Yield farming is a concept that has gained great popularity in recent years in the DeFi world. It’s an investment strategy with which token holders seek to obtain excellent returns for their money, investing and participating in different DeFi platforms, always with the intention of finding any financial advantage that allows them to maximize profits.

Without a doubt, this is a form of investing that can generate excellent returns if done correctly and has quickly gained a lot of momentum for its application on many platforms within the crypto ecosystem.

But what are the 4 types of yield farming and is yield farming halal?

Generally speaking, the 4 types of yield farming are as follows: 1) Liquidity Pools, 2) Lending and Borrowing, 3) Staking (proof of stake), and 4) Holding for a Redistribution Fee. As for if yield farming is halal, not all types of yield farming would be considered halal. It depends on the type of yield farming you participate in.

Let’s take a closer look at each of the 4 types of yield farming and let’s see which type of yield farming would be considered halal and if any of the 4 types of yield farming would be considered haram.

What is yield farming?

Yield farming is a formula by which investors try to obtain profits from the storage of cryptocurrencies. With this investment method we have two key factors to consider:

1. Liquidity provider (LP) – A user who brings cryptocurrencies to the market
2. Liquidity reserve (LR) – A smart contract that validates and manages the funds provided by the LP

Basically, in yield farming, LPs obtain rewards in exchange for providing liquidity through their funds, something similar to the interest paid by banks to those who keep money in them for a certain period of time. But one main difference is that in Islam, it is haram to collect bank interest since it is derived from usury, but with yield farming, some types of yield farming are halal. We’ll touch on this more later in this blog post.

How does yield farming work?

In a yield farming system, investors transfer or deposit assets into a smart contract providing liquidity. In exchange for this, the system will offer them a benefit for the immobilization of these assets.

This can be done through specialized platforms that facilitate the whole process, usually on Ethereum ERC-20 tokens, but since there is no single model or a single system to apply this formula, each platform usually applies its own rules, which can be modified from time to time.

What are the 4 types of yield farming?

Here is a list of the main methods of yield farming that you can find in the market. Of course, it is also possible to find some variations of these methods, but in general, they’re as follows:

1. Liquidity pools

A liquidity pool is perhaps the most common form of yield farming. As I already explained, this works with a smart contract that blocks tokens to ensure liquidity on a decentralized exchange platform. The users who provide these tokens are called liquidity providers.

The liquidity pool will hold two tokens in a smart contract to form a trading pair. Suppose there are tokens “A” and tokens “B”. Suppose also that the price of A can be equal to 100 B.

LPs must contribute the same value of A and B to the pool so that someone who deposits an A token will also have to add 100 B to the same contract. So when someone wants to exchange A for B, they can do it based on the funds deposited in the contract, instead of waiting for another user to appear who wants to do the opposite operation – as happens in crypto exchanges.

LPs are then incentivized for their contribution with different types of rewards, which usually are native tokens of the platform that provides the service.

What are the risks of liquidity pools?

Although this activity can be very profitable, it’s important to be aware of the risk of impermanent loss (IL). This means temporary losses of funds due to the high volatility of the trading pair; the higher the volatility, the higher the IL risk.

In this case, the losses are for less money at the time of withdrawal, which means that a liquidity provider can end up with a greater amount of the B token and slightly less of the A token or vice versa. However, IL can be compensated by trade commissions and other additional rewards earned by LPs.

2. Lending and borrowing

The idea behind a lending and borrowing mechanism is very simple: lenders provide funds to borrowers in exchange for a regular interest rate.

In the crypto world, lending and borrowing are carried out through different types of platforms that can be centralized or decentralized.

If we take this to the world of DeFi, both providers and borrowers interact in fully decentralized platforms in which they have total control over their money, thanks to the use of smart contracts that operate mainly on the Ethereum network.

The way this works is very simple: user X sends a certain amount of funds to a lending platform using a smart contract, which will then provide them with earnings in the form of interest, usually in the platform’s native token.

Such a smart contract then becomes a kind of intermediary available to other users of the platform who want to apply for a loan – the money contained in the smart contract. Subsequently, lenders can withdraw their earnings from the platform from time to time in the form of interest in native tokens.

As a general rule, for a user to be able to request a loan in native tokens, he must previously deposit in the form of a guarantee, an amount in another cryptocurrency, equal to or greater than the amount of the loan that he’s going to request.

What are the risks of lending and borrowing?

Although this financial activity is usually quite safe in the DeFi context, there are also a couple of aspects that need to be considered.

First, there is always the possibility that the smart contract used for the operation receives some type of manipulation. This is more likely in the cases of smart contracts provided by third parties.

On the other hand, borrowing APYs on some cryptocurrencies could suddenly go up for some reason, which could lead to the most careless users ending up paying more than expected.

3. Staking (proof of stake)

Staking within the universe of cryptocurrencies involves keeping a certain amount of funds in a wallet in order to obtain yield for keeping this crypto locked up or “staked” on a blockchain.

This action of holding funds in a crypto wallet, also known as staking, serves to support the security and operations of a blockchain network by validating transactions on the network. In return, they are able to generate yield, or rather, earn cryptocurrency, for providing such a service to the network.

