Is Earning Money via Crypto Proof-of-Stake Coins Halal?

Answered by Shaykh Muhammad Carr

Question 

I was looking for a way to earn some money and discovered that on Coinbase, if you purchase a Proof-of-Stake coin—like Ethereum—and leave it in your account, it can be used to help verify transactions on the network. In return, they pay you a fixed annual percentage of your deposit, currently around 1.23%.

This payment isn’t considered interest, since Coinbase isn’t investing your money and then paying you from profits.

Does that mean this is halal?

ِAnswer

In the Name of Allah, the Most Merciful and Compassionate.

I pray you are in good faith and health. Thank you for your question.

The Prophet (Allah bless him and grant him peace) said, ‘The lawful is clear and the unlawful is clear, and between them are doubtful matters many people do not know. So whoever avoids the doubtful matters clears himself regarding his religion and honor. But whoever falls into doubtful matters falls into the unlawful…” [Muslim]

Earning rewards for staking cryptocurrency is impermissible. When you stake your cryptocurrency, it acts as collateral to ensure that the validator behaves honestly. In Islamic law, providing collateral is considered a charitable act that is not compensated with payment. Earning profits from staking cryptocurrency, which serves only as a form of currency, is similar to lending money and collecting interest.

Furthermore, collateral and surety in Islamic Law are in lure of an established liability. This condition is not found in staking. [See: Shatari, Yaqut al-Nafis]

What is Staking

PoS allows validators to create new blocks and confirm transactions based on the amount of cryptocurrency they “stake” or lock up as collateral. The more coins a person holds and is willing to stake, the higher their chances of being chosen to validate transactions and earn rewards.

Staking is a way to earn rewards by putting your crypto to work on a blockchain network. In return for helping the network run smoothly and securely, you receive more of the cryptocurrency you’re staking. [Coinbase]  

Staked Coins In Rem 

The first question is whether crypto coins can be held or dealt with in rem—in the legal sense of specific, identifiable property rather than in personam (a personal obligation, e.g., to return the equivalent value).

If staked coins are in rem and only serve a currency function, it would not be permissible to stake them and earn a return on them.

If the lease is unrestricted, not as a weight, adornment, or the like, the lease is invalid and becomes a loan the recipient owes. This is because a lease implies usufruct, and the usual usufruct of dirhams and dinars is with the actual coins themselves. Therefore, if the usufruct is mentioned without further specification, it is understood to refer to the customary use. [See: Bahuti, Kashshaf al-Qana‘]

If the staked coins are in personam, meaning that the equivalent must be returned, it is clearly a loan. A return on a loan is considered interest and therefore impermissible.

It is well-known that for a lease to be valid, the leased object must be one that can be used for a permissible benefit while its physical form remains intact. This condition is not met with staking, as the equivalent is returned, not the exact same amount. Therefore, you are essentially lending it to them, which involves giving money to someone for their benefit, with the condition that it is returned with its equivalent. If the agreement stipulates that it will be returned with more, it becomes a usurious loan, which is prohibited, and one must repent to Allah.

And with Allah alone is our success.

[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door for students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari’ah Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.