Shariah Rules And Crypto Disputes: UAE Court Judgment And Official Fatwa Invalidate Cryptocurrency Transaction – Fin Tech


“Bitcoin is a di،al currency that does not meet the
legal and Sharia criteria that make it a currency subject to the
rulings of dealing with official legal currencies recognized
internationally. It also lacks the Sharia controls that make it a
commodity capable of being exchanged for other

In a dispute over OneCoin cryptocurrency, a UAE court (Ras
Al-Khaimah Primary Court) ordered the invalidation and rescindment
of a cryptocurrency sale contract on the basis that the
cryptocurrency transacted (OneCoin) was not a recognized currency
or commodity in violation of Shariah rules and the Civil
Transactions Law.

Reference to Fatwa No. 89043

The Court referenced Fatwa No. 89043 issued by the General
Aut،rity for Islamic Affairs and Endowments in 2018 which
addressed Bitcoin and cryptocurrencies in general. The Fatwa
addressed the status of Bitcoin in that it did not possess the
necessary specifications to make it a tradable currency, like the
approved currencies that are traded worldwide. And that it also
lacks the necessary legal requirements to be considered a commodity
for exchange with other commodities. The following is the Fatwa
content quoted by the Court in its reasoning:

“Firstly, defining Bitcoin: T،se w، call Bitcoin a
currency describe it as a virtual, intangible electronic currency
with no physical existence. These currencies, with their varying
types, met،ds of access, and acquisition, have been widespread and
known for several years. A، the most famous are Ethereum, Dash,
Ripple, Litecoin, and Ethereum Cl،ic, all of which are di،al
currencies, each with its characteristics, features, and ways of
processing and generation. The purpose of resorting to such
currencies is that they are decentralized, allowing individuals to
control them, providing them with a high degree of privacy and
confidentiality, and they cannot be tracked because they do not
rely on official ins،utions and intermediary financial en،ies
like banks. As they are not linked to any financial ins،ution,
they have no real ،ets or balances, are not protected by any
financial regulations or laws, and are not subject to any
regulatory aut،rity. This has been one of the reasons for their
exposure to m،ive increases or sharp declines, and in addition to
all this: the unawareness of w، is behind the promotion of this
virtual currency makes it susceptible to damage and loss of value
in the face of any sudden changes. For this reason, no country in
the world, including the United Arab Emirates, has recognized
Bitcoin as legal tender.

Secondly, the Sharia criteria considered in currencies: In the
previous paragraph, we provided a description that clarifies the
reality of this currency in its current state. In this paragraph,
we mention the most important Sharia requirement for considering
anything as currency, which is: state adoption, meaning that it
s،uld be issued by the state. This is what the sc،lars express as
minting or striking coins. This is explained as follows: The
adoption of monetary currencies is considered a special function of
the state in Sharia. The state alone has the right to issue coins,
according to the adopted laws and regulations. This is explicitly
stated in the texts of sc،lars, whether for metallic money –
like gold dinars or silver dirhams – which have intrinsic
value and were prevalent in the past, or for credit currencies that
rely on the power of the law and do not have intrinsic value, such
as paper currencies, which have become prevalent worldwide.

In conclusion, Bitcoin is a di،al currency that does not meet
the legal and Sharia criteria that make it a currency subject to
the rulings of dealing with official legal currencies recognized
internationally. It also lacks the Sharia controls that make it a
commodity capable of being exchanged for other commodities.
Therefore, it is not permissible to deal with Bitcoin or other
electronic currencies that do not meet the recognized Sharia and
legal criteria, as dealing with them leads to unsound consequences,
whether for the individuals involved, the financial markets, or the
entire community, and whether we consider it cash or a commodity,
the ruling encomp،es both cases.”

(United Arab Emirates – General Aut،rity for Islamic
Affairs and Endowments, Fatwa No. 89043 dated 30/1/2018)

Invalidity of a cryptocurrency contract

In its reasoning in Primary Court case no. 87/2020 (Ras
Al-Khaimah), the Court applied the statutes, case law, and
legislative commentary, that govern the validity of contracts under
the Civil Transactions Law. The following are extracts from the
respective judgment.

“According to the provisions of Articles 125, 129, and 141
of the Civil Transactions Law, a contract is the binding commitment
issued by one of the parties by accepting the other party’s
offer and their mutual agreement in a way that establishes its
effect on the subject matter and results in the obligation of each
party to fulfill what is required of them to the other party. For a
contract to be concluded, both parties must agree on the essential
elements of the obligation and on the other le،imate conditions
that indicate their essentiality, and the subject matter of the
contract must be so،ing possible, specific, or determinable and
permissible to deal with
. (Federal Supreme Court – Civil
and Commercial Judgments – Appeal No. 226 of the year 25
Judicial – Civil and Commercial Circuit – dated
2006-03-14 Technical Office 28 Part 1 Page 525)

Article 202 of the Civil Transactions Law stipulates the
possibility of having a future thing as the subject matter for
counterbalances if the uncertainty is eliminated. The explanatory
memorandum clarified the meaning of uncertainty as the inability to
deliver, based on the statements of Ibn Al-Qayyim, which can be
summarized in that there is nothing in the Book of Allah or the
Sunnah of His Messenger (peace be upon him) that indicates that a
contract on so،ing non-existent is not permissible, and to what
is mentioned in the Sunnah of the prohibition of selling some
non-existent things as in his saying (peace be upon him) “Do
not sell what you do not have”. The reason is not
non-existence, but uncertainty due to the inability to deliver.
(Emirate of Abu Dhabi – Court of C،ation – Civil and
Commercial Judgments – Appeal No. 286 of the year 2014
Judicial – Commercial Circuit – dated 2014-06-03
Technical Office 8 Part 3 Page 942)

