Exploring Acceptability and Legitimacy of Bitcoin in Islamic Financial System

Abstract

Bitcoin, a cryptocurrency which emerged in 2009, is a peer-to-peer electronic
cash system which allows online payment from one person to another without
going through a financial institution (Nakamoto, 2008). It has attracted a lot of
interest when its price increased by about 1900% in 2017, rising from $1000 in
January 2017 to nearly $20,000 in December 2017 (Higgins, 2017). Other
similar cryptocurrencies were created and launched as a result of the
remarkable success of bitcoin.
Globally, a large number of companies accept payment in Bitcoin. People also
invest in Bitcoin due to its volatile nature, hoping that its price will increase in
the near or distant future. Baur et al. (2015) examined that the number of
Bitcoin users increased dramatically during the last few years, from 720,705 in
2011 to 6.7 million in 2013. Lee et al (2015) reviewed the Bitcoin basics
during a period of five years and concluded that virtual currencies, or
‘cryptocurrencies’ have evolved tremendously and are quickly establishing
themselves as a payment system. Virtual currencies became a multibilliondollar venture with dual potential as both an investment and an electronic
medium of exchange; Bitcoin ATMs are growing in prominence; the first
Bitcoin debit cards have been delivered; and the first Bitcoin derivative
transactions have been executed on a US-regulated exchange; however, there
remain numerous risks and challenges associated with virtual currencies.