NFTs can either be halal or haram depending on a range of factors laid out by the Fiqh (understanding of Shariah).
Posted July 17, 2023 at 6:58 am EST.
The Islamic Finance principles of fairness, transparency, and profit/risk sharing align with the benefits of blockchain technology. However, the rising popularity of non-fungible tokens (NFT) has brought a lot of uncertainty on which digital assets comply with Shariah law. While Islamic financial institutions are open to blockchain technology as a more efficient and cost-effective way to conduct transactions, halal NFT investment needs more discourse.
This guide looks at whether NFTs are halal or haram and how to ensure your NFT collection is Shariah compliant.
What Is Islamic Finance?
Islamic Finance or Shariah Compliance Finance (SCF) are financial practices that comply with Shariah (Islamic laws) and follow principles based on the Quran and Sunnah.
Islamic Finance incorporates cultural and ethical components of Islamic law into banking and investment. It differs from conventional banking by following several principles and prohibitions, including:
- Islamic Finance goes against profit maximization theories and user exploitation by prohibiting paying or charging interest. Instead, they share profits or losses. Halal investing strays away from conventional banking and insurance companies with interest-based products.
- Islamic law prohibits investing in companies involved with haram (anything that goes against the teachings of Islam) practices, such as weapons, gambling, alcohol, etc.
- Islamic Finance only works with non-speculative and risk-averse investments. Shariah prohibits speculative investments with excessive risks.
- SCF heavily emphasizes investing in companies that uphold human rights and have a positive impact on society
Are NFTs Haram or Halal?
NFTs are types of digital tokens that represent a unique asset and can’t be replaced by another similar token. You can create, buy, sell, and trade NFTs like any other asset. They can represent almost any unique item or asset, such as art, music, and real estate. However, they are a relatively new technology without much discussion on whether they are haram or halal.
NFTs’ permissibility or impermissibility under Islamic law depends on these underlying assets and/or what the NFTs depict.
The Fiqh (understanding of Shariah) principles that guide industry scholars in halal NFTs consideration are:
- It should represent something that is Shariah law compliant.
- It should not be what Shariah considers extravagant or wasteful.
- It should have genuine utility and spiritual value for its owner.
- It should not depict something that should not be seen in public.
- It should not be merely for entertainment.
- It should not ridicule or disfigure others.
- Its investment should not stop the owner from completing their Islamic duties in caring for themselves and their family.
Therefore,NFTs are considered halal if they are Shariah compliant, represent something halal, and don’t depict haram illustrations. But if the NFT includes something non-compliant or represents something that could risk non-compliance, then it is considered haram.
How to Ensure Your NFT Collection Is Shariah Compliant
When buying NFTs from a collection, you need to consider a few things, including the source of the NFT, what underlying assets the NFT represents, and the NFT’s content.
Do your research on the creator of the NFT to check what kind of activities they are affiliated with. Investing in companies that are linked to unethical practices risks Shariah non-compliance. The platforms and marketplaces where the NFTs are sold, traded, or bought must also be Shariah compliant. They shouldn’t be involved in haram activities like selling illegal items, gambling, or fraud.
Additionally, the underlying asset the NFTs represent needs to follow the Islamic Finance guidelines and Shariah. The assets should not be prohibited by Islamic law.
You should also be mindful of the images and messages depicted on the NFTs. The art on the NFT should not contain anything haram. Here are more considerations on what shouldn’t be featured on your NFT;
- An illegal substance or object like alcohol or drugs
- Portraying Allah, Prophet Muhammad, and other Prophets
- Portraying living creatures prohibited by Shariah
- Anything unlawful by Shariah
- Limbs and body parts that should be covered or concealed
When purchasing NFTs before actually seeing them, during presales, you should be indifferent to the possible NFTs you get to avoid Al-gharar (uncertainty, deception, and risk). Al-gharar sales are haram as they can fall under risky investments.
In conclusion, halal NFTs represent an opportunity to promote inclusivity and ethical principles in the digital space. They give the Muslim community a way to culturally express themselves while being Shariah-compliant. However, deciding whether an NFT is halal or haram depends on numerous aspects, requiring collectors and creators to look at each NFT on a case-by-case basis.
As a rule of thumb, always do your research before purchasing any NFTs to ensure they are halal.
