Zakat and Cryptocurrency
Is Zakat due on cryptocurrency
Yes, cryptocurrencies are Zakat-eligible wealth that Zakat comes due on if its value reaches the threshold (niṣâb) of Zakat on money and one has possession of it at its niṣâb for a lunar year (ḥawl). (See the Zakat Calculator for help).
Why is Zakat due on cryptocurrencies when they are not real money?
Cryptocurrency, called “crypto” by users, is as “real” as bills like the US. Dollar, Euro, or Yen issued as banknotes by governments. Crypto’s form, however, is purely digital.
It has no government, bank, or intermediary backing or intervening in its creation or use. Its security (and name) comes from the complex, puzzle-like cryptographic computer code used to “encrypt” it, a cipher that prevents cracking it by hacking.
Its value derives, like that of the fiat currencies of most nations (called fiat because they are not backed up by any commodity, like gold), from its capacity to store value and its acceptance as a unit of exchange, in the case of crypto, over the internet.
Crypto has more than proven itself as a “system of money” by meeting the six key measures of successful currencies: scarcity, divisibility, utility, transportability, durability, and (anti-)counterfeitability.
In other words, people who use it — more than 70 million of them (called “blockchain wallet users”) as of May 2021 and growing exponentially — agree that crypto has value.
As such, cryptocurrencies, of which there are now more than 10,000 different kinds — both as so-termed “coins” (like the most famous of them, Bitcoin) and “tokens” — are money and, therefore, Zakatable. If one possesses crypto for a ḥawl (Islamic lunar year), and its value exceeds niṣâb ($5,127.20 at this writing on June 3, 2021) — and which is almost certainly the case, as one Bitcoin is today $38,560.60 — one must pay Zakat from it at its Zakat Due Date (ZDD). (See Is Zakat Due on All Wealth?)
Zakat is paid on it because Allah, the true owner of all wealth, has invested that portion of wealth with you, its holder, on behalf of the poor, the indigent, and people of the additional six categories of eligibility to receive Zakat, until that Zakat investment’s date of maturity: one Islamic lunar year from that wealth’s acquisition at its Zakat threshold of niṣâb (Sûrat Al-Tawbah, 9:60) (see What Is Zakat?). One who does not pay Zakat on eligible wealth commits a major sin (kabîrah, pl. kabâ’ir). In addition, the Prophet, on him be peace, warned:
A person’s Zakat does not remain mixed with his other wealth without obliterating it” (Bukhari, Târîkh Al-Kabîr, The Large History of Hadith Narrators)
How is Zakat calculated on cryptocurrency?
One calculates Zakat on his or her cryptocurrency holdings in the same way Zakat payment is calculated on money. The Prophet, on him be peace, who set the Zakat rates on all five types of Zakatable wealth, specified the Zakat rate for currency at 2.5%. This is Revelation (waḥy). (See What Requirements Qualify Wealth for Zakat?).
You can assess your Zakat payment using this Zakat Calculator.
To convert your personal or business wealth, including crypto holdings, into money for Zakat payment, you must first assess what the current niṣâb for currency is on the day your Zakat is due. Here are two formulas to do that. The gram measure is easier and more precise. The ounce calculation uses a troy ounce, the ounce unit used for gold valuation, which differs from the common U.S. apothecaries’ ounce:
Current gold price per gram US$ x 85 grams = Niṣâb (most precise)
Current gold price per troy ounce US$ x 2.73295 t oz = Niṣâb
At the time of this writing, these calculations would look like this:
$60.38 (gold price per gram) x 85 gm = $5,127.20
$1,876.14 (gold price per t oz) x 2.73295 t oz = $5,127.39
For a more detailed explanation of niṣâb calculation and conversion with Zakat rates, see Nisab and Zakat Calculation in a Nutshell and also What Is Niṣâb in Islam?
If your crypto holdings for the Islamic (Hijrî) year equal or exceed the niṣâb threshold, multiply its total dollar (or Sterling Pound (£), Euro (€), or whatever denomination amount) by 2.5% (0.025). The product amount is your Zakat payment on that crypto denomination.
If you own, say, one Bitcoin and your Zakat Due Date were today, your Zakat payment calculation on it would be this:
$38,560.60 (Bitcoin value per 1) x 0.025 gm = $964.02 (Zakat Payment)
Note that all forms of currency have Zakat due on them. Once one accumulates currency or money in any form at the level of its niṣâb, that begins one’s ḥawl, or Zakat year, on that wealth type. (See How is Zakat Calculated on Wealth?)
Also, if you have an established Zakat Due Date, then typically your Zakat assessment on monies will be ongoing throughout that period. (See When Is Zakat Due?)