"Legal Nature of Cryptocurrencies and Their Challenges in the Iranian Contract Law System with an Emphasis on the Theory of Property (Māliyyah) and the Rule of No Harm (Lā Ḍarar)"

Abstract

The emergence of cryptocurrencies as a novel phenomenon in economic transactions has posed serious challenges to traditional legal systems. In Iranian law, despite the Central Bank of Iran's directive prohibiting the use of cryptocurrencies for domestic payments (Directive No. 03/153438 dated July 8, 2018), courts and arbitral tribunals are increasingly facing disputes in which parties have denominated their contractual obligations in cryptocurrencies. This research, using a descriptive-analytical method, seeks to answer the fundamental question of whether cryptocurrencies are considered "property" (māl) under Iranian law and whether they can be the subject of nominate contracts (e.g., sale, compromise, pledge, and guarantee). The findings show that cryptocurrencies, given their "capacity for exclusive appropriation," "capacity for valuation in fiat currency," and "possession of customary economic value," satisfy the criteria of property (māliyyah), even though the Central Bank has not recognized them as backing for the national currency. Regarding the rule of no harm (lā ḍarar), severe price volatility of cryptocurrencies may cause the performance of a cryptocurrency obligation to result in manifest harm to one party. In such cases, the court may, based on Article 328 of the Iranian Civil Code and the rule of no harm, adjust the obligation or, in exceptional circumstances, declare the contract void. Finally, this research proposes that the legislator enact specific legislation determining the validity of cryptocurrencies in private contracts and establishing rules for compensating damages arising from price volatility.

Keywords: Cryptocurrency, Bitcoin, Māliyyah (Property), Rule of No Harm (Lā Ḍarar), Private Contracts, Article 10 of the Iranian Civil Code.

1. Introduction1. 

Cryptocurrencies emerged in 2009 with the advent of Bitcoin and quickly became one of the most challenging legal issues in various legal systems. These digital assets, based on blockchain technology and decentralized cryptography, are backed neither by any central bank nor by any national government. Nevertheless, they have acquired enormous economic value. By the end of 2024, the total global market capitalization of cryptocurrencies exceeded two trillion US dollars.

In the Iranian legal system, confronting this novel phenomenon is accompanied by fundamental theoretical ambiguities. The most important question is whether a cryptocurrency is legally considered "property" (māl) or not. The answer to this question determines whether a cryptocurrency can be the subject of a contract of sale, be pledged, or be dealt with under guarantee (ḍamān) or compromise (ṣulḥ). Article 30 of the Iranian Civil Code provides a relatively vague definition of property: "Anything that no third party has a valid claim of ownership to." Jurists and legal scholars have also enumerated criteria such as "capacity for exclusive appropriation," "rational benefit," and "capacity for transfer" for property (māliyyah).

Alongside the question of property, another challenge is the severe price volatility of cryptocurrencies. The price of Bitcoin has sometimes increased by 50% or decreased by 40% within a single month. If two parties agree in a contract that the price (thaman) shall be a certain amount of Bitcoin, but at the time of performance the price of Bitcoin sharply decreases or increases, can the aggrieved party invoke the rule of no harm (lā ḍarar) and request adjustment of the obligation or avoidance of the contract? Iranian case law has not yet provided a clear answer to this question.

This research seeks to answer the first question by analyzing the concept of property in Iranian law and applying it to the nature of cryptocurrencies. It then examines the rule of no harm and Articles 220 and 236 of the Iranian Civil Code to provide a framework for resolving disputes arising from price volatility. The innovation of this research lies in offering a threefold classification of cryptocurrency contracts (contracts with cryptocurrency as price, contracts with cryptocurrency as subject matter, and contracts with cryptocurrency as a means of payment) and determining distinct legal effects for each category.

Main research question: Do cryptocurrencies possess property (māliyyah) under Iranian law, and if so, what effect does the rule of no harm (lā ḍarar) have on cryptocurrency obligations in the face of severe price volatility?