This consensus system is known as Proof of Stake (PoS) and is based on the fact that to obtain consensus, users must demonstrate possession of the indicated funds.

The idea is that users block cryptos and from time to time, the network randomly assigns the right to one of them to validate the next block, the probability of being chosen is directly proportional to the amount of frozen funds held on the network.

In this system and unlike what happens in other consensus mechanisms – such as PoW in Bitcoin – the users who act as validators, don’t compete with each other using the computing power of their equipment, but instead, put up a share of assets to certify that they’ll validate transactions in an honest way.

What are the risks of staking?

In the case of staking, you have to consider the risk of keeping a high amount of funds locked on a blockchain for a long period of time. Remember that there can always be attacks on these platforms that end in the partial or total loss of the funds held, something that has already happened on many occasions.

In addition, in some cases, these funds are placed in the hands of third parties, which implies a risk if there is an internal theft attempt on the platform.

4. Holding for a redistribution fee

Some decentralized exchanges facilitate the buying and selling of different crypto assets between users, but they do so through a model called automated market making (AMM).

Users can add their inactive tokens to the liquidity pools available on the platform and earn passive income according to their contribution and at the same time, other members can exchange tokens from these liquidity pools – the profits go to the community of users.

In the case of SushiSwap for example, anyone can provide liquidity through its internal app. When they do, they’ll receive SLP tokens (SushiSwap Liquidity Provider tokens). For example, for a $SUSHI and $ETH pair, the user would receive SUSHI-ETH SLP tokens.

Any user can create a new liquidity pool simply by providing a new pair, and it’ll be the proportion of tokens that the user adds, which will set the price of this new liquidity pool.

Afterward, other users can trade any ERC-20 token and when transacting on SushiSwap Exchange, a fee of 0.3% will be charged and 0.25% of this trade will go back to the users that make up the LP group.

In exchange for maintaining liquidity in these groups, LPs are rewarded with these fees, in addition to a portion of the SUSHI minted daily on the platform. The best part is that users can claim their funds at any time.

What are the risks of holding?

As with any liquidity pool, there is a risk of suffering losses due to IL, but also that the borrowing APY goes up in price or that the platform suffers from theft of funds.

BONUS

5. Hodling

The term “hodling”, also known as “hold on for dear life” in the crypto world, is used to define those who simply hold onto their cryptocurrency as a long-term investment strategy without worrying about the rise and fall in the price of tokens.

This is not a form of yield farming in its most pure essence, but you can also see it that way for your convenience – especially if you don’t have experience with crypto finances.

Hodling is a strategy used by people who don’t have the skills or the time to perform other types of operations, so these people invest in well-established projects for long-term investment.

The objective of hodlers is that, over time, the value of the selected cryptocurrency will increase, so the most common strategy is to invest in the purchase of relatively new cryptocurrencies with very low prices so that, as the value of these assets increases, they can, insha’Allah, make a good profit on such an investment.

This form of “yield farming” has proven to be one of the strategies that has worked best for Bitcoin users.

For example, if you had invested $1,000 to acquire 1,000 BTC when the price was at $1 during 2011, at the time of publishing this blog post, you would have approximately $60 million in a period of only 10 years!

What are the risks of hodling?

HODLing won’t increase the number of cryptocurrencies you have in your hands. This means that you will only make a profit if the cryptocurrency increases in price in the long term. But remember that the opposite could also happen, with which you would lose money instead of increasing.

Is Yield Farming halal?

Is yield farming halal? When it comes to yield farming, staking, as in Proof of Stake, is generally considered halal, while the other 3 types of yield farming, liquidity pools, lending and borrowing, and yield from redistribution fees would be considered questionable or even haram.

Proof of Stake is generally considered halal as you are earning yield for providing security to the network. This is obviously assuming that the network itself is not dedicated or established for some haram type of activity.

Earning yield from liquidity pools could be halal so long as the pool itself is not being used for haram operations such as loaning money to others to earn interest on the loan. Muslims should strive to not purposely put themselves in situations where they are directly contributing to what is known to be haram.

When it comes to earning yield from lending and borrowing, many scholars would say that this is haram as the objective of most DeFi projects is to establish lending and borrowing contracts that will allow the lender to earn money from interest. However, this may change if lending and borrowing contracts are established under Islamic finance investment tools such as “Murabaha” or other sharia compliant guidelines.

And as for earning yield from redistribution fees, this could also be seen as halal since you are providing a service to the platform so long as the purpose of the platform or DEX is not a lending pool where the goal is to earn interest off of loaning money by way of crypto.

All of this is said by making the assumption that the cryptocurrency you are using for yield farming is already seen as halal by scholars.

Final words

We have now explored the most common types of yield farming strategies, acknowledging that there are many variations in them. If your intention is to enter the world of yield farming, you should first familiarize yourself with the operation of the different platforms that offer this form of investment making sure that they are in harmony with Islamic principles.

Take into account that if you don’t understand what you are doing, you’ll probably lose money. Remember that the most profitable yield farming strategies are also the most complex ones and are recommended for advanced users.