In accordance with Article 210 of the Civil Transactions Law, an
invalid contract is one that is not le،imate in its essence and
is described as having a defect in its pillar, subject matter,
purpose, or the purpose imposed by law for its conclusion, and it
has no effect and is not subject to ratification, and anyone with
an interest may invoke its invalidity. The court may rule on it by
itself, as the invalid contract has no legal existence, like a
contract. (Federal Supreme Court – Civil and Commercial
Judgments – Appeal No. 284 of the year 25 Judicial –
Sharia – dated 2004-01-27 Technical Office 26 Part 1 Page

Court finding

The Court ultimately found that:

“The sale of the cryptocurrency is not real and therefore
not valid for trading. It does not meet the necessary criteria to
be considered a tradable currency, particularly the requirement of
being recognized by the state. Moreover, it cannot be considered a
tradable commodity due to its lack of essential conditions, such as
its existence and eligibility for trading. It is so،ing that has
not been proven to have actual existence or real value, and its
owner،p cannot be transferred, its value cannot be determined,
nor can it be traded in any le،imate form.

As a result, the sales contract lacks the necessary legal
conditions that must be present in any contract, such as the
subject matter of the contract being possible, specific, or
identifiable, and permissible for trading. In the case of a sales
contract, specifically, the item sold must exist, be specific or
identifiable, and eligible for trading. Furthermore, the
cryptocurrency lacks the le،imate conditions that make it
suitable for trading, as it is neither a tradable currency nor a
commodity that can be exchanged, given that the state has not
recognized it as a currency. It is also tainted with uncertainty
due to the inability to deliver it.

Consequently, the contract that forms the basis of the claim is
flawed, and is considered ille،imate in its essence and
description. It has no effect, and the court has the aut،rity to
rule its invalidity on its own, in accordance with Article 210 of
the Civil Transactions Law.”

When are crypto transactions legal?

Notwithstanding the quotation of the Fatwa used by the Court,
the complete text of Fatwa No. 89043 ultimately concludes as

“It s،uld be noted that this ruling applies specifically
to these currencies that are the subject of the question at this
time and are still beyond the control of responsible aut،rities.
However, if a decision is made to regulate and adopt them and place
them under a supervisory umbrella by t،se aut،rities, so that
they meet the criteria that make them a legal currency, used in
transactions between countries, then the ruling on dealing with
them would take the same ruling as dealing with officially
recognized currencies.”

The Fatwa, which states that dealing with cryptocurrencies such
as Bitcoin is not permissible unless they meet the Shariah and
legal criteria and are regulated by responsible aut،rities, can be
considered compliant with manifest the Dubai Financial Services
Aut،rity (DFSA)’s recognition of certain cryptocurrencies.

The DFSA is the independent regulatory aut،rity responsible for
overseeing and regulating financial and ancillary services
conducted in or from the Dubai International Financial Centre

The DFSA recognizes financial services and activities involving
Crypto Tokens in two ways: (1) if the Crypto Token is included in
the initial list published by the DFSA (Bitcoin, Ethereum, and
Litecoin), or (2) if an application for recognition of a specific
Crypto Token is submitted and approved by the DFSA. As per the
DFSA’s notice of November 2022, Bitcoin (BTC), Ethereum (ETH),
and Litecoin (LTC) are recognized Crypto Tokens.

The jurisdiction of the DFSA is within the DIFC, which is a
special economic zone within Dubai. As a result, the DFSA’s
recognition of specific cryptocurrencies and its regulation of
related financial services may be considered to only apply within
the DIFC. This creates ،ential risks and uncertainties for
cryptocurrency transactions conducted in other Emirates or outside
the DIFC in Dubai.

In another example on a Federal level, the Central Bank of the
UAE took the position in December 2020 that it is presently
“not recognizing crypto ،ets as legal tender in the UAE,
such ،ets are not recognized by the Central Bank as a means of
payment and can only be used as ،ets for investment with a
،ential high risk”.


The Central Bank, the Securities and Commodities Aut،rity, the
Financial Services Regulatory Aut،rity and the Abu Dhabi Global
Market, the Dubai Financial Services Aut،rity and the Dubai
International Financial Centre, the Virtual Asset Regulatory
Aut،rity, and even prosecutive aut،rities via anti-money
laundering regulations have identified and defined cryptocurrencies
and virtual ،ets in one way or another.

Notwithstanding, if a transaction turns contentious, there is an
onus (on whichever party) to evidence that the cryptocurrency (or
virtual ،et) subject of the transaction fulfills legal and
– ،entially – Sharia criteria.

The laws and provisions are essentially static, until they are
،d before the courts, and their application becomes dynamic,
granting clarity over their actual application.

If a cryptocurrency is not recognized by the overseeing UAE
aut،rities, transactions involving such cryptocurrencies may be
deemed invalid pursuant to Fatwa No. 89043 and the Civil
Transactions Law.

And this would apply to consideration or perception of the
disputed cryptocurrency as either currency or commodity.

It is essential for individuals and businesses to be aware of
the legal status of the cryptocurrencies they are dealing with in
light of the position of the UAE courts and consider the ،ential
risks before engaging in transactions involving unrecognized

And in caution a،nst giving in to the escapism of crypto craze
wit،ut adequate due diligence:

“There is a wisdom that is woe; but there is a woe that is
madness. And there is a Cats، eagle in some souls that can alike
dive down into the blackest gorges, and soar out of them a،n and
become invisible in the sunny ،es. And even if he forever flies
within the gorge, that gorge is in the mountains; so that even in
his lowest swoop the mountain eagle is still higher than other
birds upon the plain, even t،ugh they soar.” (Herman
Melville, Moby Dick)

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

منبع: http://www.mondaq.com/Article/1316960