Research hypothesis: Cryptocurrencies satisfy the criteria of property (māliyyah) under Iranian law based on the criteria of exclusive appropriation, valuation in fiat currency, and customary economic value, and can therefore be the subject of contracts. However, their severe price volatility can constitute manifest harm under the rule of no harm, empowering the court to adjust or avoid the contract.

2. Theoretical Foundations: The Concept of Property (Māl) and Cryptocurrency2. 

2.1. Definition of Property in Iranian Law2.1.

The Iranian Civil Code does not provide an explicit and complete definition of "property" (māl). Article 30 of the Civil Code provides a negative definition: "Anything that no third party has a valid claim of ownership to." This definition focuses more on the absence of a third-party claim than on the essence of property. Legal scholars have thus turned to jurisprudential (fiqhī) definitions to supplement this gap.

In Imami jurisprudence (fiqh), the majority of jurists have defined property (māl) as "that which can be exclusively appropriated, stored, and benefited from" (mā yumkinu ikhtiṣāṣuhu wa al‑idikhāru wa al‑intifāʿu bihī). Some have also added the condition of "capacity for valuation in fiat currency" (qābilīyyat al‑taqwīm bi al‑naqd al‑rāʾij). Katouzian, synthesizing these views, states: "Property is that which satisfies a human need and is customarily considered valuable" (Katouzian, 2020, Vol. 1, p. 56).

Thus, three criteria for property (māliyyah) can be extracted under Iranian law. The first criterion is the "capacity for exclusive appropriation to a specific person," meaning that the object can be separated from others and a specific owner can be designated for it. The second criterion is "rational or customary benefit," meaning that the object satisfies a human need. The third criterion is the "capacity for valuation in fiat currency," meaning that its economic value can be measured in national currency.

2.2. Technical and Economic Nature of Cryptocurrency2.2. 

A cryptocurrency is a "decentralized digital asset" built on blockchain technology. Each unit of cryptocurrency is unique and cannot be copied or double‑spent, as the double‑spending problem is resolved by the network’s consensus mechanism. Cryptocurrency transactions are recorded in a distributed ledger verified by thousands of computers worldwide.

From an economic perspective, cryptocurrencies have the following characteristics. First, their value is determined by supply and demand in global markets and they have no government backing. Second, they can be converted into fiat currency such as the US dollar, euro, or Iranian rial. Third, they can be stored (in a hardware or software digital wallet). Fourth, they can be transferred and allocated to another per)

The main drawback of cryptocurrencies is their severe price volatility, caused by the absence of government backing and sensitivity to news, statements by officials, and market sentiment. For example, Bitcoin reached a price of approximately USD 65,000 in 2021 and fell to around USD 30,000 a few months later.

2.3. Application of the Property Criteria to Cryptocurrency2.3. 

Applying the three criteria of property (capacity for exclusive appropriation, rational benefit, and capacity for valuation in fiat currency) to cryptocurrencies leads to the conclusion that cryptocurrencies satisfy all three.

First, regarding the capacity for exclusive appropriation, each unit of cryptocurrency is held in a unique digital wallet and can be transferred to another wallet address. This transfer process is recorded on the blockchain and remains traceable forever. Hence, a cryptocurrency is capable of exclusive appropriation to a specific person.

Second, regarding rational benefit, cryptocurrencies can be used to purchase goods and services, for investment purposes, or be converted into fiat currency. Moreover, many online stores worldwide accept cryptocurrency as a payment method. Although this acceptance is more limited in Iran, cryptocurrencies indisputably have rational benefit in international custom.

Third, regarding the capacity for valuation in fiat currency, the price of cryptocurrencies is quoted instantaneously in US dollars and other currencies on hundreds of online exchanges such as Binance and Coinbase. In Iran, websites such as Tether Market and Wallex also quote the instant price of cryptocurrencies in Iranian rials. Hence, the capacity for valuation exists.

