What is Fiat Currency

Fiat currency is government-issued money that derives its value from government decree and public trust not from backing by a physical commodity like gold or silver. The word fiat is Latin for "let it be done" reflecting that the currency has value because the government says it does. All modern national currencies are fiat: the US Dollar (USD), Indian Rupee (INR), Euro (EUR), British Pound (GBP), Japanese Yen (JPY), and every other currently circulating currency.

HOW FIAT DIFFERS FROM COMMODITY MONEY

Historically, currencies were backed by gold or silver you could theoretically exchange paper notes for physical metal. The gold standard was abandoned progressively in the 20th century, with the US formally ending dollar-gold convertibility under Nixon in 1971. Since then, fiat currencies are backed only by government authority, legal tender laws, and the economy's productive capacity.

FIAT CURRENCY CHARACTERISTICS

Supply Control: Central banks the Reserve Bank of India, US Federal Reserve, European Central Bank control the money supply through interest rates, quantitative easing (printing money), and reserve requirements. This enables response to economic crises but also enables inflation through oversupply.
Inflation: Fiat currencies historically lose purchasing power over time. INR has lost over 90% of its purchasing power since Indian independence. USD purchasing power has declined significantly since the Federal Reserve's founding in 1913.
Legal Tender: Governments mandate that fiat currency must be accepted for payment of debts. Merchants cannot legally refuse their national currency.

WHY BITCOIN WAS CREATED AS AN ALTERNATIVE

Bitcoin's whitepaper explicitly references the 2008 financial crisis caused in part by excessive money creation and bank leverage enabled by fiat systems. Bitcoin offers a fixed supply of 21 million coins programmed in code no central bank can print more. Bitcoin is designed to be resistant to the debasement that affects all fiat currencies over time.

FIAT ON-RAMPS AND OFF-RAMPS IN CRYPTO

Fiat on-ramps are services converting INR, USD, or other fiat into cryptocurrency: Indian exchanges (CoinDCX, WazirX, ZebPay) accepting UPI and bank transfers. Fiat off-ramps convert crypto back to fiat currency for withdrawal to bank accounts.

Terms in addition to the Fiat Currency

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.