The Bitcoin Beginner’s Guide to Understanding Fiat Currency

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The equivalent of $40 trillion USD is currently circulating across the globe. This money takes the form of multiple government-issued currencies, and currency value varies across different nations and states. American dollars, Euros, Great British Pounds, Indian Rupees, and Japanese Yen all have something in common, though- they qualify as fiat currencies.

If you’ve never heard the term “fiat currency” or are looking to elaborate on it, you’ve come to the right place. Read on for a complete fiat currency definition and to compare it with cryptocurrency alternatives like Bitcoin.

The Basics of Fiat Currency

“Fiat currency” refers to any money that is minted by a government. This term describes the money that you use every day online and in stores. The United States uses the American dollar (USD) as its fiat currency while Canada uses the Canadian dollar.

The value of a fiat currency stems from the economic power of the government that mints them. It isn’t inherently valuable because it doesn’t derive its value from an underlying property or quality. This means that it is not an asset-backed currency like gold is (since gold is valuable due to its rarity, versatility, beauty, and other innate properties).


But why use the term “fiat currency”? Why not simply call it “government currency” or something similar? Well, this is actually what the word “fiat” means!

A “fiat” is defined as an official order. The government creates money based on an official order- so, by fiat. Hence, the term “fiat currency.”

Most governments also include an expression of “fiat” on the bills and coins that they mint. On the American dollar, this comes in the form of a phrase: “this note is legal tender for all debts, public and private.”

How Much Fiat Currency Does the Government Mint?

Fiat currency is minted by the government that gives it value. This is the reason that people can’t simply print their own bills off the printer or attempt to cut their own coins off a block of nickel (though that would be an interestingly sloppy and unsuccessful attempt at subverting the law!)

Bill-wise, it’s best to take a look at 2022 print orders to understand where we are as an economy. The US mint is looking to print anywhere between 6.9 and 9.7 billion notes across the span of the next year. The bill that they’re looking to mint the most of is worth $20.

When it comes to coins, the US government can mint 1.2 billion in a single month. This includes pennies, nickels, dimes, quarters, and in some cases dollar coins. Ultimately, this monthly figure comes out to around 13 billion coins annually.


But why was the production of coins down by almost 14% from 2020 as of October 2021? Why can’t the government simply print more money?

The value of the dollar would decrease if the government just randomly printed money to pay off all of its debts and give people fast relief. The newly-minted extra cash would have no value. Even worse, notes currently in circulation would also become worthless.

The Benefits of Fiat Currency

There are many advantages to using fiat currency:

  • It’s easy for the government to regulate
  • Taxation is straightforward (it is taxed as income rather than as an asset)
  • Governments have more flexibility to manage currency
  • Global market stabilization
  • Universal acceptance (in stores, online, and at currency exchanges worldwide)

Ultimately, fiat currency is a global institution that every nation worldwide uses in some form.  It also has been around for nearly 5,000 years. It isn’t just a tradition but rather a necessity that people will continue holding onto even when superior alternatives increase in popularity.

The Disadvantages of Fiat Currency

There are also some downsides to using government-issued money:

  • Easily traceable, meaning that no transactions are private
  • Easier to steal via online malware and hacking
  • Stored in easily compromised eWallets and online banks
  • High rates of taxation across the nation
  • Needs to be converted into a different currency before use in other countries
  • No intrinsic value beyond the government’s say-so
  • High inflation rates that don’t exist with cryptocurrency

As you can see, fiat currency has a lot of downsides. Luckily, an alternative is coming onto the scene and growing in popularity: Bitcoin.

What Makes Bitcoin Different?

First, let’s answer the most basic question: is Bitcoin a fiat currency?

No. In fact, the term “fiat currency” is primarily used today when differentiating it from digital assets like Bitcoin.

Bitcoin is a cryptocurrency that runs on a distributed computer network. It exists within an online ledger called the Blockchain, which records all transactions that take place with Bitcoin.


These transactions are encrypted on the blockchain as transactions are recorded in the ledger, which stores the transaction as a “block” within the chain. See how these terms are all coming together?

When a transaction- or block- is sealed off within this online ledger, it can’t be altered. This stops a single user from using the same Bitcoin for multiple transactions.

The Blockchain as a Peer-to-Peer Network

The main reason that people like Bitcoin is that its transactions happen over a peer-to-peer network. There isn’t a centralized bank to act as the middle man for transactions, which means that they’re more direct. This increases the number of people involved with any purchase and therefore makes transactions more secure.

Bitcoin decentralization does more than simply eliminate the need for a certifying authority, however. It also makes transactions untraceable so that the buyer and seller don’t get each other’s personal or financial information. Both parties’ sensitive data is also kept off the network so that any hackers that breach it won’t find anything to steal.

This gives crypto users more peace of mind than those who make fiat-currency-based transactions.

How Much Bitcoin Currently Exists?

Unlike fiat currency, which the government can keep minting forever, Bitcoin exists in a limited supply. A maximum of 21 million Bitcoins can ever be mined. This means that the number of Bitcoins mined per block is halved every four years (in which time 210,000 blocks are created).

As of 2022, miners have already unearthed 18.9 million Bitcoins. There are about 2.1 million Bitcoins that have not yet been mined.

