Crypto is Fiat
An Explanation of Definitions
The Crypto world was enraged when a representative of the New York Federal Reserve called it a “fiat currency.” Even now there are hundreds of articles written on why crypto is not fiat. However, these articles are either wrong or telling half truths. I do not believe that they have a malicious reason, simply misunderstandings caused by a lack of information. Thus, this essay will explain what fiat money is, and create new labels which differentiate types of fiat money.
Crypto traders do have a habit of getting enraged about this topic, so please understand this is not to dismiss crypto currency or critique. This is simply an explanation of definitions, which are extremely important in the world of economics and finance. Definitions matter.
First, we must define the oldest form of currency — commodity money. Commodity money is any form of currency which has intrinsic value, outside of the purposes of currency. An example would be goats, and cows. These animals have intrinsic value, which means they can provide value within themselves. So a goat or a cow can provide meat, milk, and fertilizing waste, among other products and services. There is value within the commodity, outside of being a currency.
Fiat, the word causes both crypto traders and car enthusiasts to cringe. But what is fiat, and what is fiat money. Fiat is a Latin word which means “let it be.” Fiat money is money which has no intrinsic value; however, people believe it to have value, allowing it to exists for no other purpose except for the purpose of being a currency. Fiat money is effectively money backed by belief of anyone who wants to use it as currency. It does not need to be backed by a government, but it can be. It has no value within itself, unlike commodity money. You cannot get milk or meat out of it, it only exists to be money and nothing more. Because of this all fiat money must meet the six characteristics of money — durability, portability, divisibility, uniformity, limited supply, and acceptability.
Thus; it is time to make certain distinctions clear. First, government backed fiat is Institutional Fiat. Institutional Fiat is a currency which has no intrinsic value but people believe it to have value for the purposes of being a currency because of an institution, said people believe in (like government), backing it. Thus, a currency like the USD is Institutional Fiat.
Crypto currency have no intrinsic value, they only have value for the purpose of being a currency. Therefore, crypto is fiat money. However, it is not Institutional Fiat. Instead crypto is Populous Fiat. Populous Fiat is a currency which has no intrinsic value but people believe it to have value for the purposes of being a currency because of public backing. Thus, Bitcoin is Populous Fiat.
These two new definitions of the two type of fiat serve to clarify. The denial of crypto as fiat implies something which it is not. This is dangerous, people should know what exactly crypto is, and it is not something with intrinsic value. It has value because people believe it so for the purposes of currency. That is what makes it fiat, Populous Fiat to be precise.
This essay does not exist to critique or dismiss, it only exists to define. Definitions matter in economics and finance; people’s lives and the progress of civilization depend on this specificity.
