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Immersing yourself in the world of digital assets, beginners almost immediately encounter slang that can be confusing. One of the most frequently used words on exchanges and in the news is "fiat". Phrases like "cashing out to fiat" or "trading against fiat" are heard everywhere. But what is fiat currency actually? Why is the money we are used to called by such a strange word, and what is its fundamental difference from Bitcoin?
In this article, we will break everything down. We will explain what fiat money is in simple terms, where this term came from, and how this knowledge will help you manage your portfolio more effectively.
Basics of Economics: What is Fiat Money?
If we don't go deep into complex academic terms, then fiat money is the paper notes and coins familiar to all of us, as well as non-cash funds on bank cards. The US Dollar, Euro, Ukrainian Hryvnia - all of these are fiat currency.
The word "fiat" comes from the Latin fiat, which translates as "let it be done" or "decree". This perfectly describes the essence of the phenomenon: fiat is a currency whose value is established and maintained by the government. It has value not because it is made of gold or silver, but because the government said: "This is legal tender," and we all agreed with it.
A Bit of History: From Gold to Trust
Previously, money was backed by real physical assets. You could go to a bank and exchange a banknote for a certain amount of gold (this was called the "gold standard"). However, in the 20th century, the world abandoned this system.
Today, fiat money has no intrinsic value. If the state collapses, its currency will turn into simple paper. That is why the term fiduciary money is often found in economic textbooks. It comes from the Latin fiducia - "trust".
We can say that fiduciary money is an economic tool based exclusively on the citizens' faith in the solvency of their state. To put it quite simply, fiduciary money is a type of money that works as long as the issuing country's economy works.
Fiat Currency: Simple Words About Complex Things
It is still difficult for many to understand the difference between "money" in the broad sense and "fiat". Let's analyze what fiat currency is in simple terms with specific examples.
Imagine you have a gold coin. It is expensive in itself because gold is a rare metal needed by jewelers and industry. This is commodity money. Now look at a $100 bill. The cost of printing it is only a few cents. But you can buy $100 worth of goods with it. Why? Because this is fiat currency, an example of how the authority of the state (in this case, the USA) endows ordinary paper with value.
So, fiat in simple terms is:
Money issued by the government.
Not backed by precious metals.
Value depends on trust and legislation.
People often ask: what is fiat currency in the context of everyday life? It is your salary, money in the store, taxes, and savings under the mattress. Any national currency is fiat.
Fiat in Crypto: Friend or Foe?
When we enter an exchange, we often see a division of markets into BTC markets, stablecoins, and fiat pairs. Fiat in crypto is a term denoting classic state currencies used to buy or sell digital assets.
For a trader, fiat money is:
Entry point into the market (deposit).
A way to fix profits (cashing out).
A measure of value (we are used to valuing Bitcoin in dollars).
Many beginners, getting to CoinsBar for the first time, ask the question: what is fiat on the exchange balance? This means that you store real dollars, euros, or hryvnias there, and not their digital counterparts (stablecoins like USDT).
Fiat Currency and Cryptocurrency: Main Differences
To understand why fiat currency and cryptocurrency are often contrasted with each other, we need to compare their key characteristics.
Centralization vs Decentralization. Fiat currency is always a centralized system. The Central Bank decides how much money to print. This can lead to inflation (currency devaluation). Cryptocurrency (e.g., Bitcoin) is decentralized and often has limited emission, which protects it from inflation.
Backing and Trust. As we found out, what fiat money is in simple terms is trust in the state. Cryptocurrency relies on mathematics, cryptography, and trust in the program code (blockchain), which cannot be faked.
Borders and Control. Cryptocurrency beats fiat money in terms of freedom. A bank can block your fiat account. A Bitcoin wallet cannot be blocked; it belongs only to you.
Form of Existence. Although we use cards, fiat currency is simply physical money that has migrated to digital form. Cryptocurrency was originally created in the digital space and has no physical counterpart.
How to Buy Cryptocurrency with Fiat Money?
Despite the differences, these two worlds are closely connected. To become an investor, you need to know how to buy cryptocurrency with fiat money. This is the process of exchanging your usual funds for digital assets.
There are several ways:
Crypto Exchanges. The most popular method. You top up your balance with a card and buy crypto.
P2P Platforms. A direct deal with another person, where the exchange acts as a guarantor.
Exchanges. For example, at CoinsBar, you can quickly and safely buy or exchange cryptocurrency for cash or non-cash fiat at a favorable rate.
It is important to understand: when you hear the question "what is fiat currency?", in the context of buying crypto, we are talking about the very instrument that is in your wallet right now. Without fiat, it is impossible to start a path in the crypto industry, since mining is not available to everyone, and earning crypto from scratch is difficult.
Fiat and Other Currencies: What Future Awaits Us?
We figured out what fiat money is, studied its history, and understood why it is also called fiduciary money.
Fiat currency was an excellent solution for the 20th-century economy, allowing flexible management of the money supply. However, the digital era dictates new rules. Fiat currency is simply the old school we are used to. Cryptocurrency is a new technology offering an alternative.
Understanding what fiat currency is in simple terms and how it interacts with the blockchain, you will be able to make more informed investment decisions. Use fiat as a reliable bridge to the world of digital assets with CoinsBar, but remember the differences in the nature of this money.