Cryptocurrency ABCs: Fiat
Entering the world of cryptocurrency for the first time can be difficult. Learning all the terminology can be confusing and it is easy to feel overwhelmed. In this series, Cryptocurrency ABCs, we are going to cover important cryptocurrency terms and concepts from A-Z! Each post will cover a topic based off a letter in the alphabet.
Let’s cover the letter F! What is fiat?
What is Fiat?
One of the terms that gets thrown around a lot in the cryptocurrency industry is “fiat”. Unfortunately many articles and websites don’t take the time to explain what it is, what it means and how it applies to cryptocurrency. What is fiat? Is it a car?
No. Not in this case.
The most common usage of the word, in the crypto world, is referring to “fiat currency”. Fiat currency is currency that a government has declared to be legal tender, but it is not backed by a physical commodity.
US dollars are fiat currency and so are Euros, Yen and most other national currencies around the globe. Historically, national currencies were often backed by gold, meaning you could only print as much currency as you had in gold.
Over time, as the monetary system expanded, these constraints were abandoned. Governments were able to print at will and many crypto enthusiasts would argue this has contributed to many of the current financial problems. We’ve begun asking the question what is fiat really worth?
Fiat is often used as a derogatory term in cryptocurrency communities. Many early adopters and blockchain advocates are very opposed to government control and intervention. Fiat currency is seen as an extension of this government overreach. By designating something as fiat, it is intended to discredit the validity of the currency.
Bitcoin, Gold & Services
While Bitcoin is not backed by physical gold, it does have firm monetary constraints built into the computer code. These constraints ensure a fixed limited supply, protected from the hands of central bankers and “economists”.
The term may also be used to explain services. For example, many exchanges will list prices in Bitcoin, Ether and “fiat”. This is not derogatory, it is just there to let customers know that they will accept deposits in national currencies.
Fiat Currency and Government
Remember, fiat currency is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. It is often used both as a derogatory term, descriptor and distinction between currencies.