Bitcoin is a fiat currency

I have some friends who are proponents of bitcoin, and opponents of fiat currencies. This is odd, because bitcoin itself is a fiat currency.

A fiat currency is any currency that is not tied to an underlying commodity. A long time ago, US dollars, as well as many other currencies, were exchangeable to gold. Bills were easier to carry around than grains of gold, or coins that had gold processed in them.  Sometimes, currencies were often backed by other commodities such as tobacco and cotton.

The problem with fiat currencies is not that they are not backed by a commodity such as gold. The problem is that central banks have the ability to print more money, which inflates the existing money in circulation, and decreases its value. This process slowly makes you poorer.

I would be totally fine with a fiat currency being the legal tender, if it meant that no one could print more of it.

July 14, 2020