Bitcoin / Crypto-Currencies from Shariah Point of View and It’s Future:

1. Introduction:               Bitcoin is the first decentralized crypto-currency. Crypto currencies are digital in nature and are inspiring to be a widely accepted medium of exchange / legal tender.
2. Biggest Advantage:     Being a digital currency it remains secured from threat of getting lost or stolen. Further, Bitcoin etc make use of cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.
3. Bitcoin is also a Fiat Money:          As per Bretton Woods agreement (1944 - 1971); US$35 was equivalent to one troy ounce of gold. While other currencies were pegged to U.S. dollars. At that time, U.S. promised to redeem dollars in gold to other central banks. Trade imbalances were corrected by gold reserve exchanges and / or by loans offered from ‘IMF’. But the Bretton Woods system collapsed in series of economic measures undertaken by U.S. President, Richard Nixon in 1971. Since then, a global system of fiat money has been introduced with free float exchange rates between major currencies. Today, U.S. dollars and other currencies are not backed by any tangibles and such currency, including crypto are called ‘fiat money’.
4. How the Value of Fiat Money is Determined?           Since ‘gold standard’ has been abolished, therefore each government and / or its Central Bank is freely authorized to issue as much currency it need. However, the value of currencies is determined by demand & supply of goods & services being produced by each country.
5. Banks and Fiat Currencies:            Readers desirous of more information on fiat currency can refer to following modest endeavor.

https://www.dhirubhai.net/pulse/banks-fiat-currencies-muhammad-rizwan-ul-haque/

6. Bitcoin in Islamic Frame of Things:                 In light of verse no. 2/275 of Surah-e-Baqra; we are permitted to trade in commodities, but not in money. Hence only need-based purchase of Bitcoin is permissible, but buying of crypto-currency for hoarding, speculation etc will not be permissible under Shariah, as it will fall under; 'Gharar' (uncertainty), which is similar to gambling. Hence it will remain forbidden.

7. Surah-e-Baqra, verse no. 275:                “Those who devour interest shall not stand on the Day of judgment, but like the standing of one whom the evil spirit has by touching made mad. This is because they said 'The trade too is like interest,' and Allah made trade lawful and made interest unlawful. So he, who received admonition from his Lord and refrained, then whatever he took before is lawful to him, and his affair is with Allah. And now whoever shall commit such. Fault, they are men of hell, they will live therein for longer period” (2/275).

8. What is Meant by Need-based?     It can be explained with couple of example given below. For example one is traveling out of home country and the place to be visited; let say freely accepts Bitcoin, then one can convert a sum required for the trip into crypto-money. Similarly, one wants to remit University fees of one’s child, which may insist on Bitcoin, then one can convert an equivalent amount for fees. In these two examples, although one has traded in money but since it is a need-based requirement, therefore it will be allowed under Islamic principles.

9. Why Trading in Money is Forbidden?             Allah SWT wants that we should involve our money in productive ventures (and not in speculation, nor it should remain idle), so that there is always a real economic activity to create goods & services (jobs). Otherwise, e.g. buying & selling of Bitcoin etc with a speculative intent will not create employment, especially for lower section of societies like for; farmers, laborers, workers etc.

10. Economic Woes and Prevailing Financial System:              The economic woes like; inflation, unemployment, low productivity, poverty etc are off-shoots arising out of trading in money and financial instruments. This system is disturbing the social fabric which results in disparity & conflicts amongst people living in a society. But it is element of greed which motivates men to undertake such forbidden activities. Perhaps the following Hadith can perfectly fit here; Prophet Muhammad SAW said, "Faith and greed cannot co-exist in a human heart".

11. How can Bitcoin become Islamic?           Crypto-currencies can become Islamic, if it becomes a legal tender; in the sense it is regulated by Central banks, it is widely & freely accepted for trade & commerce, when day-to-day buying can be done with it, when salaries are disbursed & accepted in this currency etc. Even prevailing currency of any country can be made crypto and it will result in better checks & control. 

12. Ideal Currency in Islam:                The aforementioned development will ensure crypto-currency to stabilize in the market place and there won’t be any drastic fluctuations (which has been part & parcel of history of Bitcoin). To make it an ideal currency i.e. from Shariah point of view, an endeavor should be made to initiate a crypto-currency, which has backing of tangible assets.

13. Post Script: Kindly read paragraph no.11 in continuation with paragraph no. 12. As elaborated, latter is the ideal scenario, but since today we have fiat currencies in every country, therefore until ‘asset backed’ currencies are introduced we are compelled to use fiat currency. In view of the above and since the topic is crypto-currency, therefore it is thought that initiative can be undertaken to switch from; ‘paper & coin to digital’, which will result in saving (of; printing, minting, metal, paper, ink etc) and maybe the same saving can later be used to issue tangible crypto-money. Further crypto-currencies will be effective in controlling; money laundering, corruption, terrorism etc as it will provide a trail to check & control malpractices. which are currently prevailing in the system.

Indeed, Allah knows best.