What is Fiat Currency?
Fiat currency is a legal tender issued by governments. Its value comes from trust in the government and the economy, not from a physical commodity like gold or silver.
Characteristics of Fiat Currency
- Government Backed: Regulated and authorized by national governments.
- No Intrinsic Value: The value is based on trust and legal status, not on the material of the .
- Controlled Supply: Central banks control the supply, influencing economic stability and inflation.
- Universally Accepted: Accepted for transactions within its issuing country and often internationally.
- Exists in Physical and Digital Forms: Available as banknotes, coins, and electronic balances.
Comparison with Cryptocurrency
Fiat currency differs from in several key aspects. It is centralized, controlled by governments, and has a stable value based on legal decree. In contrast, cryptocurrency operates on decentralized blockchain technology and can be more volatile in value.
Stablecoins and Fiat Currency
are a type of digital currency that are often pegged to fiat currencies. They aim to combine the stability of fiat currency with the efficiency and digital nature of cryptocurrency. Essentially, stablecoins can be seen as the tokenization of fiat currency, providing a stable digital alternative to traditional money.
Fiat currency remains the cornerstone of global economic transactions, with its stability and government backing contrasting with the decentralized nature of cryptocurrencies.