Therefore, from a theoretical legal perspective, a cryptocurrency possesses property (māliyyah). However, the Central Bank of Iran, in Directive No. 03/153438 dated July 8, 2018, has prohibited the use of cryptocurrencies for domestic payments and has required cryptocurrency exchanges to obtain special licenses. This prohibition, although creating an administrative and regulatory restriction, does not mean that a cryptocurrency is not property from a civil law perspective. In other words, an administrative prohibition on using a cryptocurrency cannot negate the inherent quality of being property, just as the transaction of alcoholic beverages is prohibited in Iran, but alcoholic beverages are still considered "property" from a legal perspective, albeit subject to different rules.

3. Jurisprudential Analysis of Cryptocurrency (Contemporary Views)3.

In Imami jurisprudence, there are three main views regarding the property (māliyyah) of cryptocurrencies. The first view, advanced by some conservative jurists, holds that cryptocurrencies lack property because they have no tangible backing and are purely conventional (iʿtibārī). Consequently, transacting in cryptocurrencies is considered a form of consuming others’ property wrongfully (akl al‑māl bi al‑bāṭil).

The second view, which has gained more acceptance among contemporary jurists, holds that if cryptocurrencies have customary value and can be bought and sold, they are considered property and transacting in them is valid. Ayatollah Khamenei, in response to an inquiry, has stated: "If cryptocurrencies customarily have value and are accepted by people, buying and selling them is not problematic, but one must not disrupt the national monetary system by using them" (Fatwa published on the official website of the Office of the Supreme Leader, 2018). Similarly, Ayatollah Sistani, in response to an inquiry, has considered cryptocurrencies to be assimilated to property if they possess customary value.

The third view, which is intermediate, holds that cryptocurrencies are not property in themselves, but may be transacted as a "financial right" or "claim" (ḥaqq mālī). On this view, buying and selling a cryptocurrency is equivalent to buying and selling a right of use, rather than an external object. This view has gained less acceptance.

The final position of this research is to accept the second view (property of cryptocurrencies if they possess customary value). Since cryptocurrencies such as Bitcoin and Ethereum have customary value and a market for purchase and sale globally and even in Iran (with administrative restrictions), transacting in them appears jurisprudentially valid, unless specifically intended to circumvent foreign exchange or anti‑money laundering regulations.

4. Impact of Price Volatility on the Rule of No Harm (Lā Ḍarar) and Delay Damages4.

4.1. The Rule of No Harm in Contract Law4.1.

The jurisprudential rule "lā ḍarar wa lā ḍirār fī al‑islām" (no harm and no reciprocating harm in Islam), which is embodied in Article 328 of the Iranian Civil Code as "no one may exercise their right as a means of harming another," is one of the most important principles governing contractual relations. This rule applies to situations where performance of an obligation or exercise of a right causes manifest and unusual harm to the other party or to a third party.

Severe price volatility of cryptocurrencies can conflict with the rule of no harm in two respects. The first situation occurs when the price (thaman) of a contract is denominated in a cryptocurrency, but between the conclusion of the contract and the time of performance, the value of the cryptocurrency sharply decreases. In this case, the seller receives a price far lower than the value at the time of the contract, and this reduction is so significant that it can be considered "manifest harm" (ḍarar fāḥish). The second situation occurs when the subject matter of the contract is itself a cryptocurrency (for example, buying a certain amount of Bitcoin), and after the contract is concluded but before delivery, the price of Bitcoin sharply increases. In this case, the seller is obliged to deliver property that had a lower value at the time of the contract at the current higher price, which can also constitute harm.

