CRYPTO CLASS 101 – FIAT (fee-at) – Paper money issued by national governments as default currency. Fiat money only has value because the government says so, and people believe this and mutually agree – but it actually isn’t worth anything itself nor can it be redeemed for something of value.
Look what happened to the Venezuelan Bolivar, Zimbabwean Dollar, and Argentinian Peso. The Lebanese Lira has now joined the list of FAILED FIAT CURRENCIES. Hyperinflation in Lebanon this year has reached over 50% in some months.
Our fiat, paper money has no value at all beyond blind faith and mutual agreement. It does not have intrinsic value, independent of what is printed on the bill (such as a precious metal might have). It does not have use value (like cow hide or beaver pelt might have). It has value only because a government maintains its value or because parties engaging in exchange agree on its value.
The US Dollar used to be backed by gold. This was called the Gold Standard. Once upon a time, each American bill used to have “Gold Certificate” or “Gold Coin” printed on it, meaning you could physically walk that bill to the bank and trade it in for physical gold! But ever since Nixon took the American Dollar off the Gold Standard, USD are not actually worth anything, and only hold value because the people have ‘faith’ in it. You cannot take a $20 bill today, go to the bank teller and ask to trade it in for a speck of gold, not even silver! Now central banks worldwide just prints more money, more numbers on a screen. Our blind faith gives it value… what happens when we collectively as a people no longer put our blind faith into $20 being $20?