists of, without anyone looking at the garment that was thrown at them, nor having the possibility to choose if they want to confirm the transaction.

10 — The “mulamasah” transaction : someone touching any garment from that buyer, consciously or not, will have to buy it.

It is manifest like the sun above our heads that none of this is related to cryptos.

Let’s step back just a bit and reflect on the claim in itself : “cryptos contain gharar”. Here the person affirming that is using “gharar” as a quality, a description of cryptos (all of them it seems). This is problematic on two levels : From all the aforemention examples, never do we see that the concept of gharar can be describing a thing. Rather it is always the form of the transaction that is considered as being tainted with gharar, not the thing itself. It is well known that fiqh is interested in judging actions and not things. Things in themselves are investigated but the judgment in the end will be related to an action. Based on that statements such as “cryptos are halal, haram etc” are either basic mistakes from their authors, or metaphors, where the action is not mentioned. But here again we end up with something unclear, and not helping in anyway the legally responsible individual to take any decision.

See section 7 here: https://www.amjaonline.org/wp-content/uploads/2022/09/Topic-3-Cryptocurrency-A-Fiqh-Analysis-AMJA-2022-Zarabozo.pdf