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Ask CryptoVantage: What’s Wrong With Regular Money?

Crypto enthusiasts are known for their dislike of traditional fiat currencies. In social circles of crypto enthusiasts, it has almost become a trend to not only show a dislike for fiat monies but also refer to all paper money as fiat currency.

However, even before we can investigate the reasons why crypto people dislike fiat currency, let us first understand a basic definition of fiat currencies, to begin with.

The US dollar will always be a diminishing asset thanks to the nature of inflation.

What Are Fiat Currencies?

Fiat currencies have a long history that goes as far back as ancient 10th-century Chinese dynasties. After a high demand for metallic currency that exceeded the supply of precious metals at the height of trade in the Tang Dynasty, credit notes started circulating and were soon used as the first-ever form of paper money that we use today as banknotes.

Simply put, the credit note was a piece of paper issued from the first party to the second, guaranteeing the second party that the private note is covered by a monetary or gold reserve in the bank. Therefore, simply issuing an IOU credit note was as good as making a payment for goods and services.

The idea of paper money quickly gained traction from then and was adopted by American colonies, France, and the continental congress in the 18th century. As expected, issuing too many credit notes or bills of credit could create inflation, so governments took over the control of issuing the bills of credit to add security and trust to the system.

Until the early 20th century, anyone could convert paper money for gold coins. However, wars and government expansion projects forced more spending by governments leading to a need for more money printing. However, with paper money backed by gold reserves, the only way for governments to access more capital was to raise taxes or print more money. As the world’s superpower government, the US decided to opt for money printing by lifting the dollar off the gold standard.

As of 2021, it has been exactly 50 years since the US dollar became a fiat currency after President Richard Nixon abruptly took the dollar off the gold standard. This act of canceling direct convertibility of dollars into gold due to declining gold reserves and the need for more government spending led most countries to adopt fiat monies. By definition, fiat money is a means of exchange backed by the faith of its holders in the virtue of the issuing government and not any physical commodity.

Why Crypto People Dislike Fiat Currency?

Crypto enthusiasts dislike fiat currencies because they view fiat money as an archaic monetary tool that only propagates the government’s lack of accountability and totalitarian control over the economy.

Through the last twos years of the world struggling to overcome a global pandemic, various jurisdictions have gone on a money printing spree further highlighting the disadvantages of fiat monies. As more money is printed, inflation increases worldwide, and people’s wealth and income get diluted. This reduces the capacity for fiat currencies to act as reliable stores of value.

As inorganic organisms, the governments of the world have grown massive enough such that there are no accountability systems that counter-check the government spending and monetary policies. Yet, the same governments are run by imperfect human beings. Crypto enthusiasts view this centralized control over the world’s monetary system in the hands of a few bureaucrats to be an unfair system that tends to only work in favor of those who control it.

The notion of central banks having absolute power over an economy through the control of that economy’s fiat currency is against the ethos that governs pioneer cryptocurrencies such as Bitcoin that encourage fairness and overall transparency.

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Jinia Shawdagor

About the Author

Jinia Shawdagor

Jinia is a fintech writer based in Sweden focused on the cryptocurrency market and blockchain industry. With years of experience, she contributes to some of the most renowned crypto publications such as Cointelegraph, Invezz and others. She also has experience writing about the iGaming industry.

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