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Fiat Meaning

Mar 3, 2023 | Updated May 24, 2023
The term “fiat” or “fiat currency” refers to a type of currency that is declared by governments as a country’s legal tender. Fiat currencies include the USD, Euro, Sterling Pound, and Chinese Yuan amongst others.

What is Fiat Money?

Fiat currency refers to a currency that, rather than being backed by gold or silver, is backed by a government. 

It derives its market value and validity as a medium of exchange from collective societal beliefs. Thus, its intrinsic purchasing power is highly reliant on the government’s decree and collective social conventions; when compromised, the purchasing power declines.

It is issued by a government’s treasury, reserves, or central bank, which is responsible for its generation and distribution to the public. This gives the government the power to control supply variations, interest rates, and liquidity. 

Some examples of fiat money include the USD, EUR, GBP, JPY, CAD, and other currencies lawfully accepted by governments as legal tender.

What is the Difference Between Fiat Money and Cryptocurrency?

Cryptocurrencies differ from fiat money in several ways:

  • Cryptos are not a legal tender of any country, except El Salvador, which adopted Bitcoin as its legal tender.
  • Fiat is controlled by the government, while crypto is decentralized, i.e., it doesn’t have a central authority controlling supply variation. 
  • Fiat currencies have physical forms such as paper money or coins, while crypto is completely digital.
  • Because cryptocurrencies are decentralized, cross-border transactions are seamless in crypto. On the other hand, fiat currencies transactions require conversions to the corresponding nation’s currency.
  • Crypto enables peer-to-peer transactions, while fiat currencies need a middleman or bank to verify transactions.
  • Crypto transactions are irreversible, in that, crypto payments cannot be reversed once the transactions are confirmed or added within a valid block of the chain, and refunds can only be done by the receiving party. On the other hand, credit card transactions can be canceled by the sending party.

Crypto has introduced an alternative to fiat currency as a store of value, unit of account, and medium of exchange.  It has inspired a number of governments to develop Central Bank Digital Currency, which are digital fiat currencies based on blockchain technology. 

FUD

FUD is an acronym for “Fear, uncertainty, and doubt” which refers to the spread of false or negative information about a cryptocurrency or the market to create fear and doubt among investors.

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Genesis Block

A genesis block is the first ever block recorded on a blockchain. The block is also known as Block 0 or Block 1.

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Liquidation

Liquidation in crypto refers to the process of converting assets, typically leveraged positions or collateral, into cash to cover losses or repay borrowed funds when the market moves unfavorably.

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