Fiat is a Latin word, which means a determination by authority —the government decrees the value of the currency and the currency isn’t representative of another asset or financial instrument such as gold. There is no need to back a cryptocurrency with a physical asset, just as there is no need to back any other currency with a physical asset. Digital assets can be backed by other digital assets, like communication/social network user bases (twitter, facebook, telegram, reddit, etc.), or even the fan base of a celebrity (see $LOGE, a grassroots Logan Paul fan coin).
It’s interesting to think about the modern history of money, and draw relationships between the properties of old currencies (particularly of the dollar, as it is not the oldest currency, yet it has beat out other currencies to become the world standard currency) and the properties of crypto currencies.
It is plainly clear that the introduction of 15th century Gutenberg printing press technology to currency manufacturing caused a major shift in the value and widespread use of said mass produced currency. And as with most other digital technologies supplanting their paper based predecessors (spreadsheets, architectural drafts, mail, etc. have all been digitized), so too is cryptocurrency set to be the next technology to supplant the preceding paper/digital hybrid currencies that we have today.
Today many people see the current battle of cryptocurrencies as some trivial undertaking, but they don’t understand that the dollar had to battle against other American currencies to become the dominant currency. To fund the revolutionary war, the Continental Congress issued Continental Currency (aka Continentals), but it quickly lost value because it was not backed by silver or gold (neither is the dollar, but we’ll get to that later). Not only that, but the states also issued their own currencies, so there were all kinds of paper notes and coins in circulation at that time.
Again, during the American Civil War, both the North and the South had their own currencies. And when you take a look at the international currencies today, it’s obvious that cryptocurrencies are just repeating a story as old as time.
Crypto investors will ask about “tokenomics” of a coin before making an investment decision. There are inflationary coins, deflationary coins, coins that have 9 or 18 decimal places or a portion of every transaction is redistributed to holders of the cryptocurrency (called “reflections” — see $MOONPIRATE, a rum-backed cryptocurrency). But what tokenomics are best? Should a cryptocurrency have the same inflationary characteristics as the dollar? Or is it a whole new ball game? To quote the second most energetic Van Halen front man, Sammy Hagar in Why Can’t This Be Love, “Only time will tell if we stand the test of time.” Duh, Sammy.