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Crypto and Judaic Rules on Charging Interest

Author: David Shakow, Professor Emeritus, University of Pennsylvania School of Law1

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Judaism has many rules about paying or receiving interest on a loan. The scope of these rules apply only to transactions between Jewish people, and can involve transactions in crypto currency. 

Under Jewish law, it is forbidden for a Jewish person to receive interest on a loan made to another Jewish person, or even to pay interest on a loan from another Jewish person.2 This does not mean, however, that paying or receiving interest is inherently improper in all instances. A Jewish person is allowed to pay interest to a person who is not Jewish, and a Jewish person is allowed to receive interest from a person who is not Jewish. If a reason has to be given for the special rule that applies to loans between people who are Jewish, it might be said that the principle that “all Jews are responsible for one another”3 imposes a special responsibility on one Jewish person to help out another in a time of need. 

The rules that determine what constitutes interest under Jewish law are quite complicated. Some of the rules are considered to follow directly from the Biblical injunction against taking interest. Others are rabbinical elaborations on the Biblical restriction. 

What is the result if a loan transaction is effected with a crypto currency? Take what seems like a simple case. Suppose I lend you 100 bitcoins, and you agree to repay 105 bitcoins in a year. That seems like a pretty straightforward example of receiving interest. However, Jewish law will have to deal with the status of bitcoin the same way secular authorities have had to. If bitcoin is not a currency, then perhaps this is not classic interest. 

Jewish law would probably not consider bitcoin a currency at this time. But it would include the loan transaction in bitcoin as including impermissible interest. In fact, Jewish law is not only concerned if you lend 10 bitcoins and receive back 11 bitcoins—that is certainly encompassed in the restriction against receiving interest. Jewish law is concerned even if I lend you 10 bitcoins in exchange for a commitment by you to return 10 bitcoins in the future. The concern is that when the 10 bitcoins are returned, they may be worth more than the bitcoins that were borrowed were worth. Therefore, translating the 10 bitcoins into money, it could turn out that the original transferor is receiving, in some sense, interest for having transferred the bitcoins initially. Accordingly, even if Bitcoin is not considered currency, it appears that the Jewish laws of interest would apply even if a borrower were required to repay the same number of bitcoins, let alone if the borrower were required to repay more than originally borrowed. Note that the fact that the item returned may be worth less than the item lent, so that it may be just as likely that the borrower will come out ahead as not, is not a basis for taking the transaction out of the prohibited area of impermissible interest. 

It must be realized that some normal commercial practices would be treated as the collection of interest under Jewish law. For example, if a bill is due in 30 days, but the seller gives a 2% discount for payment within 10 days, the result is that the larger payment received in 30 days includes impermissible interest. 

Obviously, of course, if interest were charged for payments made after 30 days, that interest would be impermissible. 

As explained above, all these rules apply only in transactions between Jewish people. What may be a particular issue in dealing with crypto currency, particularly in transactions over the Internet, is that the transaction can be effected with no knowledge of the identity of the party on the other side. For example, a purchase of software could be made over the Internet. If the payment for it is made in a crypto currency, as opposed, for example, to a wire transfer from an identified account, the seller will have no idea of the identity of the party on the other side. What happens, under these circumstances, if the seller offers an item for 0.5 Bitcoin if the purchase is made today; otherwise, the cost will be 0.55 Bitcoin? If the buyer is Jewish, those applying Jewish law to this new situation might well forbid taking the higher amount after today. However, if the buyer is not Jewish, Jewish law would take no position on the transaction. 

What considerations might apply in this case? If there is no reason to think that the buyer is Jewish, Jewish law does include a concept of a “majority”. Since the vast majority of persons using the Internet are not Jewish, it might be possible to assume that the buyer is not Jewish, in which case, there would be no concern with this transaction. However, the application of the concept of a “majority” is not a simple one under Jewish law. Jewish law draws a complicated distinction between situations where an uncertainty has an unclear location and where it relates to a specific location. The classic case involves a person who is in possession of a package of meat but is unsure whether or not it is Kosher. If he found the package on the street, the rule of majority applies. Therefore, if a majority of butcher stores in the town sell Kosher meat, he may assume the meat is Kosher. But if he bought the meat in a store, but is unsure whether he bought it in a store that sells Kosher meat or one that sells non-Kosher meat, he must treat it as just as likely to be non-Kosher as Kosher, and may not eat it even if the majority of stores sell only kosher meat. The distinction is that a store is considered “fixed,” and once a situation is fixed, the rule of majorities does not apply. Unfortunately, what is considered “fixed” for this purpose is not easy to pin down precisely when applied in other contexts. 

How might such a mundane example apply to more complicated financial transactions? Consider a person who takes a loan through an entity such as Quicken loans.4 The loan itself may not raise issues of impermissible interest if the lender isn’t Jewish. But what if the lender sells the loan to others? Under Jewish law, if the current holder of the interest-bearing loan is Jewish, the loan runs afoul of the rules against interest. Remember that this creates a religious problem not only for the holder of the loan, but also for the borrower, since, as noted in the beginning, the rules relating to interest apply to the borrower as well as the lender. If we can rely on the rule of majorities, there would be no problem here—most loans are not purchased by other Jewish people. But if the holder of the loan is considered to be “fixed” for this purpose, the borrower paying interest would be violating the Jewish laws on paying interest. 

As indicated before, the rules against impermissible interest arise even if a person is given a choice of paying now or paying a higher price later. But what if the item being paid for is a service? Jewish law may permit such a structure for services. So what would be the proper treatment if one obtained the right to use software for a year—is that an acquisition of a service? Secular sales tax has had to deal with this issue. What normally identifies an activity as services for Jewish law purposes is when payment is made. Payment for services are made after the services are provided. You normally pay a doctor or a painter after they have provided services to you. Since that is not the case with software, Jewish law may well not treat the payments as made for services, and the restrictions against paying interest might well apply. 

It must be stressed that the Jewish laws of impermissible interest are extremely complicated. The above discussion should simply be taken as an indication of what types of problems might arise under Jewish law, particularly where crypto currency is involved. 

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1 The statements in this paper represent the views of the author only and should not be attributed to the University of Pennsylvania School of Law. Further, this document should not be treated as legal advice to any reader or to Lukka. 

2 Exodus 22:25–27, Leviticus 25:36–37 and Deuteronomy 23:20–21

3 Babylonian Talmud, Shevuot 39a. 

4 This example is discussed in an article by Rabbi Yisroel Reisman in the September 2018 edition of the Hebrew language Yeshurun Magazine. I was directed to the article by Rabbi Reisman, the author of The Laws of Ribbis (Masorah Publications 1995), a very thorough and clear English language exposition of some of the complicated rules in this area.

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