Fiat currency, also known as fiat money, is a type of currency that is issued and backed by a government or central authority. In contrast to cryptocurrencies, which operate on a decentralized, peer-to-peer network, fiat currency is issued and controlled by a central authority, such as a central bank or government. This central authority has the power to create new money and control the supply of currency in circulation.
Fiat currency is typically used for everyday transactions and is considered legal tender in most countries. Examples of fiat currencies include the US dollar, Euro, and Japanese Yen. These currencies are not backed by a physical commodity like gold or silver, but instead rely on the authority and trust of the issuing government.
In the context of cryptocurrency, fiat currency is often used as a point of reference for the value of a stablecoin. A stablecoin is a type of cryptocurrency that is designed to maintain a stable value, usually pegged to a fiat currency like the US dollar. The value of a stablecoin is typically backed by an underlying asset, such as a fiat currency, gold, or other cryptocurrencies. This backing helps to ensure that the value of the stablecoin remains stable, regardless of the volatility of the cryptocurrency market.
