Are NFTs Halal? What the Token Actually Points At

An NFT can be a perfectly valid sale. Most of what was sold as NFTs between 2021 and 2023 was not, and the reason has almost nothing to do with the artwork.

It has to do with the fact that the buyer and the seller did not agree on what was being transferred.

What you actually own

Start here, because nearly every ruling written on this subject skips it and then reasons about a thing that does not exist.

An NFT is a row in a smart contract. Under Ethereum's ERC-721 standard, that row holds three useful pieces of information: a token id, the address of the current owner, and a tokenURI, which is a link.

The image is not on the blockchain. It is almost never on the blockchain, because storing a few megabytes on Ethereum would cost more than most of the art was ever worth.

So the token points somewhere else. Sometimes that somewhere is IPFS, where a file is addressed by a hash of its own contents, meaning the file cannot be swapped without the address changing. Often it is an ordinary web server owned by the project that minted it.

Which produces a situation people find hard to believe when they first hear it. If that project stops paying its hosting bill, your NFT points at nothing. The token survives perfectly. The picture is gone.

You own the row. You were sold the art.

Those are two different claims, and the space between them is where the fiqh problem lives.

The framework Mufti Faraz Adam set out in 2021

On March 4, 2021, before the mania peaked, Mufti Faraz Adam published an analysis of NFTs that has aged better than almost everything written after it. His starting position is the one to hold onto:

The permissibility or impermissibility of an NFT will rest upon what the NFT is composed of.

He set four conditions. The asset needs maliyyah, recognised economic value that sensible people actually want. It needs taqawwum, lawful benefit. Its utility has to be manfa'ah maqsudah, commonly and reasonably sought rather than contrived, and not something the Shariah objects to. And the purchase has to stay clear of israf and tabdhir, extravagance and waste.

Then he wrote the sentence that does the most damage to the 2021 market:

Something may have financial value, but it may not have utility from a Shariah lens.

Sit with that one. Price is not benefit. A thing can change hands at forty thousand dollars and still carry no lawful use, and Islamic law is asking the second question, not the first. This is the same reason a coin can have genuine working utility and still fail a screen.

Where gharar enters

Gharar is excessive uncertainty about what is being sold. A contract needs both sides to know what changed hands, and when the thing cannot be identified with reasonable precision, the sale is not valid.

Now apply that to a 2021 profile picture drop.

What did you buy? A token, certainly. A licence to the underlying image? Usually not, and most collections said so in terms nobody read. Commercial rights? A handful granted them, most did not. Access to something? Often promised in a roadmap rather than written into anything enforceable.

Ask ten holders of the same collection what their token entitles them to and you will get several different answers. That is not a communication failure. That is the definition of gharar, and it is why I think most of that market failed on contract clarity long before anyone got to the harder questions.

Note what this argument does not say. It does not say NFTs are haram because they are digital, and it does not say they are haram because the price was silly. A high price is not a prohibition, any more than it is for meme coins.

The royalty that quietly stopped existing

This deserves its own section, because it is documented, dated, and it shows the problem better than any argument I could construct.

Artists were told that NFTs let them earn a percentage of every future resale, forever. That was the pitch, and it was the single most persuasive thing about the technology. A painter sells a canvas once. An NFT artist, supposedly, earns on every sale after that for as long as the token exists.

It was never true at the protocol level. ERC-721 contains no royalty enforcement whatsoever. Royalties were a courtesy that marketplaces chose to honour, and a courtesy is only reliable while nobody has a reason to stop.

Competition gave them a reason. In February 2023, OpenSea cut its own marketplace fee to zero and made creator royalties optional for collections without on-chain enforcement, defaulting them to 0.5%. On August 31, 2023, it retired the Operator Filter, the tool that had let creators block marketplaces which ignored royalties.

Artists who had priced their work and planned their income around perpetual resale revenue watched that revenue become voluntary.

I am not raising this to score a point about crypto. I am raising it because a sale where one side's main consideration can be switched off later by a third party who was never a party to the contract is not a well defined sale. That is a fiqh problem before it is ever a business problem.

The part most halal NFT guides skip

A large share of NFTs are depictions of living beings. Apes, punks, cats, people.

There is a real and old dispute in fiqh about images of animate creatures, and Mufti Faraz Adam lists it among the factors that can make an NFT non-compliant. The stricter position, held firmly in much of the Hanafi tradition, treats the making and possession of such images as prohibited outside of necessity. Other scholars distinguish sharply between a sculpted three dimensional figure, which the classical prohibition was aimed at, and a photograph or a rendering on a screen.

My own view is that an image displayed on a screen is not the idol the prohibition was addressing, and I hold that with less confidence than I hold the rest of this article. Scholars I respect a great deal disagree.

What I will not do is what most guides on this subject do, which is leave the question out entirely because it complicates a clean answer. If you follow the stricter position, that consideration lands on most of the NFT market on its own, before any of the contract analysis above.

Where NFTs pass cleanly

Strip away the pictures and the technology is a registry of unique ownership. That is genuinely useful, and several applications of it raise no serious objection at all.

Domain names. An ENS name is an NFT. It is a readable address that points at your wallet. Nobody has ever argued a domain name is impermissible.

Event tickets. A ticket is a right of entry to a specific event at a specific time. Defined, transferable, useful. Putting it on a token changes the record keeping, not the contract.

Certificates and credentials. A qualification issued as a token that an employer can verify without phoning the institution.

Title deeds and asset registries. This is the one with real weight behind it. A token representing ownership of an identified physical asset, backed by a legal system that recognises the transfer, is closer to the tokenized asset question than to a profile picture.

What these have in common is that the utility is the point rather than the marketing. The token is the thing, not a receipt pointing at a file on somebody's server.

So what about the monkey

You paid two ether for a cartoon primate because a Discord you joined said the floor was going to ten.

Was that haram?

By the structure of the contract, if the collection had a fixed supply, a clear licence, and the image sitting on IPFS where it cannot vanish, then you bought a defined thing and you own it. That sale can stand.

But be honest about what happened. You did not assess an asset. You were guessing what a crowd would do next, which is the same behaviour that makes people lose money in every market, and the fact that a transaction is permissible has never meant it was wise. Our screening method asks what a thing is, not whether buying it was a good idea. Those stay separate questions, and you are responsible for the second one.

One practical note while you hold it: an NFT bought with resale in mind is trade goods, so it counts toward your zakat at market value on your zakat date.

The verdict

NFTs are not a category with a single ruling, and anyone who gives you one has skipped the work.

The token is a container. A container holding a defined right to an identified thing, hosted where it cannot disappear, in a project whose business is lawful, is a valid sale and there is nothing to prohibit. A container holding an undefined claim on a file that a company can delete, sold on promises that were never enforceable, fails on gharar. Not on being digital. Not on being expensive.

Most of what sold in 2021 was the second kind. Most of what is being built now, quietly and without the celebrity endorsements, is closer to the first.

Ask what the token points at, whether that pointer can break, and what you would actually be able to claim if the company that minted it disappeared tomorrow. If you cannot answer all three, you have not found a halal NFT. You have found an undefined one.