First: The Asset or Project Must Be Permissible

It is not permissible to purchase a token that represents or assists a prohibited activity, such as gambling platforms, interest-based lending, the sale of prohibited goods, or prohibited content. Nor is it permissible to enter a fraudulent project or one based on taking later participants’ money to pay earlier participants’ profits.

It is important to know what the token actually grants. Does it represent ownership, a benefit, or a known right, or is it merely a name and marketing symbol with no clear economic substance behind it?

Second: Adequate Knowledge of the Asset and Contract

The asset, price, rights, fees, and method of settlement must be known clearly enough to remove consequential uncertainty. Warning signs include:

• An unknown issuer or responsible team.
• Promises of guaranteed or exaggerated profits.
• Concealing how tokens are issued or distributed.
• Insiders having the ability to change the supply or freeze people’s funds without disclosure.
• No clear explanation of where the return comes from.
• Reliance on influencers or promotional groups instead of documented information.

The Prophet, peace and blessings be upon him, said: "الْبَيِّعَانِ بِالْخِيَارِ مَا لَمْ يَتَفَرَّقَا، فَإِنْ صَدَقَا وَبَيَّنَا بُورِكَ لَهُمَا فِي بَيْعِهِمَا، وَإِنْ كَذَبَا وَكَتَمَا مُحِقَتْ بَرَكَةُ بَيْعِهِمَا". Meaning: “The buyer and seller retain the option as long as they have not separated. If they are truthful and disclose matters clearly, their sale will be blessed for them. If they lie and conceal, the blessing of their sale will be erased.” Agreed upon by al-Bukhari and Muslim.

Third: Ownership, Possession, and the Ability to Exercise Control Must Be Established

The basic rule is that a person must not sell a specific item he does not own and cannot deliver, while the Shariah recognizes controlled exceptions such as salam and istisna when their conditions are met. Hakim ibn Hizam, may Allah be pleased with him, said: I asked, “O Messenger of Allah, a man comes to me asking to buy something I do not have. May I sell it to him and then purchase it for him from the market?” He replied: "لَا تَبِعْ مَا لَيْسَ عِنْدَكَ". Meaning: “Do not sell what you do not possess.” Narrated by Abu Dawud, al-Tirmidhi, and al-Nasa’i, and authenticated by scholars.

Possession may be physical or constructive when recognized by custom and when the buyer can exercise an owner’s control over the asset without an unusual barrier. In Resolution No. 53, the International Islamic Fiqh Academy stated that constructive possession occurs through relinquishing control while enabling the buyer to exercise control, and that a credit entry in an account does not permit disposal before it takes effect and receipt becomes possible.

For digital assets, among the strongest indications of valid actual or constructive possession are that the balance is conclusively established as the buyer’s property and that the buyer can actually transfer or withdraw it to a wallet under his control, or has comparable legally recognized control suited to the asset and contract. A number appearing on a platform screen, or the ability to sell only within that platform, is not sufficient by itself if the existence of an asset owned by the buyer and his genuine ability to control it are not established.

Fourth: Currency-Exchange Rules Must Be Observed if the Asset Is Treated as Money

If a digital asset is legally characterized as money or currency, exchanging it for another currency falls under the rules of sarf. One of the most important is that both countervalues be exchanged in the same contractual session, through valid physical or constructive possession.

The Messenger of Allah, peace and blessings be upon him, said:

"الذَّهَبُ بِالذَّهَبِ، وَالْفِضَّةُ بِالْفِضَّةِ، وَالْبُرُّ بِالْبُرِّ، وَالشَّعِيرُ بِالشَّعِيرِ، وَالتَّمْرُ بِالتَّمْرِ، وَالْمِلْحُ بِالْمِلْحِ، مِثْلًا بِمِثْلٍ، سَوَاءً بِسَوَاءٍ، يَدًا بِيَدٍ، فَإِذَا اخْتَلَفَتْ هَذِهِ الْأَصْنَافُ، فَبِيعُوا كَيْفَ شِئْتُمْ، إِذَا كَانَ يَدًا بِيَدٍ". رواه مسلم.

Meaning: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt must be equal for equal, like for like, and hand to hand. If these categories differ, then sell as you wish, provided it is hand to hand.” Narrated by Muslim.

