Understanding the Term
Any inconvertible paper money which is made legal tender by a government decree is known as fiat money. The term ‘fiat’ is derived from a Latin word used to describe an order, resolution, or decree made by a distinguished authority.
By definition, fiat money is not backed by any physical commodity and does not have any intrinsic value of its own. The main reason why it is considered valid in our society is due to the collective belief of people who are using it.
The main difference between fiat and crypto is that the former is a legal tender whose value is tied to a government-issued currency, while the latter is a digital asset that isn’t controlled by any third party and leverages blockchain technology.
Fiat money is the legal tender established via government resolution and lacks any intrinsic value. The most important feature of fiat is the stability of its value. It is controlled by central banks, which can print or hold fiat as required. This gives central banks greater control over the money supply, interest rates, and liquidity.