I have posted an updated version to r/islam: http://www.reddit.com/r/islam/commen...iat_and_islam/
Here is a link to a post on the bitcoin forum - They are discussing topics related to Islam that we Muslims also need to discuss. Unfortunately, it is a topic that is not discussed much in our community - the topic of "what is money in Islam?"
I have my concerns about fiat (government issued) money and how it is based on interest. Every time we use a government issued currency, we are using a system that is tied to riba. Without going too much into specifics: when US dollars are created by the federal reserve, they are loaned to smaller banks at interest (riba). These smaller banks then use fractional reserve banking, where they can lend 9 or 10 times the amount of money they actually have, and they also charge interest on top of all that. So already, we can see that the US dollar is based on debt and riba. Here is a video that does a good job of illustrating how this corrupt system works: http://www.youtube.com/watch?v=iFDe5kUUyT0#t=1133
Back when the dollar was backed by gold, it could have been argued that using the dollar is halal, but that is no longer the case. And now the rest of the world's fiat currencies (even Islamic countries) are tied to the dollar.
I have found this document discussing why Muslims should not use fiat currency. I have been wondering - why are there not more scholars denouncing such a corrupt system? do their governments pay them to not talk about the subject? or are they just ignorant on the matter? Keep in mind, every time we buy and sell with fiat money (I'm not talking about taking a loan from a bank), we are saying we acknowledge this interest based fiat currency system as legitimate, when in fact, we Muslims should know better.
Abu Hurairah r.a. reported that the Prophet ﷺ said : A time will certainly come over the people when none will remain who will not devour usury. If he does not devour it, its vapour will overtake him. [Ahmed,Abu Dawood,Nisai,Ibn Majah]
This hadith seems to be describing our very situation with fiat currencies. Also keep in mind that debt in Islam is ONLY supposed to be between 2 parties - fiat money turns debt into a form of money, which goes against how debt is supposed to work in Islam. Again, we Muslims should not be using fiat money!
Ideally, the best system would be to have a currency that is based on gold and silver. However, any country or company that tries to make such a sound currency is met with force from the US government. Let's take a look at what happens when a country tries to make a gold based currency. Now I'm not saying Gadafi was a saint, but he was trying to bring back sound money that would be backed by gold. And this would have undermined the US dollar - and this was the main reason (I believe) the US intervened in Libya.
There was also a company called e-gold: a company that issued digital currency that was backed by gold. Since this undermined the US dollar, the government over-regulated it, and shut it down. So if we try to start a company or bank that issued currency backed by gold or silver, it will be shut down. For the most part, we are being forced to use fiat currencies whether we like it or not.
However, if our goal is just to avoid all the usury associated with fiat money when it is created, there might be a solution. I have recently been looking into bitcoin - a global digital decentralized p2p currency. Though while bitcoin isn't backed by gold or silver, it does have the advantage of not being associated with usury/riba when bitcoins are created. Bitcoin is a currency that is not based on interest like fiat currencies. Bitcoin works on a global network of computers that maintain a bitcoin ledger - no central authority (government or bank) is needed - it is like gold in this regard. Bitcoin is still in its infancy, but I'm very excited about the possibility of having an alternative currency that works worldwide and is not based on interest/riba. Also, bitcoin removes the need for a bank to store and send your money - so no worry about a bank using your money to generate profit from interest for themselves. Also, it is not a simple task to just shut down the bitcoin network, since there is no single point of failure - the only real way shutdown bitcoin would be to shut down the whole internet worldwide (a great way to bring down the economy too) - this is just not a viable option for bankers that want bitcoin to be shutdown.
The downside to using bitcoin is its price volatility, though generally it keeps going up in price. Bitcoin's volatility is due to the market trying to figure out the actual price of such a new currency (almost 5 years old now), so as time goes on and more people use it, the price should become more stable. Keep in mind though, bitcoin's price isn't pegged to any fiat currency. Bitcoin does not need fiat in order to work. If/when fiat currencies collapse/fail/hyper-inflate, bitcoin will still be alive and well.
I would recommend learning as much as possible about bitcoin before you convert some your fiat money into bitcoin - though I would recommend against putting all your fiat money into it because of the volatility. Also, if you haven't already changed some of your fiat money into gold and silver, you should do that too. We Muslims should be taking steps to try and rid ourselves of interest based fiat and look for alternatives. We should not remain ignorant on these matters.
If you are interested in learning more, check out www.weusecoins.com and https://en.bitcoin.it/wiki/Introduction.
If you want to know bitcoin in a lot more detail, you can read through the original bitcoin whitepaper. You can even get started with a small amount of bitcoin (for free) if you like: http://trybtc.com/
Also, please don't post your misconceptions about bitcoin without trying to understand what bitcoin really is. Please try to educate yourself first. If you have any questions about bitcoin, I will do my best to answer them.