#1193: Ruling on the Permissibility on Trading in Non-Fungible Tokens (NFTs)

Assalamu alaikum warahmatullah wabarakaatuhu.

Question

Is it permissible to trade in Non Fungible Tokens (NFTs)?

ANSWER:

Wa Alaykum Salām Warahmatullāh Wabarakātuh

Alhamdulillāh.

As for Non Fungible Tokens, it is important firstly to understand it’s meaning and what it implies.

The Fuqahā, from all the different Schools have agreed that the Ruling on anything must come after a total comprehension of that thing.

Ibn Najīm Al-Misrī Al-Hanafī mentioned this in Gamzu ‘Uyūni Al-Basā’ir.

Likewise An-Nafrāwī Al-Mālikī in Al-Fawākih Ad-Dawānī, Ibn Hajar Al-Haytamī Ash-Shāfi’ī in Tuhfatu Al-Muh’tāj Ibn Taymiyyah in Majmū’atu Al-Fatāwah and many others.

The Precept says:

الحكم على الشيء فرع عن تصوره

“The Ruling on a Thing must necessarily emanate from a rightful perception of it”

And in the Qur’ān Allāh Ta’ālā said:

وَكَيْفَ تَصْبِرُ عَلَى مَا لَمْ تُحِطْ بِهِ خُبْرا

“And how could you be patient over that about which you have no Knowledge”

Shaykh As-Sa’adī explained in his Tafsīr that this is a warning by Allāh not to give a ruling on a thing without a perception of it’s implications and meanings.

What then are Non Fungible Tokens?

NFTs (non-fungible tokens) are unique cryptographic tokens that exist on a blockchain and cannot be replicated.

Blockchains are a kind of Database that are shared between several nodes of a computer network. These data are stored in different places then linked together using cryptography.

In other words, an NFT is a unique digital asset that represent ownership of a unique real world item such as an artwork, real estate or it’s like. Things that cannot be replaced by another.

What then is the Ruling of the Sharī’ah on this?

Firstly it’s important to understand that items are also divided into two in the Sharī’ah. Fungible are things that can be replaced because there are near or exact identical of them available for sale on the Market place. They are regarded as Mithlī in the books of Fiqh. As for them, whenever a person causes the loss or damage of another person’s item, he must compensate that person with it’s exact like by buying it’s like from the Market.

The Second Category are Non Fungibles, they are items that are unique and cannot be found in the Market for sale or replacement.

In a situation of damage or loss to a Non Fungible, the Damager must compensate the Owner with the Value of the Non Fungible. This is because there is no Identical or Near Identical of the Item in the Market.

Example of Fungibles: Cars, Phones, Computers, items that are sold in like or model in the market

Example of Non Fungibles: Antiquities such as things found in the Museum, Artworks and collectibles, Inherited Items that cannot be found in the Market for sale, etc

The Shāfi’ī Imām al-Khaṭīb ash-Shirbīnī rahimahullāh said in Al-Iqnā’:

ضمانها ببدلها من مثل إن كانت مثلية، أو قيمة إن كانت متقَومة

“It’s compensation must be by a payback of it’s like if it’s Replaceable in Like (Fungible) or in its monetary value if it’s not Replaceable (Non Fungible)”

This is the position of the Generality of the Fuqahā.

Then, what is the Ruling of trading Non Fungibles?

It’s permissibility will be reliant upon the Non Fungible in itself.

If the Non Fungible was allowed to be owned and sold in the Sharī’ah, there would be no forbiddance in its selling.

One of the things that would be considered is whether there is benefit in the item itself and if it’s possession is considered excessive spending and extravagance.

