What is Fiat Money?

fiat money

Fiat money. What is that? Why people often use this term talking about digital currencies? Does it have something to do with well-known brand of Italian cars? We are here to provide you with answers! Today, The Coin Shark will tell what are those colored papers that we use to buy things, how fiat money appeared, what is the logic behind our current economy and money and how all these things deal with virtual currencies.

Content:
(please, click the topic to scroll down to it)

  1. What is fiat money?
  2. A brief history of fiat money
  3. Fiat and virtual currency
  4. Conclusion

1. What is fiat money?

We all deal with fiat money nearly everyday. Well, yep, today a huge number of financial transactions is cashless, whether we buy coffee, top up our phone, pay bills or trade currency on the exchange. This is especially true for the developed countries where cash seems to fade away over the medium term. However, we still use cash. Our pockets still make coin sound and we still have some colored papers in our wallets. And these are fiat money.

Money can be cash or cashless. Cash money include coins and banknotes. While coins are made of metals (or their alloys) – mostly gold, silver, copper, but also brass, zinc, platinum, palladium, etc., banknotes are in fact just colored pieces of paper. Yes, they have protective elements, watermarks and so on, but, nevertheless, banknotes have no physical value. “Fiat” is a Latin word for “decree”, “instruction”. So fiat money is a means of payment, that has a value established by the state. In other words, the value of fiat money is not based on the value of the material that they are made of. The paper used to print 100 dollars banknote certainly is not worth 100 dollars. However, the state determines the face value of this paper, and tells everyone that this piece of  paper should be worth 100, another one – 50, another one – 20 and another one – ten. So fiat is actually a symbolic money with no physical value that we are obliged to use as means of payment.

Fiat money is not only paper banknotes. There is also so-called token money or token coins. Their metal value is less than a legal value determined by the state. These are, for example, American coins with a nominal less than one dollar – daim (10 cents), quarter (25 cents) and half (50 cents).

2. A Brief History of Fiat Money

Monetary systems of ancient states and communities were often based on coins that had the same value that the amount of metal they were made from. However, there are also many examples of token coins. Those were often silver coins that were minted with the use of some other metals, thereby actually reducing the physical value of the coin, while its face value retained. Scientists agree that the first known paper money appeared in China in the 8th century. Later, their use developed under the rule of the Song dynasty in the 11th century, and they became widely spread during the Yuan dynasty (13-14 centuries), when the Mongols led by Genghis Khan’s grandson Kublai  conquered the Middle Kingdom.

Long after that fiat money close to those we have today started appearing in England. Bank of England started issuing paper banknotes. By that time banknotes already existed, however, they were not used as means of payment. In fact, they were bank bills that banks gave to depositors, taking a certain amount of money in gold coins. If that was not a nominal note, then it could pass from hand to hand and had no connected with its original owner. Later they became means of payment backed by an equivalent amount of gold. In such a system, the amount of money that was in circulation was equal to the amount of gold deposited in banks. But, as capitalist relations developed, England’s economy required bigger amount of money in circulation, so the central bank started issuing paper banknotes that were not backed by a supply of gold anymore. Nevertheless, in the middle of the 19th century, the government legislatively established the framework of such an issue. It was a certain ratio to the state’s gold reserve. Before World War I, there was a so-called gold coin standard – the amount of fiat money in circulation was provided by a certain number of gold coins stored in banks. Every banknote holder (every owner of fiat money) could potentially exchange their papers for an equivalent amount of gold. After World War I, most of the countries set a gold bullion standard, which meant that banknotes could be exchanged for gold bars weighing 12.5 kg. Everyone who had less money than the price of these amount of gold, had no opportunity to exchange their banknotes for the precious metal. However, banknotes were already backed by goods and circulated in the economy as a means of payment. In the new economic conditions that emerged after World War II, the gold bullion  standard was replaced by gold exchange standard. The United States played a key role there. The country pledged to back the US dollar with a particular amount of gold, given that hundreds of tons of it were accumulated in American vaults. According to that standard only financial regulators of other states had the right to demand the exchange, while the US dollar became a reserve currency. The era of the gold standard ended in the early 70’s, when the US government refused to provide gold at the request of other states. Since then, the international monetary system “was let float freely”. Today, currencies are no longer pegged against gold, they can be freely converted, and the market (supply and demand for a particular currency) plays a significant role in the establishment of exchange rates.