Neither countervalue may be deferred, and a balance that has not entered the buyer’s ownership and possession may not be sold. If the token is a commodity or a digital right rather than money, the rules governing its type apply, while ownership and knowledge remain required and riba, uncertainty, and injustice must still be absent.

Fifth: The Transaction Must Be Free of Riba

Prohibited forms include:

• Lending a coin or token on the condition that it be returned with an increase.
• A fixed, guaranteed return for depositing an asset when the arrangement is in reality a loan.
• Interest-based financing charges on trades or open positions.
• Increasing a debt because of delay.
• Borrowing money to trade with explicit interest or a benefit stipulated for the lender because of the loan.

Riba does not disappear when its name is changed to a financing charge, yield, guaranteed reward, or overnight fee. What matters is the contract’s reality and the source of the increase.

Sixth: Trading Must Be Free of Gambling and Excessive Uncertainty

Not every commercial risk is gambling. A merchant buys a permissible asset that he owns and may profit or lose. A transaction approaches gambling or becomes gambling when it turns into a pure wager on price movement in which the parties compete over price differences without genuine ownership or lawful economic benefit, or when it is based on extreme uncertainty, deception, and manipulation.

Dangerous forms include binary bets, some prediction contracts, speculation intended only to settle a price difference, random entries driven by fear of missing out, and chasing unknown coins whose prices are inflated through publicity before promoters sell onto the public.

Seventh: Fraud and Market Manipulation Must Be Avoided

It is prohibited to spread false news, conceal a personal interest, coordinate an artificial price increase and then sell onto new entrants, create sham trades to display unreal demand, or exploit confidential information in a way that wrongs other traders.

The Prophet, peace and blessings be upon him, said: "مَنْ غَشَّ فَلَيْسَ مِنِّي". Meaning: “Whoever cheats is not one of me.” Narrated by Muslim.

Eighth: Fees Must Correspond to a Known, Permissible Service

In principle, a known fee may be charged for permissible brokerage, custody, transfer, or technical services when the underlying transaction is lawful, the fee is known, and it does not conceal an interest-based increase.

If the fee is an increase on a loan because of its duration or amount, the lender requires trading through it to benefit from the loan, or the fee is nominal and conceals interest or prohibited financing, changing the name does not change its reality. Network transfer fees do not automatically have the same ruling as financing fees; each fee is judged according to what it actually pays for.

Spot Purchases

Calling a transaction “spot” is not enough to establish that it is permissible. It may be permissible in principle if the asset itself is lawful, the price is known, ownership and possession are established, the buyer is able to exercise control, and the contract is free of riba, excessive uncertainty, deception, and other prohibitions.

If the platform does not purchase a real asset for the user but merely records price exposure or a non-withdrawable debt, the appearance of a balance alone does not constitute complete ownership.

Leverage and Margin Trading

In its common form, leverage is not merely a larger trade. It involves a loan or financing from the broker, with the broker benefiting from that loan through commissions or conditions. It may also combine interest-based fees, selling what one does not own, lack of possession, and forced liquidation.

For this reason, entering leverage in its common form is not permissible. The phrase “no overnight interest” is not enough to establish permissibility, because the concerns of a loan that brings a benefit, absence of ownership and possession, or the true nature of a derivatives contract may remain. A particular contract cannot be excepted without a specialized Shariah examination of its clauses and the actual movement of funds and assets.

Futures and Perpetual Contracts

In the common forms of futures and perpetual contracts traded on cryptocurrency platforms, the trader does not purchase and take possession of the asset. Instead, the trader opens a position on whether the price will rise or fall, after which price differences are settled. Periodic financing charges, leverage, and forced liquidation may also be added.

These common forms are impermissible because they combine selling what one does not own, absence of possession, excessive uncertainty, and gambling, with riba sometimes added. In Resolution No. 63, the International Islamic Fiqh Academy prohibited deferred forms in which both countervalues are delayed or the transaction ends through an opposite contract without actual delivery and receipt.

Options Contracts

Options contracts as practiced in contemporary financial markets are impermissible. The International Islamic Fiqh Academy determined that their contractual subject is neither property, a benefit, nor a financial right for which compensation may lawfully be exchanged. They may therefore be neither created nor traded.

Contracts for Difference

In a contract for difference, the trader generally does not own the underlying asset. Instead, the trader agrees with the broker to settle the difference between the opening and closing prices. Its common form is therefore impermissible because it is based on price differences without ownership or possession and commonly involves leverage, excessive uncertainty, gambling, and financing charges.