It is not just about buying crypto when Elon Musk makes a comment that boosts its price, but there is a whole range of possibilities to earn much more money out there in a halal way. You just have to be well prepared and do your research.

May Allah guide you to success, Ameen.

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Blockchain and cryptocurrencies are in the early stages of their development in the Middle East and North Africa (MENA) region. And with the growing acceptance of Bitcoin and cryptocurrencies by Islamic scholars and sharia compliance organizations, the adoption of these technologies by companies, governments, and the general public is increasing.

We can easily verify this fact since, in the last five years, the number of exchanges in the MENA area has been increasing significantly – at a slow but sure pace – and a great explosion of growth and adoption is expected thanks to the participation of governments and banks in this region.

For that reason, we’ve put together our list of the Top 6 Middle East Crypto Exchanges for you to explore so that you can research what exchanges may be good for you if you reside in the Middle East and North Africa region.

Let’s take a look…

Rain

Rain is a reputable Middle East cryptocurrency exchange whose offices are located in the kingdom of Bahrain. It is the first exchange licensed by a central bank in the region – Central Bank of Bahrain or CBB – that offers users the options to buy, sell, exchange and store crypto assets.

Supported countries

Currently, the exchange offers its services for countries located in the Arabian Gulf region, including Kuwait, Oman, Saudi Arabia, and the United Arab Emirates, and its offer of crypto assets is currently limited to only four: Bitcoin, Ethereum, Ripple, and Litecoin.

Fees

Regarding fees, for purchase and sale operations, Rain charges 1.5% when payments are made via bank transfers and 4% for payments made by credit card.

On the other hand, it isn’t necessary to pay any fee for deposits or local withdrawals through transfers, nor for storage of your crypto-assets in your wallet on the platform.

Security

Security is another aspect that stands out in Rain, as it is a regulated exchange that requires going through AML/KYC verification procedures when registering. In addition, 98% of the funds are stored in cold-storage wallets. However, Rain is a custodial wallet that maintains control of private keys, something that is not to the liking of many crypto enthusiasts. As in the words of Antonio Antonopoulos, “Not your keys, not your bitcoin”.

Rain is also Cryptocurrency Security Standard (CCSS) Level III compliant, and it also offers support for two-factor authentication (2FA) and more.

Customer support

Customer support is available 24/7 and has proven to work quite well, responding via live chat or email within a maximum of 48 hours. And in case you are a beginner, the platform offers a lot of help articles that you can easily access online.

Additional benefits

Rain also offers personalized attention for clients with large capital providing over-the-counter or OTC service and has mobile apps for Android/iOS and it has been approved by the Sharia Review Bureau (SRB) as a Sharia compliant platform.

CoinMENA

CoinMENA is another of the large fully regulated exchanges that provide services for the purchase, sale, and custody of cryptocurrencies in a reliable, safe and convenient way. CoinMENA is headquartered in Bahrain and is fully regulated by the Bahrain central bank as a Category 2 financial services provider.

Supported countries

The exchange serves Bahrain, Saudi Arabia, UAE, Kuwait, and Oman; countries in which investors can make deposits, trading, and withdrawals in local currency.

Regarding the offer of crypto assets, this is currently limited to 9, including the most popular ones such as Bitcoin and Ethereum. The offer will expand over time, according to the exchange’s directive.

Fees

The fees to pay for the different operations are variable, but the exchange offers interesting discounts the higher the volume of the transactions.

The basic fee scheme is as follows:

• Deposits in fiat currency: bank 0% – credit card 3.5%
• Bank withdrawals in fiat currency: variable by country.
• Crypto deposits: 0%
• Crypto withdrawals: 0.25%
• Trading fee: 0.75%

Security

In the security aspect, CoinMENA complies with the standard, requiring to go through AML/KYC procedures when registering, in addition to offering storage of crypto assets in cold storage.

Customer support

In case you need any kind of help, you can contact customer support by ticket, email or consult the exchange’s knowledge base.

Additional benefits

Of course, being a highly reputed and regulated exchange, CoinMENA has also been certified as Sharia compliant by the SRB, in addition to offering OTC services to individuals and organizations wishing to purchase high volumes of crypto assets.

BitOasis

BitOasis is a service established in 2015 that has been growing steadily in recent years. It’s a platform that works both as a crypto exchange and a broker, offering its services mainly in the Middle East.

Supported countries

Although the platform focuses its services mainly on Middle East countries such as Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Kuwait, and Oman, other countries in the world – including North Africa – can also use the platform for crypto-to-crypto operations. The current offer of cryptocurrencies is around 20, quite wide to satisfy all types of users.

Fees

BitOasis fees are somewhat higher than the average in this type of service and are based on a maker-taker scheme, so fees vary according to your position and the volume of transactions.

To give you an idea, if you are a maker, fees can range from 0.25% to 0.050% on an ascending scale – the larger the transaction, the less you pay. If you are a taker, fees vary from 0.50% to 0.30% on an ascending scale.

