The Evolution of Currency and Why Fintech is Relevant to Fiat Crypto: a blog explaining how fiat currency relates to cryptocurrency
Since the dawn of mankind, humans have used barter as a form of payment for exchanging goods and services. However, this archaic system was inefficient, often causing people to be left with excess or inadequate amounts of goods. To combat this, coins made out of gold, silver and other precious metals were introduced as a way to compensate people fairly for their services. Today we live in a world where the majority of our currency is not backed by any physical commodity. This type of currency is known as fiat money, which means it is backed by the promise that it can be exchanged for something else of value such as precious metals or commodities. The value of fiat money itself does not come from the material used to make it but rather from the government that issues it. The US dollar became fiat money in 1971 when President Richard Nixon removed the convertibility between dollars and gold. This meant that dollars could no longer be exchanged for gold at a fixed dollar-to-gold exchange rate. Instead, paper notes and coins had intrinsic value only based on its declared denomination (i.e., $1).
As time has progressed, so have our methods of payment
The Evolution of Currency and Why Fintech is Relevant to Fiat Crypto
The purpose of this blog is to explore how fiat currency relates to cryptocurrency; specifically, we will be exploring the following questions: What is fiat currency? How does it relate to cryptocurrency? What are the current trends and issues around fiat currency? Why is fintech relevant to fiat crypto?
What is Fiat Currency?
The word “fiat” originates from Latin, meaning “let there be”. However, in modern times, “fiat” refers to a government’s declaration that a particular piece of paper can be used as currency. Since paper money isn’t backed by anything (e.g. gold), most modern currencies are based on the concept of fiat money.
In other words, the value of fiat currency comes from its ability to be exchanged for goods and services. For example, if I wanted coffee, I could walk into a coffee shop and exchange a dollar for an espresso. If I wanted food, I could exchange that same dollar for a sandwich. Without going into detail about how this process works on a larger scale (we’ll save that for another blog),
I was talking to my brother the other day about what fiat currency is and its relation to cryptocurrency, and his response was, “Fiat isn’t even a word.” I was going to say something snarky back but I figured he had probably never really heard of it before and in fact, many people haven’t ever heard of it or know what it means. I went on to explain that fiat money is just another form of currency and how cryptocurrency is actually very much like fiat money, except for the fact that it is decentralized and not controlled by any government.
In this blog, I will go over exactly what fiat currency is and how it has evolved over the years. Then I will explain how fintech relates to fiat currency and cryptocurrency.
Fiat money can be described as a currency established as money by government regulation or law. The term derives from the Latin word fiat meaning “let it be done” which is also used in the British law. Fiat currency first came into use during the 11th century when paper notes were used in China as a way to represent a certain number of coins. In 1661, Massachusetts became the first colony in America to issue paper money but this money was quickly removed after being
Fiat currency is a historically recent invention, and it’s crucial to understand how fintech has evolved alongside fiat money. The relationship between fiat money and its current technology is an important topic.
To be more specific, let’s start with gold. Gold has been used as a store of value for thousands of years because its scarcity makes it a relatively valuable asset. Still, the concept of fiat money is much younger: it wasn’t until the late Middle Ages when European monarchs began to embrace this new form of currency. This was done in response to the lack of coinage which accompanied increased trade activity across Europe. These monarchs would issue their own “coins” with their face stamped on them, creating paper money in essence (fiat money).
The main problem with gold-backed currencies was that there simply wasn’t enough gold to go around, causing national economies to become unstable. This was particularly true after World War II when Allied forces demanded large amounts of gold from Germany as reparations, creating an imbalance and eventually leading to the collapse of the German economy after World War I.
As a society, we rely on our currency to be reliable and secure. We trust the value of our currency, and know that it can be used as payment for goods or services. This is how we measure wealth, and how we facilitate trade. Our current forms of currency are fiat currencies – they have no intrinsic value and their value is based on a central authority. The most common forms of fiat currency include cash, checks/cheques, credit, and debit cards.
We’ve seen the evolution of currency over time (a great example of this is explained in this infographic from MoneyPug). Fiat currency has taken on many different forms over the years, including leather money in China and paper money in Europe. It would not be surprising to see another shift in currency again as people become more comfortable with cryptocurrency.
Cryptocurrency is a decentralized digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrency is not regulated or controlled by any one administrator. Instead, it relies on the network itself for security (the “crypto” in cryptocurrency refers to cryptography – the use of encrypted data). The first decentralized cryptocurrency was Bitcoin which was invented by Satoshi
Currencies have always been a part of human history. Humans have traded goods and services for thousands of years and have used various means to exchange value. From the beginning of time, humans have used bartering to trade items as a form of currency. Bartering has become a part of our everyday lives as we buy and sell goods and services in exchange for something else. The act of exchanging one item or service for another is referred to as bartering. It is important to understand the origin and evolution of currencies in order to understand what digital currencies are today.