It is mentioned from Imām Ash-Shāfi’ī by Al-Muzanī in his Mukhtasar that he said:

“And it is not permissible to buy or sell anything that has no benefit and it’s income is a part of wrong consumption of wealth”

Another consideration would be the Precept that makes Harām to sell whatever is Harām to Possess. This is because the Rasūl Salallāhu Alayhi Wasallam saidإن الله إذا حرم شيئًا؛ حرم ثمنه

“Whenever Allāh forbids a thing He also forbids it’s benefit (wealth)”

And in the Hadīth of Jābir bn ‘Abdillah that was recorded by Imām Muslim, the Rasūl Salallāhu Alayhi Wasallam said

إنَّ اللَّهَ وَرَسُولَهُ حَرَّمَ بَيْعَ الْخَمْرِ وَالْمَيْتَةِ،وَالْخِنْزِيرِ,وَالأَصْنَامِ ‏”‏ ‏.‏ فَقِيلَ يَا رَسُولَ اللَّهِ أَرَأَيْت شُحُومَ الْمَيْتَةِ فَإِنَّهُ يُطْلَى بِهَا السُّفُنُ وَيُدْهَنُ بِهَا الْجُلُودُ وَيَسْتَصْبِحُ بِهَا النَّاسُ فَقَالَ ‏”‏ لاَ هُوَ حَرَامٌ ‏”‏ ‏.‏ ثُمَّ قَالَ رَسُولُ اللَّهِ صلى الله عليه وسلم عِنْدَ ذَلِكَ ‏”‏ قَاتَلَ اللَّهُ الْيَهُودَ إِنَّ اللَّهَ عَزَّ وَجَلَّ لَمَّا حَرَّمَ عَلَيْهِمْ شُحُومَهَا أَجْمَلُوهُ ثُمَّ بَاعُوهُ فَأَكَلُوا ثَمَنَهُ

“Verily Allah and His Messenger have forbidden the sale of wine, carcass, swine and idols,” It was said: Allah’s Messenger, you see that the fat of the carcass is used for coating the boats and varnishing the hides and people use it for lighting purposes, Whereupon he said: No, it is forbidden, Then Allah’s Messenger (ﷺ) said: May Allah the Exalted and Majestic destroy the Jews; when Allah forbade the use of fat of the carcass for them, they melted it, and then sold it and made use of its price (received from it).”

In this Hadīth is proof that, the fact that some part of a thing has benefit does not justify the selling of that thing.

For this reason, Ibn Qayyim Al-Jawziyyah said:

“It is important to know that the Aspect of benefit is much wider than the aspect of Trading. It is not everything that is Harām to sell that is Harām for use. In reality they don’t always go together. It therefore follows that we don’t Derive the impermissibility of use from impermissibility of trading a given item”

This he said in Zād Al-Ma’ād

What this implies is the following:

1. It is Harām to trade in what is not beneficial

2. It is Harām to earn money from the Selling and buying of whatever Allāh has made Harām

3. The fact that the trading of a thing is Harām does not imply that some parts of it may not be used. Like the Companions mentioned in the Hadīth of Jābir that the fat of a dead animal may be used for coating the boats and as fuel for lamps. Despite these uses, the Rasūl Salallāhu Alayhi Wasallam did not permit the business of selling Carcasses.

The Chapter on what is permissible for trading and what is not is a wide one in Fiqh and goes far beyond the scope of this Session. We only aimed at hinting at some of the very important Precepts in Fiqh that would apply to the matter under discussion, Alhamdulillāh

In summary, what we are saying is that there is nothing in the Sharī’ah that forbids the transaction of Non Fungibles even if they are Digital provided they are not fraudulent and have been proven to be acceptable by different parties in the World.

This is the position that seems closest to the reality of our time in accordance with the lines of the Sharī’ah.

We are aware that some of the Scholars disapprove of it alongside Cryptocurrency as they consider them not to be money and mere speculative transactions. What we see is that in itself it wouldn’t be deemed impermissible. Rather it would be deemed impermissible based on the mystery it is most times shrouded in, if what is sold, as is most times the case, are extravagant and of no benefit to the Muslim.

We ask Allāh for Tawfīq and Sadād Āmīn

Bārakallāhu Fīkum

Jazakumullāhu Khayran

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