However, experts don’t expect the total number of Bitcoins issued to reach 21 million anytime soon. Once it does happen, though, that doesn’t mean the end of Bitcoin- it just means that transactions will be made with Bitcoins that already were mined. Transactions will still be sealed off on the Blockchain and people can continue to use the cryptocurrency as much as they like.

As you can imagine, there are some advantages to this. Specifically, inflation will never be an issue with Bitcoin. Additionally, since Bitcoin is an evolving technology, people are sure to come up with new and innovative ways to ensure that reaching the limit will not negatively impact investors and users.

However, there also is one huge disadvantage- the unknown. We will truly have no idea what happens when we reach the Bitcoin mining limit until it happens. However, it seems that the biggest impact will be on miners rather than on day-to-day users and investors, so it is likely little to worry about.

The Advantages of Bitcoin

Bitcoin comes with a plethora of advantages that fiat currency does not offer.


  • Bitcoin is untraceable and anonymous
  • It’s more secure due to less personal information attachment
  • Less inflation in the long term
  • No government regulations- everything is peer-to-peer
  • Inherent value beyond the government’s authority 
  • Independence from central banks
  • Extremely accessible via Bitcoin ATMs and online exchanges
  • Easy to liquidate when necessary
  • Good for investors due to increasing value

All of these factors make Bitcoin one of the best possible investments for 2022.

The Downsides of Bitcoin

However, like all good things, Bitcoin isn’t without its flaws:

  • No government regulations (both a pro and a con because this makes the investment volatile)
  • Taxed as a capital gain, which is more of a hassle to Bitcoin owners
  • Irreversible transactions are final (so there’s no recourse if an incorrect amount is sent to the wrong source)
  • Limited use due to a lack of mainstream acceptance (though there are solutions such as Bitcoin credit cards from major card providers)
  • Mining takes a lot of nonrenewable energy and may negatively impact the environment

But how do these disadvantages compare with those of fiat currency? Let’s take a closer look.

Fiat vs Digital Currency: Which Is a Better Investment?

Both fiat currency and Bitcoin have their advantages. However, when it comes to investing, Bitcoin truly is your best bet. This is because the global cryptocurrency market is growing at a rate of 13.8% annually between 2021 and 2025.

If you were to store USD in the bank, you would likely only get an interest rate of less than 1%. You would only make a few cents if you kept it in your account for a year. However, if you kept the same amount of Bitcoin in an eWallet and let it accrue value, you would make about $13.80 in a year.

Let’s say that you were to go to a Bitcoin ATM and buy $100 worth of cryptocurrency. In one year, you would have about $113.80. After 10 years, you will accumulate $138, giving you a grand total of $238.

Personal Information Protection

We brushed earlier on the idea that Bitcoin protects your personal and financial information from not just sellers but also hackers.

Many cybercriminals steal information by tracing transactions back to an IP address. Fraudulent, unreputable sellers may use this opportunity to steal the personal information stored on your machine or network. Bitcoin eliminates this problem because it can’t be traced back to your IP or to your bank.


Additionally, if a third-party hacker were to find a transaction made with fiat currency, they could trace this back to your bank or PayPal account. They then could steal the money in your account or sell it on the dark web.

Using Bitcoin makes these actions impossible. It protects both your personal and financial information from those who want to cause harm.

Accessibility of Bitcoin

Bitcoin is more readily accessible in 2022 than ever before. All you need to do is go to a Bitcoin ATM. This simple process includes only a few steps:

  1. Grab your driver’s license and the QR code to your eWallet
  2. Locate and go to the nearest Bitcoin kiosk (at your local gas station, bank, or grocery store)
  3. Scan your photo ID to prove your identity
  4. Scan the QR code to your Bitcoin Wallet
  5. Put the desired amount of cash into the machine after linking to your wallet
  6. Wait about 5 minutes for the corresponding amount of Bitcoin to appear in your eWallet
  7. Log out of the machine with the understanding that it stores none of the personal information that you previously scanned

You can also use these machines to sell Bitcoin for cash,

Bitcoin is also easier to spend in 2022 than ever before. You can make online purchases as well as in-store ones assuming that the venue accepts Bitcoin. This is an excellent way to make direct transactions with Bitcoin to buy goods and services.

However, you also can use Bitcoin at many retailers that don’t directly accept it. Credit card companies like Visa and MasterCard have created cards that allow you to spend Bitcoin in any location that accepts the carrier.

You scan these crypto debit cards at the store and the correct amount of Bitcoin comes out of your account. It instantly converts to fiat currency that is accepted by the retailer. This lets you enjoy the many benefits of Bitcoin without forcing the seller to accept its risks.

Get Started With Bitcoin Today

While fiat currency is something that we’ve all grown up with, it can be difficult to conceptualize the future of the dollar. This is especially true with the proliferation of Bitcoin. Keep the difference between these assets in mind when converting between them and spending any type of money online and in stores.

Now that you know the difference between fiat currency and Bitcoin, it’s time to begin investing in digital money. ByteFederal’s experts are here to answer any remaining questions that you have about accessing cryptocurrency. Contact us to learn more about using fiat currency to purchase digital assets today.

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