3. Fiat and virtual currency

Today the term “fiat money” is often used in the cryptocurrency community, and often opposed to digital coins. The state i s responsible for the issue of fiat money, it is carried out in a centralized manner by central banks and controlled by state bodies. The rate of fiat money is also set by the state. Cryptocurrency has been considered as an alternative to such centralized and regulated systems. Fiat transactions are managed by financial, tax, banking structures, while cryptocurrency transfers are carried out peer-to-peer without any regulators and intermediaries.

Fiat money and cryptocurrencies have one important common feature – both are not backed by anything. However, in fact, fiat is still backed by goods that can be bought for it. And here is the point where virtual coins have some problems. Even such major cryptocurrencies as Bitcoin or Ethereum still have low liquidity, while other digital coins cannot be used to purchase at least something at all.  Anyway, the cryptocurrency community is confident that this problem lies in the absence of mechanisms, while the demand for digital currencies is and will be rather high, so and their full fledged liquidity is a matter of time.

Today, cryptocurrencies still amount to a relatively small percentage of global assets and cannot compete with fiat money.


Source:https://howmuch.net/

4. Conclusion

So, fiat money is a currency that government agencies declare to be a legitimate means of payment and prescribe to use it at a fixed face value, despite the fact that it has no physical value. Almost all paper money, as well as many coins, are currently fiat money. Fiat is not backed by gold, and today the world economy is actually built on this principle. Cryptocurrency offers an alternative to fiat – decentralized and unregulated payment facilities. However the logic that cryptocurrency is based on is in a way similar to the one that fiat is based on. Unlike the old system, where payment means were pegged against gold, modern fiat money exists in the relatively free market paradigm. Cryptocurrencies went even further, eliminating those elements of strict regulation that remained in fiat money.

Anyway, there are different forecasts related to the future of digital currencies. The cryptocurrency financial system is only developing and can not yet compete with traditional economy and fiat money, of course. Will it be able to do so in the future? Well, the answer is “no” in the short term and “time will tell” in the long term.

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OKEx Adds 4 Stablebcoins To Its Listing

A well-known cryptocurrency exchange OKEx announced the support of four stablecoins on its official Twitter account, namely: TrueUSD, USD // Coin, Gemini Dollar and Paxos Standard Token.

Starting from October 15, the platform users will be able to make deposits with these assets. Bidding will start the next day. Tokens will be traded not only in pairs with BTC, but also with Tether.

We also remind, an Internet giant GMO Internet announced the release of its own stablecoin, which will be backed by yen:

Japanese Internet Giant Launches Its Own Yen-Pegged Stablecoin

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Donald Trump’s Ex-Counsel Became an Advisor of a Blockchain Startup

Trump's assistant became an adviser of a blockchain project

Gary Cohn, a former economic policy advisor of the US President Donald Trump, has become an advisor of the project Spring Labs.

The banker worked at the investment and financial holding Goldman Sachs Group for more than 25 years, he served as a President and Chief Operating Officer. In 2017-2018, he was an assistant of the current President of the United States.

I have been very interested in blockchain technology for a number of years, and Spring Labs is developing a network that could have profound implications for the financial services sector, among others,” said Cohn. “I am excited to actively support the Spring Labs team in the development of this important business and network.”

The other Spring Labs advisors are:

  • the former chairman of the Federal Deposit Insurance Corporation of the United States (FDIC), Sheila Bair;
  • Nigel Morris, the co-founder and former [resident of Capital One banking holding company;
  • the chief lawyer of the crypto exchange Coinbase, Brian Brooks.

We remind you:

Ex-Counsel of Trump Predicts the Emergence of a New Global Cryptocurrency

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Cryptocurrency Prices Today, October 15: Cryptocurrencies Are Growing

crypto prices

Bitcoin, Ethereum, Ripple, Bitcoin Cash, EOS, Litecoin, Cardano, Stellar, IOTA, Dash, Monero: Cryptocurrency prices

According to the Coin360 online platform, Bitcoin (BTC) added 4.21% over the past 24 hours. The price at the time of writing is $6589 per coin.

