Fiat
Traditional government-issued currency not backed by a physical commodity, such as the US dollar, euro, or Czech koruna — as opposed to cryptocurrency.
How it works
Fiat money is ordinary state-issued currency — the dollar, the euro, the zloty. The word comes from the Latin fiat, “let it be”: the value of such money rests not on gold or another backing but on a state's decision and the trust placed in it.
The system in its present form dates from 1971, when the United States finally severed the dollar's link to gold. Before that the quantity of money was formally limited by metal reserves.
The key difference from cryptocurrencies is who determines issuance. The quantity of fiat money is set by a central bank according to economic policy, whereas bitcoin's issuance is fixed in code and does not change at anyone's decision.
What this means in practice
- On-ramps and off-ramps are the bottleneckExchanging between fiat and crypto runs through regulated intermediaries, so this is where documents are demanded and where delays most often occur.
- Stablecoins are fiat in another wrapperA coin pegged to the dollar inherits both its properties and its issuer's decisions. It is not an exit from the fiat system but another way of being inside it.
- Inflation is a property of the system, not a faultGradual loss of value is built into central bank targets, usually set at around 2% a year.
What time costs
What happens to the purchasing power of €10,000 at 2% annual inflation.
| After 5 years | €9,057 |
| After 10 years | €8,203 |
| After 20 years | €6,730 |
| After 30 years | €5,521 |
After thirty years the sum retains roughly 55% of today's purchasing power — and that is with inflation considered low and predictable. This explains why money is held in assets and not only in accounts.