4.2. Mechanisms for Adjusting Cryptocurrency Obligations4.2. 

Iranian law has not explicitly adopted a doctrine of "contractual adjustment due to unforeseen events" (imprévision), unlike French law, which recognised the theory of imprévision in former Article 1195 of the French Civil Code. However, some legal scholars and rare judicial decisions have accepted the possibility of adjusting an obligation in exceptional cases by invoking the rule of no harm and Article 220 of the Iranian Civil Code (which requires that obligations be performed in a customary and equitable manner).

This research proposes that in cryptocurrency contracts, the court should adjust or avoid the contract based on the following criteria. The first criterion is the extent of the deviation of the cryptocurrency’s price from the price at the time of the contract. If this deviation exceeds a certain threshold (for example, 50%), it may be considered manifest harm. The second criterion is the length of time between conclusion and performance of the contract. The longer this period, the stronger the case for invoking the rule of no harm. The third criterion is the presence or absence of an express contractual clause addressing price volatility. If the parties themselves have provided a mechanism (such as adjustment based on an index), that mechanism shall govern.

5. Classification of Cryptocurrency Contracts and Their Legal Effects5.

Contracts in which a cryptocurrency plays a role can be divided into three categories.

First category: contracts where the price (thaman) is a cryptocurrency. In this category, one party undertakes to deliver specified goods or services in exchange for a specified amount of cryptocurrency. From a legal perspective, these contracts resemble a sale with the price denominated in a foreign currency, and Article 190 of the Iranian Civil Code (requiring the price to be known) applies. The main difficulty in this category is price volatility between the time of conclusion and the time of performance, which, as discussed in Section 4, may allow adjustment under the rule of no harm.

Second category: contracts where the subject matter (mabīʿ) is a cryptocurrency. In this category, a person undertakes to transfer a specified amount of cryptocurrency to another in exchange for cash (rials or foreign currency). From a legal perspective, the cryptocurrency is treated as a commodity, and Articles 338 et seq. of the Iranian Civil Code (governing sales) apply. Due to severe volatility, it is recommended that the parties expressly state in the contract that "the price shall be calculated based on the exchange rate on the date of delivery" to avoid manifest harm.

Third category: contracts where a cryptocurrency is used as a means of payment without being the price under a sale. For example, when a person lends their cryptocurrency to another, or places it as a consideration (ʿiwaḍ) in a contract of compromise (ṣulḥ). In this category, because Article 10 of the Iranian Civil Code (freedom of contract) governs, the contract is valid and enforceable whenever the term is not contrary to law and the parties have concluded it with serious intent and without duress. However, the Central Bank of Iran has prohibited the use of cryptocurrencies for domestic payments. Therefore, such contracts are not void per se, but their performance may face administrative obstacles if they are used to circumvent foreign exchange or anti‑money laundering regulations.

6. Summary of Comparative Analysis (German and UAE Law)6.

Under German law, cryptocurrencies are treated as "financial instruments" (Finanzinstrumente), and the German Civil Code (BGB) permits their purchase and sale subject to the regulations of the European Central Bank. The German Federal Court of Justice (BGH), in a 2018 judgment, described cryptocurrencies as "private money" (Privatgeld) having economic value and held that transactions in them are governed by the general rules of contract law.

Under the law of the United Arab Emirates, cryptocurrencies are officially recognised as "digital commodities," and the Abu Dhabi Global Market issues official licences to cryptocurrency exchanges. Article 122 of the UAE Civil Code considers cryptocurrency transactions valid provided they do not serve unlawful purposes such as money laundering.

In comparison, the Iranian legal system has taken a more cautious approach. The Central Bank’s administrative prohibition, while justifiable from a monetary risk management perspective, does not fill the legislative vacuum. This research proposes that Iran, like Germany, should recognise cryptocurrencies as a "private asset" without necessarily placing them on an equal footing with the national currency.

7. Conclusion and Legislative Proposal7.

This research has shown that under Iranian law, cryptocurrencies possess property (māliyyah) according to the three criteria of capacity for exclusive appropriation, rational benefit, and capacity for valuation in fiat currency, even though the Central Bank has prohibited their use for domestic payments. This administrative prohibition does not render cryptocurrency contracts void, but it does create obstacles to their performance.

