Fiat money or fiat currency is referred to as the legal tender issued by the various central governments within their jurisdiction. It is backed by a physical commodity like gold and silver. The value of any fiat money is the direct product of the stability of its government and its relationship between supply and demand. US dollar, Indian Rupee, and Yen are all fiat currencies.

The term fiat has its origin in Latin. Fiat money derives its value from how well it is maintained by its government. One must note that there is no utility in the fiat currency itself. Fiat money came into existence when the governments first started minting gold and silver coins. It was then replaced by paper money called banknotes that could be used to redeem any physical commodity. Fiat money comes with the risk of losing its value since it’s not directly linked to physical reserves such as stockpiles of silver or gold or oil. The value falls during times of inflation or recession.

This fiat money is used to deposit and purchase the same amount of crypto assets. Fiat deposits mean depositing a certain amount of fiat money to purchase an equivalent amount of crypto asset from a decentralized exchange or a centralized one, something like the purchase of Ethereum (ETH) with USD. Earlier, crypto-to-crypto trading was only facilitated by online platforms. However, investors can now purchase crypto for as low as 100 INR on a few crypto platforms by depositing the same amount of fiat money into their wallets.

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