6 Principles of Halal NFTs (Non-Fungible Tokens) You Must Know

Non-fungible tokens (NFTs) seem to become more popular this year. Currently, NFTs are mostly used for collectible markets such as digital artwork, sports cards, and rarities. Some analysts believe that they are just hype, and some say that they will revolutionize investment.


What is an NFTs?

NFTs (Non-Fungible Tokens) represent a unique digital asset that you can buy and sell. You can not use this type of token interchangeably, and another token can not replace it. Each token is a digital file that lives on the blockchain. The blockchain system permits artists, writers, or other creators to attach attribution to their works through NFTs. Most of the NTF tokens are developed using one of two Ethereum token standards (ERC-721 and ERC-1155)

Are NFTs permissible in Islam?

This is the most common question that we face after introducing NFTs (non-fungible tokens) into the world of Islamic Finance. Generally, the permissibility or impermissibility of an NFT depends on what the NFT that you are interested in is composed of. 

If the underlying on the non-fungible token is Shariah-compliant and you do not find any issue that is against Islamic law, you can consider the NFT to be Halal. But, if an NFT includes something non-compliant or there were possible extrinsic issues that could risk Shariah’s non-compliance, you can consider this NFT to be haram.

6 Principles of Halal NFTs

An NFT must be in the form that is acceptable from Shariah point of view. When monitoring and checking NFTs, industry scholars will typically take into consideration the following 6 principles:

  1. Aaliyah – something which reasonable people have an inclination towards and can be restored when they need it.
  2. Taqawwum – it must be something that has a legal utility and profitability.
  3. Manfa’ah Maqsudah – it should be something that people search and need; it should serve for their sake and must have value for its owners. It should not be something that the Shariah objects to.
  4. Extravagance (Israf) and wastefulness (Tabdhir).
  5. Any potential wider Shariah infringements.
  6. The effect of investing in such assets, and how it influences the remaining wealth of a person to complete their Islamic duties and obligations, particularly maintaining oneself and their family.

NFTs are simply digital versions of tangible collector’s items. Rather than receiving an actual oil painting to put on the wall, the buyer receives a digital file. They also obtain exclusive rights to the property. NFTs can only have one owner at a time. Because NFTs include unique data, it’s simple to verify ownership and transfer tokens between owners.

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