Cryptocurrencies are in a stable green zone:

Bitcoin Cash added 3.47% over the past 24 hours and costs $462 per coin;

Ripple grew by 6.13% and costs $0.44;

EOS gained 3.55%, and its price is $5.43;

Litecoin increased by 2.15%, and its value is $54;

Cardano added 1.62%, and its cost is $0.074;

Stellar became more expensive by 3.02% and is $0.22 in price;

IOTA added 1.72%, and its cost is $0.58;

Dash gained 2.67%, and its price is $164;

Monero grew by 2.96% and is $105 in value.

Over the past 24 hours, Ethereum added 4.45%. The cost of the coin is $209.

The total market capitalization is $211 billion. Bitcoin accounts for 54.2% of the total. In monetary terms, it is $114 billion.

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What is Ethereum Address (ETH address)?

This information will be useful for those readers who are the beginning of their way in the cryptocurrency world. In this article we will talk about such concept as Ethereum address, find out what it is necessary for, where you can find it and see it. So let’s get started.

Contents:
(please, click the topic to scroll down to it)

  1. What is Ethereum address and what is it for?
  2. Difference between online and offline addresses
  3. Conclusion

1. What is Ethereum address and what is it necessary for?

To begin with, it should be noted that Ethereum is the second most popular and capitalized coin. It has significant differences from the flagship of the industry with a good sense of the word. Ethereum has a more advanced technological base. For example, Bitcoin, in fact, is only a payment system, and on the basis of Ethereum you can create your own coins and smart contracts. Ethereum is a platform from which, potentially, a great number of companies and individuals can operate.

So, we are over with the introductory part, now let’s get to the essence of today’s question. ETH address is a certain unique set of letters and numbers, with a help of which a specific wallet can be identified. It is necessary to transfer coins from one wallet to another. It can be easily shared, since knowing it doesn’t reveal any important information about the owner and the state of balance.

Only the owner can receive the address. To get it you have to run the wallet application on a computer or mobile device. Without any doubt, in the interface of any crypto wallet program (there is a large number of services for storing Ethereum) you will find a special button that will automatically generate the wallet address.

2. The difference between online and offline addresses

If you are just starting your crypto journey, then you probably do not know that there are different types of digital wallets. We will dig into this topic too deeply, but just describe the main points. More information about the classification of wallets can be found on our website. So, the wallets can be:

  • Online. These include web-wallets and personal accounts that are on the exchanges. This is the most insecure, but the most convenient way to store and exchange coins.
  • Desktop and mobile apps. These are so-called hot wallets. They are more secure than online solutions, but with their help it is no longer possible to make transfers so quickly.
  • Hardware wallets. They are the safest way to store coins, since it is virtually impossible to hack them and get access to assets. But they are very inconvenient for every day use. This type of wallet is ideal for long-term storage.

So, you can get an Ethereum address both online and conditionally offline, on a desktop or mobile wallet application. Сonditionally offline, because even if the wallet is physically located on the computer, you need access to the Internet to work correctly. There is no principal difference between online and offline addresses, the only thing is that coins will arrive either on an online wallet, or on a desktop or mobile application.

It is very important to use only official wallets for storing ETH or any other coin. Since they are best optimized for work with this or that blockchain, and also have more advanced level of security than a service that was developed by third-party developers.

3. Conclusion

Everything about cryptocurrency topic seems so complicated, but this is only at first glance. Of course, the wilds of cryptography and the operation of algorithms are not easy, but for ordinary users such information is absolutely useless. The knowledge that is necessary in order to use cryptocurrencies can be obtained by any average person in the shortest time possible .

So, in this article, we discussed what Ethereum address is and found out that this is only the identifier of a certain wallet and is needed to transfer coins from one account to another.

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Bitcoin Investment: Should I Invest in Bitcoins?

Bitcoin currency has already been used as a kind of a fiat money alternative for about 9 years. It is relatively popular all around the world. The first digital currency has made many people go nuts following the impressive ups and dramatic downs of its exchange rate.

Today, in October 2018, the whole cryptocurrency industry is looking forward to observing a new crypto-“miracle”. Search engines are overflowed with all those “How to invest in cryptocurrency?”. And this is not particularly surprising. Traders and different investors who own a significant capital expect cryptocurrency to be a promising investment tool in the long term. And if we talk about cryptocurrency, that basically means Bitcoin. Well, of course, there is a number of altcoins that can be worth making investments, but the first digital currency is definitely the most popular one.  

