Fiat – what is it and how is fiat money used?

Fiat, derived from Italian, means "decree" or "order." It refers to the government-issued payment instruments. They are also referred to as fiduciary currencies, as they are backed solely by the trust of market participants in the issuing government. The terminology "fiat money" or simply "fiat" has become widely used in cryptocurrency trading.

What is Fiat in Everyday Understanding

Fiat currency includes:

• Paper banknotes
• Metallic coins
• Non-cash funds in bank accounts (plastic cards linked to accounts)

Fiat in Cryptocurrency Trading

Cryptocurrencies are only beginning to challenge fiat currencies. Unless you are a miner, you do not receive cryptocurrency as a gift—it means you have acquired it with fiat money. This is considered the most popular method of acquiring crypto assets.

There is a belief that cryptocurrencies will replace fiat, which is increasingly subject to devaluation. Even now, people are generating substantial income by holding their savings in tokens. Cryptocurrencies are not tied to a specific economy and have limited issuance, which contributes to their value appreciation.

Drawbacks of Fiat Money

Traditional money has several significant drawbacks:

• Inflation: All currencies experience devaluation annually
• Currently, fiat money is not backed by anything
• The population lacks trust in money and deposits that yield only a few percent of return
• The major economies of the world operate on debt and resemble a long-term bubble

Thus, cryptocurrencies have significant prospects in the near future.