An East London mosque has become the first in the UK to declare cryptocurrencies, like Bitcoin as Halal and said it would accept donations in such a form during the month of Ramadan.

Masjid Ramadan, also known as Shacklewell Lane Mosque, in Dalston said the currency is acceptable in the eyes of Allah if it is "transacted in a lawful manner".

"Any money or currency is neither halal – permissible – nor haram – impermissible. Guidance is about the value which it represents. If money is transacted in a lawful manner then it is halal,” said Zayd al Khair, a religious adviser at the mosque.

Cryptocurrencies are a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

Due to its anonymous nature, such currencies have become associated with buying unlawful items online. This has led to debate in the Muslim world over cryptocurrencies, with figures including the Mufti of Egypt suggesting it is haram because it is used by some for illegal activity.

But Masjid Ramadan has now declared that Muslims can use it for their Ramadan donations or zakat — the charity made annually under Islamic law on certain kinds of property.

Muslims are meant to give away 2.5 per cent of their wealth to charity as zakat, which is compulsory for all but the poorest Muslims.

Shacklewell Lane Mosque said it will accept donations in two different cryptocurrencies, Bitcoin and Ethereum, after advice from a London-based start-up Combo Innovation, a blockchain company which focuses on Islamic finance.

Combo Innovation’s founder Gurmit Singh helped set up the online ‘Bitcoin wallet’ for the mosque. He says he believes this is only the start.

“Currently hardly any mosques or Islamic charities accept Zakat in cryptocurrency. They are potentially losing out on millions of pounds," he said.

The money raised will be used to carry out repairs at the mosque, offer help to families who are struggling to pay funeral costs and shelter and feed the poor. The mosque hopes to raise around £10,000 via digital currencies during this Ramadan.

“We are trying to appeal to a wider audience with the new money,” said Erkin Guney, the chairman of the board of trustees of the mosque, which has so far received just over 100 pounds in term of normal currency.