Security

As far as we have been able to investigate, BitOasis doesn’t have any type of certification from any central bank, nor does it note that they are Sharia compliant, but it does adhere to legal regulations. In this sense, the platform applies KYC and AML procedures for each newly registered user.

On the other hand, the exchange complies with traditional standards in this type of service, such as 2FA, email verification, cold-storage, and it recently implemented a three-level multi-signature system in its online wallet.

The latter allows users to have greater control over their funds, something that combines very well with the possibility of using the platform from their mobile apps for Android and iOS.

Customer support

Another positive aspect of their platform is that they offer a Support page that provides a knowledge base for its customers with numerous articles on how to utilize the platform as well as an additional, and pretty extensive, FAQ page.

Matrix

Matrix is an exchange based in Abu Dabhi (UAE), which allows you to buy, sell and transfer crypto assets through a very easy-to-use interface.

We are speaking of one of the most notable and reliable platforms within the UAE, as it is fully regulated and has an In-Principle Approval (IPA) license from the Abu Dabhi Global Market (ADGM).

Supported countries

Although the platform offers its services mainly in UAE, the aforementioned license allows it to offer its services to clients in other regions such as Asia, India, the Middle East, and Europe.

The crypto assets offered are limited at the moment to Litecoin, Ethereum, Bitcoin, and Bitcoin Cash. In addition, it appears that USD is the currency the platform uses to buy crypto and if you deposit money from a bank that does not use USD, then their platform will convert your local currency to USD. You must check with your bank to note what the currency conversion fee is as this is not dictated or covered by Matrix.

Fees

The platform applies fees based on a maker-taker scheme, although for some operations it turns out to be somewhat more competitive than other similar platforms, withdrawal fees can be somewhat high.

Trading fees (crypto to USD):

• Maker: 0.10% – Taker: 0.20%
• Crypto and USD deposits: free
• Crypto and USD withdrawals: variable (about 40%)

Security

But with no doubt, the aspect in which the platform stands out the most is in its security. As a regulated entity, Matrix complies with AML/KYC policies and staff constantly audits its systems to prevent fraud attempts. 95% of clients’ crypto assets are stored in offline wallets, and these funds are insured for a value up to $100m.

Matrix also has additional security features:

• Multi-Factor Authentication
• Fully online encryption of sensitive data
• Disaster recovery plans
• Encrypted wallet keys
• Constant verification of their systems by third-party IT security companies

Customer support

In case of doubts or problems, it is only possible to contact support by email – at least initially. As an added benefit, the exchange offers OTC services for retail and institutional customers from around the world.

DigiDinar

DigiDinar is an umbrella term that encompasses a series of open-source projects created by a group of developers based in Kuwait. The project was founded in 2018 and since then, it has brought several cryptocurrencies and exchanges to the world, initially covering only Kuwait, and later the rest of the world.

The two main projects are the DigiDinar cryptocurrency and the DigiDinar exchange.

Supported countries

DigiDinar is not only a cryptocurrency exchange but also a marketplace where Kuwaiti users can use their cryptocurrencies to purchase goods and services. However, some services are also available for other countries.

At this time, the cryptocurrency offering is almost ten, including some of the most popular like BTC and Ether.

Fees

The fees are based on a maker-taker scheme and are average for this type of service, and it isn’t necessary to pay fees in the cases of deposits, trading operations, and canceled orders. Withdrawal fees differ with a withdrawal fee of 0.25% for Bitcoin, Litecoin, and DigiDinar tokens. Withdrawl fees for Ether are at 3%, withdrawal in Kuwait dinar is at 2.5 KWD, and withdrawal of Tether is at 37 USDT.

Security

On the security side, the platform is traditional, storing most funds in cold storage and offering other measures such as email verification and 2FA.

Customer support

Customer support does stand out, since it is not only possible to contact support by email and online ticket, but also by phone, WhatsApp, social media, and even in their own offices in Kuwait.

Additional benefits

Another aspect to note is that the team behind the exchange organizes seminars on blockchain technology every three months, this being part of the project’s mission to educate as many people as possible about the use of blockchain and cryptocurrencies.

The platform does not have any type of certification indicating that it is Sharia compliant, but it does offer OTC service for international clients. It also has Android and iOS apps currently under development.

NakitCoins

NakitCoins is a crypto-asset exchange service established in Turkey that is a pioneer in establishing the first physical cryptocurrency agency that works as cashpoint and broker in the country, with offices also in Ankara and Istanbul.

The exchange offers its customers the possibility to buy and sell crypto for cash directly in their offices while also offering and OTC service for large volume transactions in a secure and easy way.

Supported countries

In addition to the physical offices in Turkey, the exchange offers its services online worldwide – with only 30 countries excluded from some services – to be used for instant exchange without registering an account.

The exchange only allows the purchase and sale of Bitcoin anonymously, but it also has a SWAP SERVICE that allows anyone to exchange Bitcoin to five other different cryptocurrencies in a fairly easy and fast way.

Fees

Regarding fees, these are between 1% and 4% for most services, except in the case of BTC purchases with credit card, which are up to 8%.

Security

In security matters, it must be said that the platform is only used to carry out exchange operations on the go, so it doesn’t store user funds at any time.

