Fiat
Government-issued money, like USD or EUR, unbacked by any physical commodity and relying on state authority for value.
Fiat is money declared valuable by government decree rather than by any physical backing. The US dollar, the euro, the yen - these are fiat. There's no gold in a vault redeeming them; their value rests entirely on legal tender laws and trust in the issuing central bank.
Fiat has two superpowers that Bitcoin doesn't. First, a state's authority can force people to accept it - try paying your US taxes in BTC. Second, the issuer can create more of it on demand. That second power is also why fiat reliably loses purchasing power over decades. The US dollar has lost roughly 96% of its 1913 value. The Argentine peso has lost more than 99% of its 2018 value in under a decade.
Bitcoin was designed as a direct alternative: no issuer, no discretionary policy, a fixed supply. That doesn't mean fiat is going away tomorrow. Most people on Earth get paid in fiat, pay rent in fiat, and convert to BTC through a "fiat on-ramp" - an exchange, ATM, or peer-to-peer trade. The two systems coexist. Bitcoin's role is to be the option that can't be diluted.
See Inflation for the specific mechanism by which fiat purchasing power declines, and Journey Chapter 1 for the long version of why this matters.
Key takeaways
- Issued and regulated by governments
- No inherent commodity backing, value rests on trust and policy
- Bitcoin frequently paired against fiat for liquidity and adoption