Concerning the rule of no harm (lā ḍarar), severe price volatility of cryptocurrencies may, in exceptional cases where manifest harm would be caused to one party, provide a basis for adjusting the obligation or avoiding the contract. The court may invoke the rule of no harm and Article 220 of the Iranian Civil Code to adjust the performance in a customary and equitable manner.

Based on the findings of this research, the following single‑article law is proposed to the Iranian legislator:

Single Article – Law on the Validity of Cryptocurrencies in Private Contracts

Article 1 – Cryptocurrencies that have economic value and a market for purchase and sale in international commercial custom shall possess property (māliyyah) under civil law and may be the subject of contracts (including sale, compromise, pledge, and guarantee), unless their use is specifically intended to circumvent foreign exchange regulations or finance terrorism.

Article 2 – In the event of a price deviation exceeding fifty per cent (50%) between the time of conclusion of the contract and the time of performance of the obligation, either party may request the court to adjust the obligation or avoid the contract based on the rule of no harm (lā ḍarar). A finding of manifest harm shall be within the court’s discretion.

Article 3 – The Central Bank of the Islamic Republic of Iran shall, within six months of the enactment of this Law, prepare and issue a directive setting forth the conditions for using cryptocurrencies in permitted transactions (including export and import transactions).

This legislative proposal, while preserving the Central Bank’s legitimate prudential concerns, fills the existing legal vacuum and provides courts and economic actors with a clear framework for dealing with cryptocurrencies.

8. Selected References8.

• Katouzian, N. (2020). General Rules of Contracts. Tehran: Sherkat Sahami Enteshar. (Vols. 1–2)کاتوزیان، ن. (2020). قوانین عمومی قراردادها. تهران: شرکت سهامی انتشار. (جلد 1–2)
• Safaei, H. (2019).صفایی، ح. (1398).Introductory Course on Civil Law (General Rules of Contracts). Tehran: Mizan.دوره مقدماتی حقوق مدنی (قوانین عمومی قراردادها). تهران: میزان.
• Shahidi, M. (2018). Extinction of Obligations. Tehran: Majd.شهیدی، م. (2018). انحلال تعهدات. تهران: مجد.
• Central Bank of the Islamic Republic of Iran. (2018). Directive No. 03/153438 (July 8, 2018).بانک مرکزی جمهوری اسلامی ایران. (2018). بخشنامه شماره 03/153438 (8 ژوئیه 2018).
• Fatwa of Ayatollah Khamenei on cryptocurrencies, published on the official website of the Office of the Supreme Leader, 2018.فتوای حضرت آیت الله خامنه ای در مورد ارزهای رمزنگاری شده، منتشر شده در سایت رسمی دفتر مقام معظم رهبری، 2018.
• German Federal Court of Justice (BGH). (2018). Judgment No. IX ZR 187/16.دادگاه فدرال دادگستری آلمان (BGH). (2018). حکم شماره IX ZR 187/16.
• UAE Civil Code, Article 122.قانون مدنی امارات، ماده 122.
• Mohammadi, A. (2015). Foundations of Islamic Legal Reasoning. Tehran: University of Tehran.محمدی، ع. (1394). مبانی استدلال حقوقی اسلامی. تهران: دانشگاه تهران.
• Rahimi, H. (2021). "Property (Māliyyah) of Cryptocurrencies in Iranian Law and Its Comparison with Imami Jurisprudence." Private Law Research Quarterly, Year 10, No. 37, pp. 60–85.رحیمی، ح. (2021). "مالیات ارزهای دیجیتال در حقوق ایران و مقایسه آن با فقه امامیه." فصلنامه تحقیقات حقوق خصوصی، سال دهم، شماره 37، ص 60-85