Short Selling

Short selling is when a person sells an asset he does not own based on borrowing it or settling later. It is impermissible because the Prophet, peace and blessings be upon him, said: "لَا تَبِعْ مَا لَيْسَ عِنْدَكَ". Meaning: “Do not sell what you do not possess.” It may also involve a stipulated benefit for the lender and other prohibitions.

Staking or Depositing Coins in Exchange for Rewards

Not all products called “staking” have the same ruling:

• It may be technical participation in validating transactions on a permissible network, with a reward from the network protocol in exchange for work or bearing a known liability.
• It may in reality be a loan to the platform on the condition that the asset be returned with a guaranteed increase, which is prohibited.
• The platform may mix customer assets into interest-based lending or prohibited speculation without disclosure.
• The reward may come from issuing tokens with no genuine value or from the funds of new entrants.

Staking is therefore not judged from its name or rate of return. The actual contract, source of the reward, guarantee of capital, ownership of the asset during lockup, the platform’s use of it, and the ruling on the coin itself must all be known.

Lending and Yield Accounts

If a user transfers coins to a platform or person as a guaranteed loan on the condition that they be returned with an increase, that increase is riba, whether it is called interest, annual yield, or a reward. Profit-and-loss investment partnerships have other conditions, and an arrangement does not become a partnership merely by changing its name while guaranteeing capital or profit.

Automated Trading and Copy Trading

Automated software and copying another trader’s transactions are means whose rulings follow the trades executed through them. If the software uses leverage, futures, or prohibited assets, following it is impermissible. If its mechanism is unknown, it promises guaranteed profit, or its operator is given authority to withdraw funds, these are signs of danger and fraud.

Stablecoins

Not all stablecoins have the same ruling. The following must be examined:

• What establishes its link to the announced currency or asset?
• Does the reserve exist, is it sufficient, and can it be verified?
• Does the token holder have a clear redemption right?
• Is the reserve employed in interest-based transactions?
• Does the token represent cash, a debt owed by the issuer, or a share in mixed assets?
• Does valid exchange of possession occur when it is exchanged for money?

An announced stable price does not automatically make a contract permissible, just as calling a token “backed” does not prove the existence of reserves or the permissibility of their use.

If it is established that a token genuinely represents an official currency, with reserves, a redemption right, and valid possession, it takes the ruling of the currency it represents, and the rules of sarf must be observed when it is exchanged for another currency. A token whose reserves or redemption right are unproven, or which represents only an unstable debt owed by its issuer, does not become equivalent to the official currency merely because it claims to track its price.

Tokenized Gold and Precious Metals

If a token claims to represent gold or silver, a price linked to the metal is not enough. The actual existence of the metal must be verified, along with its identification or the allocation of a known share to the buyer, the establishment of the buyer’s ownership, the ability to take possession or exercise control, and the fact that the token is not merely an unbacked debt or a wager on price.

When gold or silver is purchased with money, the Shariah rules of sarf and valid exchange of possession must be observed. If genuine ownership and valid possession of the metal do not occur, the contract does not become a valid gold purchase merely because it is called digital gold or a gold-backed token.

Decentralized Finance, Liquidity Pools, and Yield Farming

A smart contract is a means of executing conditions automatically; it does not turn a prohibited contract into a permissible one. Decentralized-finance products combine different structures. They may include spot exchange, brokerage, or participation in trading fees, and they may include lending with an increase, derivatives, leverage, or reward tokens of unknown value.

A liquidity pool or yield-farming product therefore cannot be judged from its name or profit rate alone. Every contract within the protocol must be examined, along with the assets traded, sources of fees and rewards, any capital guarantee, the possibility of loss, the authority of the contract developers, and whether participants’ funds enter interest-based or otherwise prohibited transactions.

Initial Offerings and Token Presales

An initial offering or presale may be the sale of a known right, participation in a project, or a promise of a token to be issued later. It may instead be fundraising for an unknown or fraudulent project. The contract’s true legal characterization, the project’s existence, the token’s nature and holder rights, the use of funds, the delivery date, and the consequences if the project fails must all be known.

It is not permissible to purchase something of unknown reality or something that cannot be delivered, and guaranteed promises of profit are invalid. If the token represents an investment share, the rules of partnerships or securities apply according to its reality; it does not automatically take the rules of commodities.

