Fiat

Fiat is ordinary government money such as the dollar, euro or yen. Its value rests on trust in the state and central bank, not on gold or another commodity.

How it works

The word comes from the Latin fiat, "let it be done". The money is valuable because the state declares it legal tender, accepts it for taxes and people trust it. Since 1971 the US dollar can no longer be exchanged with the government for gold, and nearly all currencies in the world became fiat.

The central bank manages the amount of fiat money: it sets interest rates and can create new money. That helps soften crises but can also fuel inflation, which erodes the money's purchasing power.

In crypto, "fiat" is shorthand for regular money. "Depositing fiat" means funding an exchange from a bank card or account, and "cashing out to fiat" means selling crypto and receiving money in your account. Services for this are called on-ramps and off-ramps.

Example with numbers

With 8% annual inflation, a basket of groceries that costs 1,000 units today costs 1,080 a year later. Your 1,000 in the bank buys only about 93% of the old basket (1,000 / 1,080).

Common mistake

A common mistake is thinking that because fiat loses value to inflation, everything should go into crypto right away. Crypto can fall 50% in a month, while inflation usually takes a few percent a year. Keep your emergency fund somewhere stable and only put into crypto what you can hold through deep drops.

Questions and answers

What is fiat in simple terms?

It is regular money issued by a government: dollars, euros, yen and other currencies.

Why is crypto contrasted with fiat?

Fiat is issued and controlled by a central bank, while many cryptocurrencies have no central issuer and their supply is set by network rules.

What does "cash out to fiat" mean?

It means selling crypto for regular money and moving it to your bank account or card.

Fiat

How it works

Questions and answers

Related terms

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