Mining glossary
Fiat - what is it, and how is it used?

Fiat is all those currencies from different countries of the world that are used in mass circulation in everyday life - dollars, euros, etc. Today, there are a total of 150 species. They are sold, bought, exchanged, and used to pay for various goods and services. The traditional money system, which is used for mutual settlements worldwide, is called fiat.

Unlike crypto coins, which are presented exclusively in a virtual digital format, fiat is money available in electronic, paper, and metal formats. The Central Banks of different countries deal with the issue. Exchange rate correlation is also carried out exclusively at the state level. The value of a particular currency is confirmed by the trust rating of a particular state in the international arena and the internal trust of the country’s residents. A good indicator for maintaining the stability of a particular currency is its extensive use.

Advantages of fiat currencies

Despite the emergence of alternative financial systems, including cryptocurrency, Fiat currencies remain the only generally accepted means of payment. The following advantages facilitate this:

  • ease of use and storage;
  • convenient international payments not only between individuals and commercial organizations but also between government agencies of different countries;
  • support of value through real physical assets that is, for example, gold and foreign exchange reserves;
  • high speed of payments.

However, there are also certain disadvantages, as a result of which the search for new financial solutions and alternative systems continues:

  • the difficulty of maintaining a stable exchange rate if the country has no gold and foreign exchange reserves;
  • the classic method of preserving stability in crisis cases - reprinting banknotes, can backfire with severe inflation;
  • frequent cases of counterfeit banknotes, which are excluded with the use of digital coins or payment in precious metals.

In electronic format, fiat money is used mainly through intermediaries - banks and other financial organizations. Due to this, the associated costs when making payments increase because clients pay bank commissions. However, there still needs to be a worthy alternative, although such attempts were made to introduce the cryptocurrency market. Therefore, fiat remains the most stable means of payment for payments at any level within one country or between different countries.