The Fiat Wallet and the Explosion of Cryptocurrencies
Written by: Maria Russinovich
If you have been diving into the crypto world lately, you might have seen the word “fiat” floating around. No, it is not the same as the Italian car company; it refers to a government-issued currency. The government that issues it backs it. So, for example, gold and silver are not fiat currencies, despite having monetary value, but modern paper currency is fiat.
So, what does a physical currency like the American dollar have to do with the virtual and unregulated currency that is crypto? When cryptocurrencies were about to explode (think Doge, Helium, Ethereum), a primary question was the longevity of these currencies, including how they would find backing.
There is still an immense amount of fiat needed to fund the advancement of blockchain technology. Recently it was revealed that venture capital firm Andreessen Horowitz, popularly known as “a16z,” has successfully created a crypto fund worth $2 Billion.
This validates crypto ideas and innovation. The world of cryptocurrencies continues to expand with explosive growth and has massive amounts of financial backing.
Cryptocurrency would not exist now and cannot exist without fiat. Whether that means fiat in the form of billions of dollars in investment funds or whether it refers to the exchange rate from crypto to fiat like the American dollar, people invest in cryptocurrencies in hopes of realizing the financial gain, which at this point in history, is expressed in terms of fiat.
The same can be said for the stock market. The stock market ebbs and flows with the purchasing and selling of stocks using fiat, as the value of companies also rises and falls, similar to how crypto values rise and fall.
Of course, these markets, both the stock and cryptocurrency markets, are affected by external factors such as influential individuals like Elon Musk. His appearance on “Saturday Night Live” caused the value of Dogecoin to plummet. The inflation of GameStop’s value, thanks to the power of Reddit, is an example of the effect of external factors on the stock market.
Crypto is here to stay, rising and falling in value, the same way the stock market has been rising and falling for almost three centuries. Both systems function on the risk and reward of placing bets, studying trends, and the real-life fiat that can come from proper investment. New investment projects may thrive or fail, and fiat will always be the reward for the risk of investing in new projects when they succeed.