We already heard the hype about cryptocurrencies and blockchain technologies that have been in the spotlight in recent years. It's a sign that the Blockchain ecosystem has been accepted by many people, just look at the volatility of the cryptocurrencies market. Many innovations and new features are rapidly introduced by developers to make this whole ecosystem useful for our daily financial activities. One of those unique innovations is Non-Fungible Token or NFT. In this article, we explain NFT in the simplest way, how the NFT works and is it Shariah-compliant?
What is NFT?
NFT stands for Non-Fungible Token that represents a unique asset stored in the blockchain network. It can be traded and held but cannot be replicated. For every single unique unit of NFT, there is only one owner and it can be hold in only one crypto wallet. The owner of an NFT has an absolute right of ownership on this asset, and in a certain condition, the owner can gain royalty on the next sale. NFT could be in any form, it could be an image, video, gaming item, Music, website, domain, or any digital asset. At first, the main purpose of NFT is to show support to artists and encourage them. However, with the rapid changes in blockchain, people are rushing to make profits from NFT hype. For a Muslim, there are do's and don't in NFT trading.
Shariah Perspectives
Before we go deep into the NFT discussion, we need to recognize what concept is applicable in this area. NFT can be categorized as an asset, but is it the same as other assets that we are common to? Our Jurists from before have been addressed the concept and the utility of Mal so that we don't cross the line of Shariah ruling. Therefore, we will underline a guideline in Mal Category. There are too many categories or type that has been underlined by jurists, but in this edition, we are focusing on the Mal type based on utility and usage only.
Mal Al-Mithliy
Mal Al-Mithliy is a type of asset that has similarities in its specifications, value, and shape with another asset. There are five ways to recognize Mal Al-Mithliy according to our Jurists:
- The item can be measured
- The item can be weighed
- The item that has the same specification can be calculated.
- The item can be measured by centimeters, meters, or any measurement method.
- The difference in the item can be accepted by all parties involved.
Example: Sugar, Wheat, Egg
To be concluded, Mal Al-Mithliy can be simplified as a common item or asset where we disregard the item's appearance and instead, we took the benefit from it. If there is any damage happened, it must be replaced by another item that can benefit us as before or with the same value compensation.
Mal Al-Qimiy
Mal Al-Qimiy is a type of asset that doesn't have a similarity in value, specification, or anything that is different from a common item. It can be similar in specification but not with value. The price and value of this item can't be valued as same for every people, some will value the item lower while some are willing to pay a higher price only to own the item. For example, A shirt that is printed out from thousands of copies has a sign from the designer itself. Some will value the signed shirt as more valuable than others, but some don't even care whether it was a signed shirt or not as long it can be worn.
Back to our main topic, NFT falls under this Mal category. A single NFT is different from others. Each one has unique attributes that make the valuation differ based on people's perspectives. However, it was not a judgment to classify NFT as permissible yet. A deep discussion on the Fiqh principle must be considered as well.
NFT Shariah Guideline
To rule out the permissibility of NFT, there is a need to fully understand in what circumstance it can be Shariah-compliant or not. According to Mufti Faraz Adam (Head Shariah advisory firm, Amanah Advisors), there are some Fiqh Principles that need to be aligned with the ruling of NFT before it can be permissible:
- Maliyyah: Can be an Asset and accepted or needed by people.
- Taqawwum: Has a legal value. The NFT must be lawful and has a value on it. For example, people can benefit from NFT trading and artist will get royalties from the sale, this proves that the art has value.
- Manfaah Maqsudah: The Asset utility should align with shariah rulings.
- Israf and Tabdhir: Extravagance and wastefulness should be avoided
- Potential of wider Shariah infringements
- Impact: The investment made should not give a bad impact on a person's Islamic duties.
Generally, there is no official fatwa regarding the ruling of NFT so far. However, the permissibility of a specific NFT is based on what the NFT is composed of, what the NFT represents and what kind of image the NFT brings. Thus, we highlighted a guideline to buy an NFT:
- The NFT should not represent any kind of prohibited element. Example: The NFT collection should not represents the LGBT community or promoting porn site.
- The NFT should not represent a violation of human law. Example: Gangstarism, Human violation.
- The NFT should not be in a prohibited form. Example: Smoking figure, Sexy woman.
- Any unethical image. Example: Faeces Shit, middle finger sign.
- Any sign that gives a bad image of Islam. Example: Muslims drinking alcohol at a party
Conclusion
As Cryptocurrencies have been rapidly growing, the same goes for NFT. People are trying to develop the best system to sustain the utility of NFT. From the Islamic world, there are no official fatwas yet, but people already rushing into NFT, knowing that there is huge potential in this investment. The future will certainly bring much more to Cryptocurrencies and it is essential that we are always aware of what we are investing on. Allah knows best.