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Fiat money is a government or central bank-issued currency that is not backed by the value of a physical asset (like gold).

Fiat money refers to currencies that have minimal or no intrinsic value themselves but are defined as legal tender by the government, such as banknotes and coins.

As a liability of the issuing central bank, its acceptance and value as a medium of exchange (or payment) is a function of the stability and confidence in the government or central bank who also has control over the supply of the money (theoretically unlimited).

Most modern currencies, including the U.S. dollar, are fiat money.

For much of recorded history, money has been based on gold or similar precious commodities and a link to that history continued into the 20th century. However, the U.S. formally abandoned the gold standard in the 1970s.

Differences between Fiat Money and Cryptocurrencies

Taxonomy Issuer Form of Money Value Recognition Ledger Supply
Fiat Money Issued by a central bank
or government
Multiple – including physical
cash (coins and banknotes)
and reserves held by
financial institutions at
the central bank
Backed by central
bank credit
Centralized, issued,
and controlled by the
central bank
Unlimited — can be
produced by the
government when
necessary
Cryptocurrencies Mostly issued by the
private sector (notably,
there is no legal entity
that issues Bitcoin)
Single form
(i.e., digital token)
Facilitated by technology
such as blockchain and
relies on miners
consensus
Decentralized, i.e., distributed
ledger database is spread
across several nodes/devices
on a peer-to-peer network,
where each replicates and
saves an identical copy of the
ledger and updates itself
independently
Limited supply