# Last edited on 2017-02-26 23:39:31 by jstolfi

For /r/btc - not posted

"Fiat" is one of many words (like "censorship", "property", "fungible", "ponzi", "store of value", etc.) that bitcoiners redefined to suit their discourse.

Before bitcoin, all currencies worth talking about were issued by governments, by laws and decrees.  But some of those government currencies were (nominally at least) backed by reserves of precious metals, which could be redeemed from the Treasury, while other government currencies had no such backing, and could not be redeemed.  

Currencies of the first class could not be created arbitrarily;  the government had to amass  the corresponding reserve first.  Currencies of the second class, on the other hand, could be created by the government just saying "let there be this currency".  

**The term "fiat money" was then coined to distinguish government money with no backing from government money with backing.**  So, while indeed fiat money was created by governments through laws and decrees, that was not the distinguishing factor -- because non-fiat money too was created by governments through laws and decrees. 

Bitcoin was not created by a government; but it does not have any backing reserves, and cannot be redeemed.  When Satoshi created it, he just announced "let there be this currency".  And, like him, thousands others did the same: created new cryptocurrencies by announcing "let there be" Litecoin, Dogecoin, Ethereum, etc.  All without backing.  

Here and there one can find currencies that are not issued by governments, like the Brighton Pound, the Canadian Tire dollar, and Amazon gift cards.  To the extent that they can be exchanged between arbitrary persons like a currency, they can be called "money" too.  But most can redeemed for merchandise or services at a set value, so they are not "fiat money".  

Private fiat money is rare, because it is inherently a scam: if and when it is accepted by some subset of the population, those that issue the currency can take real wealth from those people, by spending money that they create, without giving anything in return.  Thus governments generally prohibit private fiat money (and regulate other private money so that it is not fiat).

So, is bitcoin "fiat money"?  To many people who are not immersed in the bitcoin culture, the answer is obviously yes: because the important feature of "fiat money" is not "created by government" but "created by a simple 'let there be it' announcement, without any backing asset that it can be redeemed for".  

Why do then bitcoiners foam at the mouth when someone says that?  It has to do with the fact that many of them, especially the old-timers, are generally libertarian or anarcho-capitalists, and as such they hate the government.  Before bitcoin, they admitted that money was a necessary thing; but they despised *fiat* money, because (in their view) it could *only* be created by government, and, being unlimited, was the main source of its power.  Whereas "non-fiat" money, with issuance limite by the need for precious metal backing, would presumably keep the government small and honest, and maybe even dispense it altogether.

Hence the anarcho-libertarian habit of disparagingly referring to national currencies as "fiat", a jargon that is characteristic of that political subculture. (I lived in the US for 13 years, obviously using and talking about money all the time; yet I never heard anyone use the word "fiat" to refer to what everybody called "money".  Not even once.