People still talk about investing in Bitcoin and this topic is interesting for many traders, investors and casual users. So, let’s take a closer look at this issue.

How to invest in Bitcoin

Before making an investment, one should obviously choose the way he or she wants to get some BTC. First of all, it depends on financial capacities. There are indeed many different options to invest in Bitcoin, but we will focus on two main ways that are currently the most popular and probably also the most effective.

Option №1: Taking advantage of the rate differences as a way of BTC investing

You might have already come up with the question, why people are still interested in making investments in Bitcoin when it costs less than $7 thousand per a coin? Well, influencers, opinion leaders, independent experts, and different analysists are confident that we will soon observe another sustainable increase of Bitcoin rate. And that is why many people start thinking about investing in cryptocurrency to make money out of the rate differences.

But what is the way to do that? It is actually pretty simple. All you need is some basics of math. In fact, investors are not really sad about the fall of Bitcoin. Many of them are even happy, especially those who believe that the cryptocurrency has a great future ahead. Today, if a trader purchases a BTC for $6,5 thousand, he or she will manage to make a good profit, in case BTC rate increases. Some really expect it to rise up to $30 thousand, and in this case, it will really be a good bargain. The key point here is whether the rate increases or not, of course.

Option №2: BTC mining

Besides, users can invest the special equipment that is used to mine Bitcoin. You may already know, that each BTC is actually a kind of a reward, given for the performance of certain calculations, necessary to issue new coins. Today these calculations are rather complex and require special high-performance equipment called ASIC-miners. The more users are there in the system, the more difficult are these calculations. This is called Bitcoin difficulty and it ensures that it always takes around 10 minutes to create a new Bitcoin block.

Investing Bitcoin this way means that you can get a certain number of BTC and store it till the rates grow or exchange it for another digital currency like Ethereum.

However, you’d better do not think that these two investment options will bring you fast and easy profit. This is possible only if the cryptocurrency rate increases significantly and in the case of mining, if your equipment has enough performance.

By the way, here is one more option of BTC investing. It`s actually difficult to say that it is a comprehensive way to invest in the cryptocurrency, but, anyway, many people use it today.

Bitcoin faucets

These are special websites, where users can get a reward for making certain easy tasks, usually related to online advertising. These rewards are paid in satoshi. The thing is, that one BTC includes as many as 100 000 000 satoshi, so one satoshi is only 0,00000001 BTC. So it`s actually a tiny piece of the market`s largest cryptocurrency. Investing BTC using Bitcoin faucets is not really effective, as you may never manage to collect at least one single coin.

Is Bitcoin a good investment

Well, if you have already decided to invest in digital currencies then Bitcoin will probably be the best option. Not only this cryptocurrency is a market leader and the most popular digital coin, but also it has relatively good liquidity as compared to other virtual assets. Many cryptocurrency followers believe that Bitcoin has a potential to become the main means of payment in the future. However, there are also those who bet on other digital currencies, as well as those who do not consider virtual coins as an investment option at all.

By far it seems that the question is it worth investing in Bitcoin remains undetermined, so let’s make it a little bit more clear. Bitcoin is relatively anonymous, decentralized and has a limited number of coins available for mining. This is, in fact, why hundreds of thousands of cryptocurrency followers made their decision in favor of BTC.

Anonymity

Investors do not have to disclose their personal data. The information about each transaction is public and everyone can see the address of the cryptocurrency wallets of a sender and a receiver, as well as how many BTC were transferred. However, the information related to owners of cryptocurrency wallets is not disclosed, so the whole system is relatively anonymous.

Decentralization

Bitcoin worth investing, as it has a decentralized management, which means there is no single administrative center. Transactions are carried out directly between users in a peer-to-peer network. However, Bitcoin users still have to pay certain commission fees for transfers of their virtual assets, because every transaction is confirmed and recorded in the blockchain by miners who receive rewards for this. Today small transactions are often not effective at all, as the commission fee is rather big. However, if a transaction is large, the commission fee will be relatively low.

