Author: Catherine
Created:
In the context of cryptocurrency, "fiat" refers to government-issued currencies, such as the US dollar or the Euro, which serve as a traditional medium of exchange. Unlike cryptocurrencies, fiat currencies derive their value from the government's authority and public trust, not from physical commodities like gold. In crypto, fiat is used to buy or sell digital assets, and "fiat-backed stablecoins" are digital currencies designed to maintain a stable value by being pegged to a traditional fiat currency.
What Fiat Currency Is
- Government-issued: Fiat money is printed and regulated by a central bank or government, giving it legal tender status.
- Not commodity-backed: Its value is not based on a physical commodity like gold or silver, but rather on the stability and credit of the issuing government and its collective acceptance by the public.
- Examples: The U.S. dollar (USD), the Euro (EUR), and the Japanese Yen (JPY) are all examples of fiat currencies.
How Fiat is Used in Crypto
- On-ramps and off-ramps: You use fiat to buy cryptocurrencies on an exchange, converting your traditional money into digital assets. Conversely, you convert crypto back into fiat when you sell it, making it a useful tool for managing your finances between the traditional and digital financial worlds.
- Fiat Wallets: These digital wallets are designed to store and manage fiat currencies, similar to a bank account but optimized for online transactions.
- Fiat-Backed Stablecoins: Some stablecoins are backed by reserves of a specific fiat currency, like the US dollar. This mechanism provides a stable value that is tied to the traditional currency, making them a popular choice within the crypto ecosystem.
In essence, "fiat" in crypto serves as the bridge between the traditional financial system and the world of digital assets, allowing for the exchange of value between them.