Airdrops and Marketing Rewards

The basic ruling on a permissible gift or reward is permissibility, but the ruling on an airdrop follows the token and the conditions required to receive it. A reward may not be accepted in exchange for promoting a prohibited project or deceiving people, for making an interest-based deposit or participating in gambling, or when the token itself represents a prohibited activity.

Direct Peer-to-Peer Purchases

The principles governing a peer-to-peer purchase do not differ from those governing a platform purchase. Both countervalues must be clear, the seller must own what is being sold, possession must occur, and riba and fraud must be absent. If two currencies are exchanged, valid reciprocal possession must occur in the contractual session.

Care must be taken to avoid stolen transfers, fake accounts, and unknown intermediaries. Neither countervalue should be handed over without a secure method for receiving the other. It is not permissible to participate in concealing the source of funds or evading people’s rights and legitimate regulations.

Coins Based on Hype and Pure Speculation

Many coins created without a recognized benefit depend on hype, concentrated ownership in the hands of a few, and raising the price to attract buyers before promoters sell onto them. Such coins involve intensified uncertainty, deception, and manipulation, and may closely resemble gambling or become a means of consuming wealth unjustly.

A Muslim should avoid anything whose reality, benefit, and fairness of issuance are unclear. A large following or rapid price increase must not be treated as evidence of permissibility or value.

Non-Fungible Tokens

The ruling on a non-fungible token follows what it represents and the contract connected to it. If it represents a known, permissible benefit or property, its holder’s rights are established, and it is free of fraud and other prohibitions, it takes the ruling appropriate to that asset. If it represents a prohibited image or content, infringes the rights of others, or is traded through deception and gambling, it is impermissible.

Mining and Network Rewards

Mining or technical participation in operating a network is not prohibited merely because it is digital. The asset and activity must be permissible, and the work must not involve stealing electricity or equipment, compromising other people’s computers, malicious software, or directly assisting prohibited transactions. Applicable regulations and the rights and harms resulting from the activity must also be understood.

Step One: Understand What You Are Buying

Do not buy a token if you cannot briefly explain its function, who issued it, what right its holder owns, and where its value comes from.

Step Two: Verify That the Activity Is Permissible

Read the project description and its uses. Do not rely on a claim that it is “Shariah-compliant” unless this comes from a qualified independent body that has examined the contracts and their actual implementation.

Step Three: Read the Platform’s Terms

Check trading and withdrawal fees, custody conditions, the platform’s right to freeze the account or lend the assets, its bankruptcy policy, financing fees, and the product’s true nature. Is it a genuine purchase, a contract for difference, or another derivative?

Step Four: Verify Ownership and Possession

Make sure the asset conclusively enters your balance, that you have the right to control, withdraw, or transfer it according to its nature, and that it is not merely a number representing a wager on price.

Step Five: Choose an Owned Purchase, Not a Financed Position

Stay away from leverage, loans, and overnight financing charges. Do not sell before you own and take possession. If the asset takes the ruling of currency, verify that valid possession occurs in the currency-exchange contract.

Step Six: Understand the Source of Every Return

Ask whether the return is compensation for work or lawful investment risk, a guaranteed increase on a loan, payments from new participants’ funds, or the issuance of new tokens without clear value.

Step Seven: Examine Distribution and Risk

Learn what percentage is held by founders and large wallets, whether the supply can increase, the issuer’s authority to freeze or change matters, and the results of technical audits if any exist. Concentrated ownership and opacity increase the risk of manipulation, although neither alone constitutes an independent Shariah ruling.

Step Eight: Protect Funds Needed for Necessities

Do not trade with money needed for maintenance, debt, or medical treatment. Do not borrow for speculation, and do not allow severe volatility to cause neglect of family rights. The permissibility of an asset does not mean risking all one’s money in it is wise or permissible when that would cause an obligation to be neglected.

Step Nine: Observe Trustworthiness and Legitimate Regulations

Do not use other people’s accounts, evade verification, or conceal taxes or obligatory rights through lying. Follow regulations that protect wealth and prevent crime when they do not conflict with the Shariah.

Step Ten: Ask About the Specific Contract

Do not ask only, “Is cryptocurrency halal?” Instead, give the scholar the asset’s name and documentation, its issuance method, the platform, account type, purchase and withdrawal method, yield, and fees. The ruling on something depends upon accurately understanding it.