Although it is a decentralized exchange, it complies with the AML and KYC regulations that are already common in these services and I have not found any certification stating that the exchange is Sharia compliant.

Customer support

Customer support can be done via live chat, social media, and email. The exchange can also be accessed from your Android and iOS apps – although not all functions are available.

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With the unstoppable rise in the price of Bitcoin, the rest of altcoins following in its footsteps, the growing institutional interest in the industry, and the recent IPO of Coinbase, it’s normal that more and more people want to ride the wave started by Satoshi Nakamoto more than ten years ago.

However, the sudden rises and falls in the price of cryptocurrencies, as well as the cyberattacks and scams that some exchanges have suffered in the past, are factors that still intimidate many people.

Even with all this, along with the technical advances the industry has experienced in terms of security, ease of use, and even regulation, makes it more and more attractive to carry out buying and selling operations using crypto exchanges.

As I understand our needs and fears, I decided to make this list of the best places to buy bitcoin and altcoins with the peace of mind that a serious and quality platform can offer you.

1. Coinbase

Coinbase started in 2012 by selling bitcoin directly to its users, but it added new services over time. The exchange has had an unstoppable growth and is now one of the largest and strongest platforms within the US, with a base of 30 million users. The platform is also easy to use and is available in many countries, yet many people complain about its terrible customer support.

Click on the link to get $10 of free bitcoin when you sign up with Coinbase.

Supported countries

Coinbase is available in more than 100 countries.

Security

The exchange has never suffered cyberattacks and thefts on its system and it offers an offline storage guarantee on most user funds. You’ll need to go through KYC and AML procedures when registering.

Fees

Although Coinbase fees are among the most competitive on the market, it’s difficult to set a fixed amount for them, as they vary based on some factors:

• A basic flat fee – 1.49% standard buys | 3.99% CC buys (these fees may vary)

Ease of use

Coinbase’s interface is made to attract someone who is new or at a beginner level to the world of cryptocurrencies, something that’s evident by its easy to understand and user-friendly design.

Wallet service

The platform offers an online wallet in which it keeps 2% of users’ funds, and the rest is stored in an offline wallet. Private keys are owned by the company.

Customer support

There is a high percentage of complaints from dissatisfied users on the internet on this factor.

Additional help

Only basic online help and FAQ on the use of the platform.

Additional benefits

Coinbase offers you the possibility to participate in staking activities to earn some rewards on your cryptos. They also provide FDIC insurance on your crypto of up to USD $250,000 per customer who have their crypto stored online on their platform.

2. Coinbase Pro

Coinbase Pro is Coinbase’s professional platform for more experienced cryptocurrency users. It’s a version of Coinbase with a richer interface with advanced options, ideal for experienced crypto traders who want to obtain a higher return on their crypto investments.

They offer a smaller amount of cryptocurrencies to trade compared to other platforms, yet we can highlight their incredibly low fees and variety of security options.

Supported countries

Coinbase Pro offers its service in more than 100 countries, including the US.

Security

The exchange has never suffered direct cyberattacks, although in the past it suffered from some flash crashes from which it managed to recover.

The platform offers security features such as 2-factor authentication (2FA), SSL encryption, and fund insurance for up to $250K.

Coinbase users who want to use Coinbase Pro don’t need to pass additional verification procedures.

Fees

Fees vary from 0% to 0.5% in a maker-taker scheme and according to the volume of your transactions.

You qualify as a maker if you place an order that immediately matches an order previously placed in the order book.

On the other hand, you qualify as a taker if you place an order that only partially qualifies with another.

Although this variable scheme is confusing for many people, its advantage is that it considerably reduces the fees for transactions.

Ease of use

The exchange is focused on expert users.

Wallet service

The same as with Coinbase.

Customer support

Yes, but it doesn’t stand out for being neither the fastest nor the most attentive.

Additional help

Only basic online help and FAQ on the use of the platform.

Additional benefits

Same as Coinbase, you have the possibility to participate in staking activities to earn some rewards on your cryptos. You can also earn referral commissions.

3. Binance

With only four years of existence, Binance has quickly become one of the largest exchanges in the world with more than 200 cryptos available in a large number of countries worldwide. They offer a wide variety of deposit and withdrawal options, super-competitive fees, the capacity to process 1.4 million transactions per second and an interface suitable for all types of users,. These are just some of the reasons for their stunning growth.

Supported countries

The platform is available in a large number of countries, including the United States – through Binance.us

Security

Binance has suffered a hack in the past, but the company has responded seriously to its users at all times. This significantly increases confidence in the company.

The platform also complies with the security standards for these type of services such as 2FA, a multi-tier system architecture, and cold storage.

Fees

One of the lowest in the market, just 0.1% for each transaction.

Ease of use

The exchange’s interface is of medium complexity, which makes it suitable for both novice and veteran users.

Wallet service

Binance is primarily an exchange and it only works as a wallet for certain investment options.

Customer support

Although it doesn’t stand out for being the best in the world, the support team responds. Communication is done via online tickets and email.

Additional help

There is only basic online help about using the platform.