Limited number of coins

Is Bitcoin a safe investment –  “yes” is the answer of many people, who believe that a limited number of Bitcoins to be mined is a strong advantage of the digital currency. It will prevent BTC from inflation.

“Why should i invest in bitcoin?– you may ask. The answer will probably contain both pros and cons. And that`s because Bitcoin has some special features, which are:

  • 24/7 trades, that allow making investments at any time;
  • most indicators have a rather good quality;
  • high volatility;
  • possible positive prospects of cryptocurrencies and, as follows, positive expectations related to Bitcoin investments.

Bitcoin investment trust

The risk remains here almost all the time and no one can guarantee that your money is 100% safe. Here are several examples why it can be rather risky to make investments in the largest cryptocurrency by market capitalization. Yes, Bitcoin still has a decentralized management, however, in a certain way the system is getting more and more centralized. This risk of investing in cryptocurrency is related to the fact that BTC rate starts depending on cryptocurrency exchanges.

Moreover, the significant part of all Bitcoins is owned by those who are engaged in mining or lease out high-performance mining equipment. Making new Bitcoins requires really a lot of computing power and gets more and more expensive. The competition within the system increases and it is almost impossible for casual users to join Bitcoin mining. That is why many people have already switched for other digital currencies that are easier to mine and can be later exchanged for BTC.

In some cases, Bitcoin`s anonymity is also a risk. Anonymous deals can be used for money laundering, as there is no effective state regulation of cryptocurrency transactions.

How to invest in Bitcoin stock

There are special cryptocurrency funds, similar to mutual funds that exist in the world of bonds and stocks. These funds are managed by private parties and it influences the interest rate. For instance, some cryptocurrency funds provide 1-2% per day.

Bitcoin investment strategy

There are two main types of cryptocurrency investment strategy.

The first one: investors buy BTC and sell the cryptocurrency when its rate increases.

The second one: Bitcoin holders trade their digital assets on cryptocurrency exchanges. This strategy is very similar to Forex trading.

Minimum Bitcoin investment

Many people decide to invest in Bitcoin because they hope to get huge profits in the long term. So, even a small investment is considered to be rather promising by many cryptocurrency followers. Eventually, the smaller is an investment – the lower is the risk. But, on the other hand, a really small investment can just be useless. Anyway, how much to invest in Bitcoin remains an open question and everyone has their own opinion.

Who said users can only invest their money? It is also possible to get BTC for free by investing one`s intellectual work. Well, just a bit of BTC, to be honest. Special websites offer users the opportunity to earn satoshi – the smallest fraction of Bitcoin – for the performance of different easy tasks, usually related to advertising. These websites are called Bitcoin faucets.

The main advantage of such an option is that users do not have to invest a single penny to get a piece of BTC, however, the drawback is also rather significant – it will take a really long time to get at least one BTC.

Invest in Bitcoin mining

Mining is actually how new digital currency is issued. Making investments in Bitcoin mining means buying special mining equipment or renting it from different providers. Cloud cryptocurrency mining is also possible. These services lease out their mining equipment for users to rent a particular amount of processing power.

There are some experts who think that cloud mining is actually the best way to invest in Bitcoin, as users don`t have to purchase, set, maintain and update expensive mining equipment.  

Anyway, both traditional and cloud mining still require preliminary investments.

Bitcoin investment sites

Before making investments in Bitcoin, basically, before purchasing it, you should have a cryptocurrency wallet to store your digital assets. Today Bitcoin holders and those who want to join them are lucky to have a large variety of different cryptocurrency wallets. These are, for example, mobile, hardware, online, desktop, cold, and even paper wallets.

If you are planning regular digital currency investment, we recommend having a local hardware wallet. However, it actually depends on what is more convenient for you and what meets all your requirements and there is really a number of options you can choose from. Do not forget to activate your cryptocurrency wallet.  

Usually, Bitcoin is purchased on cryptocurrency exchanges. It is really important to choose the right one, so we recommend taking the following criteria into account:

  • a region, where the exchange is registered;
  • input and output, exchange, transfer options, etc. – basically, what you can do with your funds in a digital wallet;
  • commission fee level;
  • reputation;
  • security level.

This will help you figure out whether is it safe to invest in Bitcoin.

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