Fiat, is the kind of money with which you can go shopping, pay debts, taxes and even go on vacation, and this classification is characterized by being under government regulations, but this monetary system was not always like this, Over the years it underwent several changes, and with the arrival of new technologies another variation is coming.
This is the monetary system that is currently used to carry out trade, which is why both the dollar, the euro, the pound and any other currency governed by a government entity, is classified as a fiat currency.
The word fiat has its origin in the Latin "fiat", whose meaning is "so be it", therefore, the money denominated in this way has its value in the trust that people have in the entity that issues said money.
The evolution of money: How has the current fiat money been reached?
Throughout history, the human being has used various types of coins to carry out the exchange of goods and services, and that is, from products such as livestock, salt, wheat, tobacco and metals as, for example; Gold and silver have served as a means of carrying out commercial activity.
In the decade of the 70s, the US government is involved in an economic crisis, product of the financing of the Vietnam War and the significant decrease of its gold reserves.
For all this, the president of the United States of that time, Richard Nixon, decided in August 1971, to prohibit the purchase of gold with dollars, because this gave value to gold and made the dollar weaker. It was from that moment that the money stopped being backed by precious metals and turned into fiat money.
Who supports fiat money?
The fiat money is basically supported by the faith or trust that the population has in its issuing entities, in this case reference is made to the government and to the banking entities authorized by the State.
Therefore, it is the State that guarantees the sovereignty of said money so that the exchange operations handled in said country can be carried out, although of course, its value may be affected by the country's negotiating capacity abroad. , that is to say; the investors that decide to place their savings in entities that are there.
Economic barriers
One of the common problems that affects this type of monetary system is the reproduction of counterfeit bills, these are issued by third parties that are not authorized by the regulator (the government and the central bank). For this reason, countries must look for increasingly complex methods of making money that are difficult to counterfeit.
On the other hand, there is another aspect that contributes exponentially to the economic crisis of a country, it is about inflation, and that is that when the financial institution issues a large amount of fiat money, in relation to the economic production it needs, it contributes to an increase in supply, which causes its value to decrease, and consequently loss of people's purchasing power.
Cryptocurrencies: the successor of fiat money
Cryptocurrencies arise in 2009, as a strategy to combat the vulnerabilities previously exposed with fiat money, and this digital instrument promises to be the successor of fiat money in the future, since it is gaining more and more strength.
Since its inception, the value of this cryptocurrency has increased exponentially, so there is greater confidence in people for the use of this monetary system, this is the characteristic that have fiat money and cryptocurrency in common.
Advantages of cryptocurrencies versus fiat money
These are some of the advantages of cryptocurrencies over fiat money:
Decentralized
They are created by a computer through an algorithm, there is no institution that regulates them, unlike fiat money, which is controlled by the government and the central bank.
There is no intermediary and they are faster
Each transaction is carried out directly, that is, from one user to another, therefore, since there is no intermediary, it is much faster.
Security and autonomy
When you are credited with the cryptocurrency, no one can take it away from you, and transactions are completely anonymous, which allows you to protect your privacy.
Additionally, the algorithm that is used in this type of digital monetary system, makes it impossible to falsify.
Global use
They can be used anywhere in the world, you only need to have access to the Internet.
Controlled inflation
You will be able to realize that with fiat money, inflation is a factor that can not be controlled constantly, however, with cryptocurrencies this value can be controlled.
In the case of Bitcoin, the amount of virtual currencies that will be developed and the speed at which they will be created have already been determined, thus controlling inflation.