Additional benefits

Binance offers several options on which the user can obtain additional profits, such as staking, savings, loans, and smart pooling, among others. Some of the ways to earn additional profit may not be Islamically permissible depending on how the crypto is classified.

4. Gemini

Gemini is an exchange founded by the Winklevoss twins, famous Bitcoin millionaires. This exchange is characterized by its accessibility and ease of use. Although its fees are a little higher than those of other exchanges, the platform makes up for it with a system rich in options for advanced trading, a variety of cryptocurrencies (33 different cryptos), and many advanced security options.

Supported countries

The exchange supports about 50 countries, including the US. Its philosophy is reaching as many users as possible.

Security

Gemini excels in this regard. Its system is quite robust in terms of security options as they adhere to a security philosophy of:

• Defend against external threats
• Protect against human error
• Guard against misuse from insider access

In addition to that, the exchange offers insurance that covers losses from hacks, and most of the funds are kept in cold storage.

Fees

The fees vary between 0.5% and 3.99%, depending on the interface you use (beginner or advanced).

Ease of use

It’s an exchange suitable for all types of users as it offers two interfaces: one for beginners (direct trading) and the other for expert users (advanced charting, order tracking and block trading).

Wallet service

The exchange offers an online custodial wallet – insured against losses – that you can use for your day-to-day operations. It also has its corresponding mobile app.

Customer support

This aspect is a bit above average, since it’s quite responsive and it’s possible to contact them by email, phone, and tickets. It also offers a lot of online help with solutions to common questions.

Additional help

Another noteworthy aspect, since the platform offers an extensive knowledge base through:

• Quick knowledge guides
• Crypto glossaries
• Webinars

Additional benefits

No.

5. CEX IO

CEX.io is a well-established exchange with more than 7 years of operation behind it and a very good reputation. The exchange is established in the UK and offers a brokerage service and a trading platform, but also places a high priority on security. Although CEX.io doesn’t offer a wide variety of cryptocurrencies, it makes up for this failure with several attractive investment options that have made it a favorite of many people.

Supported countries

CEX.io has a global presence, although there are restrictions for certain forms of payment in some countries.

Security

The company complies with the regulations in all the countries in which it’s available. The platform requires several levels of KYC verification for new users, has a robust monitoring system and other additional security options (cold storage, 2fA, PCI DSS, etc.).

Fees

The fees are variable according to the type of operation:

• Card deposits: $2.99
• Withdrawals: from 0.3% to $25, depending on the withdrawal method.
• Trading: they vary according to your position (taker or maker), from 0.00% to 0.25%.

Ease of use

CEX.io offers a friendly interface for any type of user, and it’s possible to use it as a brokerage or as a direct trading platform.

Wallet service

CEX.io is not an online wallet service, but it stores most funds in cold storage for security reasons.

Customer support

It’s possible to contact support through live chat, social media and phone. The service is available 24/7 and works quite well.

Additional help

The platform has a blog and a YouTube channel with information about the operation of the exchange and cryptocurrencies in general.

Additional benefits

Staking on the platform is possible.

6. Coinmama

Coinmama is a trusted and veteran platform in the industry that’s ideal for those who want to buy cryptocurrencies without complications and without the fear of losing their investment due to security problems. This is because when you buy or sell cryptocurrencies through Coinmama, you’re working directly with the company behind the exchange, without intermediaries. This offers additional advantages that other exchanges don’t offer.

Supported countries

Coinmama is currently available in almost 200 countries, including the US – although not in all states.

Security

Coinmama is a well-established and reputable platform in the industry since 2013.

The exchange doesn’t store any type of financial information, nor the funds of its users on the platform. This feature reduces the number of vulnerable points to the risks of external attacks or scams.

Fees

The fees on the platform are usually somewhat lower than on other sites, and are generally presented as follows:

• Purchases: 3.90%
• Sales: 0.90%
• D/C card transactions: 5%

Ease of use

Coinmama works well for all types of user, but it’s especially suitable for beginners or those who want simplicity and speed in their operations.

Wallet service

The platform doesn’t offer a wallet service, so you must have an external wallet to withdraw your funds.

Customer support

The company offers one of the best customer services in the sector, available 24/7 and with attention via email, phone, social media and chat bot.

Additional help

Coinmama offers a complete and accessible compilation of tutorials and online help about the operation of the exchange, but also about cryptocurrencies in general.

Additional benefits

Coinmama has a tiered benefits program for all its users that offers significant discounts on fees.

7. Kraken

Kraken – If you already have some experience with other cryptocurrency exchanges and want to go to a more advanced and sophisticated level with an exchange that offers:

• A large number of options for your trading operations
• More options to increase the profitability of your money
• And a very high level of security

Then Kraken is for you.

Supported countries

Kraken has a global reach and only about ten countries are not supported by the platform. It’s also available for US residents.

Security

The platform also stands out for offering a wide variety of advanced security options. It keeps its servers in constant custody and stores 99% of funds offline.

Fees

Kraken has a variable maker-taker fee scheme (ranging from 0% to 0.26%) based on the volume of transactions during a certain period.

