How to Calculate Zakat On Cryptocurrency

Zakat is an important pillar of faith for Muslims around the world.

Giving a portion of one’s wealth to those in need is how we help eradicate inequality and poverty in our communities and set up future generations for success. Zakat, Islam’s third pillar of faith, is key to maintaining a giving culture.

As technology develops over time, new forms of wealth are created, the latest of which is cryptocurrency. Understanding what exactly crypto is and how it fits into our financial obligations as Muslims is crucial to keeping our faith current with our times.

Read on to see how we should calculate our zakat on crypto:

What is Zakat?

Any discussion regarding Islam’s view on the distribution of wealth starts with defining zakat.

Zakat is a yearly charity Muslims pay on their money, property, and other assets that are made payable to the poor and vulnerable.

When you pay your zakat, you directly benefit widows, orphans, refugees, those displaced by war, and many others in both local and global communities. 

To pay zakat, one first determines whether they possess the minimum amount of wealth required to pay zakat, called nisab in Arabic. From there, they take stock of all the types of assets they have and determine which are “zakatable,” or zakat-eligible.

These are classified into five categories:

1. Personal wealth and assets
2. Liquid and exploited assets
3. Agricultural produce
4. Livestock
5. Treasure

Finally, one calculates their zakat, which can be done with the help of a digital tool like a Zakat Calculator, and gives their zakat prior to the celebration of Eid al-Adha, which occurs at the end of the month of Ramadan.

What is Cryptocurrency?

Cryptocurrency, often called “crypto,” is a form of currency just as real as currencies like the US dollar, Japanese yen, or Indian rupee, though it differs from them in that it is entirely bought and sold digitally. 

Crypto has no government, bank, or other intermediary backing or intervening in its creation or usage. It’s secured through complex, cryptographic computer codes used to “encrypt” it, hence preventing hacking. 

Crypto’s value derives from its capacity to store value and its acceptance as a form of exchange via the internet. It has repeatedly proven itself as a true “system of money” through meeting the six key measures of successful currencies, which are scarcity, divisibility, utility, transportability, durability, and (anti-) counterfeitability.

Because crypto falls under the zakatable category of personal wealth and assets mentioned previously, calculating zakat on crypto becomes incumbent on any Muslims who hold them. 

How to Calculate Zakat on Crypto

When it comes to calculating zakat on crypto, one must first determine whether one meets the nisab, or minimum level of wealth, necessary to pay zakat on crypto.

The two most common ways to calculate nisab on crypto are to value based on the price per gram or ounce of gold, as related to the dollar value of one’s crypto holdings through the following two formulas:

1. Current gold price per gram US$ x 85 grams = Nisab (most precise)
2. Current gold price per troy ounce US$ x 2.73295 t oz = Nisab

Calculations would resemble the following examples: 

1. $50.00 (gold price per gram) x 85 gm = $4,250.00
2. $1,500.00 (gold price per t oz) x 2.50 t oz = $3,750.00

If your crypto holdings equal or exceed the threshold for nisab for the current Islamic, or Hijri, year, then the total of your holdings is subject to a 2.5% rate of zakat, or 0.025, and the result of multiplying the value of your holdings by this rate would be your zakat on your crypto. 

This final calculation would look like this if you owned 1 Bitcoin at the time of writing:

1. $39,124.71 (Bitcoin value per 1) x 0.025 gm (gold price per gram) = $978.12 (zakat payment)”

Calculating zakat on crypto is an important component to determining one’s complete zakat obligations for this year and beyond.

Feel free to use the Zakat Calculator to determine your zakat on crypto and other assets as you prepare for this coming Ramadan.