If you’re thinking: “There are so many cryptocurrencies—what do they actually do and are they halal?” Then this article is for you! We discuss the types of crypto tokens, how to not get confused with crypto coins, and how you can start investing in halal crypto right now.
Crypto Tokens vs Coins
A crypto token is a type of cryptocurrency that is built on top of existing blockchain infrastructure. They are usually built for the purpose of running decentralized applications (dApps). The most common blockchain token platform is Ethereum and examples of tokens that operate on this network are Tether (USDT) and Chainlink (LINK).
The Ethereum blockchain has its native cryptocurrency, ETH. This is considered a crypto coin, which is a digital currency native to a blockchain. Other examples of blockchains and their native coins include Bitcoin (BTC), Litecoin (LTC), and Solana (SOL).
You may consider crypto coins as “cash only” coins meaning their use is limited to:
- Transferring money: you can give and receive value
- As a store of value: you can save and later swap the coins for a useful purpose
- As a unit of account: you can price goods and services in them
While this is generally the case for crypto coins, there are a few exceptions like ETH that acts as more than just a form of money. It is also used to fuel transactions on the Ethereum network.
To put it simply, a blockchain can have one native asset i.e., the crypto coin with limited use case. On the other hand, several crypto tokens can be built on a blockchain serving a wide range of use cases.
Types of Crypto Tokens
Crypto tokens can be grouped into different types depending on their characteristics and usage. It’s important to note that a single token can have more than one use case and so can be classified into more than one type or category.
There are typically six types of crypto tokens.
1. Utility Tokens
Utility tokens allow users to interact with the products and services of a particular blockchain-based company. Examples include Brave’s Basic Attention Token (BAT) and Ethereum’s ERC-20 token. There’s a synergistic relationship between the utility token and the platform it is operated on. The platform offers security for the utility token, and the token offers the required network activity to bolster the platform’s economy.
2. Security Tokens
Security tokens are made to serve as crypto-based financial securities, akin to stocks and bonds. They are used to sell digital shares of a company without the need for a broker. Owners of these tokens can claim proportional ownership of an enterprise, just as they do in traditional share-holding relationships. Many startups and web3-based projects consider blockchain security tokens as an alternative method of fundraising. BCAP and Science Blockchain tokens are some examples.
3. Governance Tokens
Governance tokens give holders voting rights in deciding certain aspects of a protocol or application that do not have a central authority. These tokens are often highly valued as they help participants gain a voice in the growth and direction of a decentralized organization.
4. Non-fungible Tokens
Also known as NFTs, these represent ownership rights to a one-of-a-kind digital asset including but not limited to art, film, and music. Anyone can technically copy an image or video file but digital assets that are minted into NFTs are marked with a digital signature to prove that they are unique and original. You can browse, mint, and trade NFTs on marketplaces such as OpenSea, Rarible, and Souq NFT.
5. Reward Tokens
Crypto tokens can be used as rewards for incentive schemes that nudge members to perform certain actions. These tokens can be used to support behavior change interventions or as markers of customer loyalty to a platform. Some protocols use their platform tokens as reward tokens alongside other use cases. Others create tokens specifically for the purpose of rewarding users.
6. Stablecoins
Despite the misleading name, stablecoins are in fact tokens built on top of blockchain networks. These tokens are backed by real-world assets and fiat currencies such as the US Dollar. Known to be comparatively less volatile than other cryptocurrencies, stablecoins pursue price stability by maintaining reserved assets as collateral. Some stablecoins are non-collateralized and may be supported by algorithmic software that keeps their values pegged at a pre-decided ratio with another asset.
Are There Halal Crypto Tokens?
The short answer is yes.
Crypto tokens and coins generally fall under the category of money. They can be considered halal crypto as long as they don’t intrinsically consist of impermissible or haram elements such as gambling and the selling of alcohol or pork. Tokens like NFTs can only be considered halal if their underlying object, project, and features are free from prohibited elements.
Blockchain is an underlying technology, and whether a token or coin is halal must be examined by its unique use case. If this technology is applied to support the halal standard of virtuous wealth creation, it can become a tool for worldwide prosperity.
Sahal Wallet Lists Only Halal Crypto
MRHB Shariah Scholars analyzes crypto projects and tokens to determine whether they are halal. The newly-screened halal tokens are then added to Sahal Wallet for ease of transaction. This ultimately removes any doubts regarding interest-based cryptocurrency thus enabling faith-based communities to confidently participate in decentralized finance.