Users of the Instant Buy feature pay a 3.75% fee.

Ease of use

As we said at the beginning, Kraken is more suitable for advanced and experienced users in the world of crypto trading.

Wallet service

Kraken works solely as an exchange and trading service.

Customer support

It’s available 24/7, 365 days a year through live chat, so the attention you receive is usually quite fast.

Additional help

Kraken offers a good number of options for users to educate themselves mainly on advanced and specific topics about the assets of their interest through:

• Online crypto guides
• Video lessons
• Podcasts

Additional benefits

Kraken also offers staking in case you wish to earn returns for persistently keeping your funds on the platform.

Conclusion

As more people enter the market and buy cryptocurrency, we can see even more scammers seeking to steal their money. It becomes even more important that you are able to purchase crypto in a safe way. Whether you are a beginner to buying crypto or an experienced crypto trader, I highly recommend only purchasing crypto from reputable platforms.

Some of our scholars such as, Dr. Mohd Daud Bakar, who hold the view that Bitcoin and cryptocurrency are halal, recommend only purchasing cryptocurrencies from reputable and regulated crypto exchanges.

And in the end, Allah knows best.

We all want our cryptocurrencies stored in a safe place where no one can access them, but we also want speed, low fees, and a variety of benefits and/or options when carrying out crypto trading, right?

Cryptocurrency exchanges emerged some time ago as a response to the needs of crypto users around the world, and they’ve evolved mainly into two types: Centralized Exchanges (CEX), and Decentralized Exchanges (DEX).

Each type has its pros and cons, and as the crypto world continues evolving, so do exchanges, and it can be quite difficult to discern which is the best choice for you among so many options available.

Insha’Allah we’ll explore the world of centralized and decentralized exchanges and learn about the differences between the two, the advantages and disadvantages of each, as well as provide a list of centralized and decentralized exchanges that are popular to use so that you can better decide what’s the best choice for you.

What is a cryptocurrency exchange?

A cryptocurrency exchange is an online platform that allows its registered users the trading of digital assets – whether crypto or fiat money – in a secure and efficient way.

The basic function of these platforms is to provide the necessary tools for users to carry out cryptocurrency trading in person-to-person (P2P) transactions.

Obviously, each exchange has its particular procedures, but in general, they all work in a similar way:

1. You sign up on the platform
Each platform will request some personal data from you, and while some exchanges ask for a large list of requirements, others will only ask for a username and email. Many exchanges may also apply “know your customer” (KYC) policies to verify the authenticity of the data you provided.

2. Fund your account
Once you’ve signed up, you can transfer money into your account whether in the form of other cryptos (Bitcoin, Ethereum, Litecoin, etc.) or fiat money (US Dollar, Malaysian Ringgit, Euro, etc.). Payment methods will vary according to the exchange, and while some will accept popular payment processors like PayPal, others won’t.

3. Perform transactions
You can then trade your currencies for another, trading from fiat to crypto or from crypto to crypto. The most popular currencies usually are Bitcoin, Ethereum, USD, and EUR.

4. Withdraw your money
You can finally withdraw the money you’ve invested, converting it to the currency you prefer. You can then withdraw to your bank account or another payment platform, depending on the exchange.

Let’s take a more in-depth look at the difference between CEX and DEX exchanges so you can better see the difference and how they work.

What is a centralized exchange or CEX?

A centralized exchange is a platform where each transaction goes through a central authority that controls all operations on the platform. The majority of exchanges today are of this type.

These exchanges usually make a profit by charging a commission for each transaction on their platform, but they may also have additional ways to generate income.

One important feature of CEX platforms is that they not only provide a means for trading, but they’re usually easy to use and many times, they also offer powerful analysis and security tools for your transactions.

On the other hand, you’ll find a greater level of security processes to follow in order to gain access to the platform, like “know your customer” (KYC) and Anti-Money Laundering (AML) policies.

What is a decentralized exchange or DEX?

In decentralized exchanges, transactions take place directly between two users. In this way, there is no need for intermediaries because the users are who establish the terms for negotiation.

You won’t find CEOs or employees here; since these platforms run based on blockchain technology, everything is controlled democratically among users.

To give you an example: in the case you want to buy a cryptocurrency like Dogecoin by paying with Bitcoin, you go to the platform and simply set an initial bid price. If someone agrees with that price, you pay with Bitcoin and receive your Dogecoins. The transaction is done.

The above is one of the main advantages of decentralized exchanges; you can quickly start making transactions on the platform because there is less regulation, so you don’t need to pass through a whole series of verifications.

However, this can also be problematic. If any problem occurs – like someone trying to scam you – the exchange won’t be able to help you because transactions are carried out person-to-person.

Advantages of centralized exchanges

Ease of use
These platforms usually have user-friendly interfaces. This is an advantage when you’re a beginner in crypto trading.

Many additional tools
These platforms usually offer a wide variety of security and analysis tools to apply to your trading transactions.

High liquidity
CEX platforms have a higher volume of transactions usually because they may offer lower fees for transactions, custodial options, a large variety of crypto assets to trade, ease of use on their platform, and higher and security measures they must follow due to government regulation.

High speed for transactions
The algorithms CEX platforms use can process a high volume of orders per second in real-time. This can help traders react faster to unexpected market changes.

Greater variety
Due to the larger number of registered users, big exchanges can offer a greater variety of digital assets you can operate with. They also support transactions in fiat currency.

Disadvantages of centralized exchanges

Less control of your money
Crypto assets are stored on the exchange since the wallets are part of the platform. This can be pretty bad for you if a platform decides to block your funds.

You do not hold your private keys
Your private keys will remain within the exchange, so there is a risk that you could lose all your money if an attack on the exchange occurs.

Less privacy
These exchanges are regulated by the laws of the country where their companies are located. This may be useful to prevent money laundering, but on the other hand, operators might collect a large amount of personal data from you.

Benefits of decentralized exchanges

Less regulation
Decentralized exchanges are free from any type of limitation or regulation by any public or private entity. Trade between users is direct and, for the most part, you won’t see any KYC or AML procedures needed to access the platform.

More control
As a user, you’ll have full access, control, and responsibility over your private keys and your crypto assets. This means no one can steal them directly from the platform.

Also, the risk for external security threads is minimal because there is no central point to direct an attack. This also decreases the possibility of server failures.

More privacy
Since there isn’t any type of authentication procedure or loading of ID documents, your identity will remain anonymous.

Disadvantages of decentralized exchanges

Greater complexity
DEX platforms are still limited regarding a variety of functions. In addition to that, user interfaces are still pretty complex for the beginner and sometimes even the intermediate user.

Lower transaction speed
Trading on a DEX is usually slower as each transaction must be validated by other nodes (other computers). This can be a problem if you need to react quickly to changing market situations.

Lower liquidity
At present date, you’ll find most traders on centralized exchanges, as the concept of decentralization is relatively new. This means that liquidity is also lower as well as the volume of transactions.

No fiat currency transactions
Even though this is changing, the majority of DEX platforms won’t allow you to perform transactions in fiat currency because it is not part of their decentralized philosophy nor do they want to have to follow KYC and AML regulation.

Top centralized exchanges

Coinbase (This is an affiliate link)
One of the largest and most reputable CEX platforms, Coinbase offers many options for a wide variety of users. You can connect directly with your bank account, but it also supports other payment methods.

Binance
This popular platform operates with all kinds of cryptocurrencies. It’s the largest trade volume in the world and you can do everything, from trading to staking and peer-to-peer (P2P) trading.

Kraken
Kraken is with no doubt one of the most complete exchanges today. Although it’s not the best option for beginner traders, it has an impressive number of options for the expert-level trader.

Gemini
Gemini is a platform that offers a wide variety of cryptocurrencies for all types of users, whether they’re beginners or professional investors. Also, you can use it from any device and its interface is really easy to use.

KuCoin
KuCoin is a very easy to use platform, especially if you’d like to use it from your Android device. Although it doesn’t have a high volume of transactions, here you can find assets that are hard to find in other exchanges.

Bitfinex
If you’re a novice user, Bitfinex is not for you. This platform is designed for expert users, and you can see that in the wide variety of options its user interface has. On the other hand, it has high liquidity and is a platform that cares about responding to its users in case of problems.

Top decentralized exchanges

Uniswap
Uniswap is the best exchange platform in DeFi. It’s easy to use and has a large volume of transactions and liquidity. Being a DEX platform, users can vote for changes to the platform democratically. Their fees are only about 0.3% per transaction.

SushiSwap
SushiSwap is the result of fork (separation) on the UniSwap blockchain and is currently its main competitor. Today, it has $3.06 billion in guaranteed assets and also offers unique features in the DEX environment that go beyond the exchange of crypto assets.

Bancor
Bancor is a pioneering liquidity protocol in the DeFi ecosystem. It’s operated by the Swiss Bancor Foundation, has its own native token (BNT), and offers unique asset protection features for its users. It has a high credibility level.

BurgerSwap
BurgerSwap is a platform founded in 2020 and is very similar to Uniswap. It’s quite easy to use and has managed to position itself very well in the market. It currently has a liquidity volume of around $300 million. Not bad for a starting platform.

Binance DEX
This is the decentralized version of Binance. It’s powered by the Binance Coin (BNB) cryptocurrency and offers quite low fees compared to other similar exchanges. Currently, it’s a fairly solid platform that offers all the advantages of a DEX but requires overcoming a certain learning curve to get the most out of it.

Islamic perspective of CEX and DEX

Scholars in Muslim countries where cryptocurrencies are halal, such as Malaysia, recommend that crypto users buy their cryptocurrency at centralized exchanges (CEX) that are government-regulated as a means to be protected from scammers.

Muslims should also be mindful that some decentralized exchanges (DEX), as well as centralized exchanges (CEX), specialize in lending out your cryptocurrency as loans where you will earn interest off of the loan.

Since some scholars classify Bitcoin, or cryptocurrency as a whole, as currency, then those scholars say that the rules of riba al buyu apply and that it is haram to earn interest from lending out your bitcoin or cryptocurrency. And in the end, Allah knows best.

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