Which truly holds "value": fiat or Bitcoin?

The Essence of Fiat - Money Backed by Government Promises

The yen and the dollar that we use every day are actually not “things”. They don't have value that can be seen and grasped like a gold bar; it's just that the government promises, “This has value.” This is the true nature of fiat currency.

Interestingly, this system is newer than one might think. When paper money was first issued in the 11th century in Sichuan, China, it could still be exchanged for gold or silk. But in the 13th century, during the era of Kublai Khan, it was unilaterally declared, “You cannot exchange this, it is currency.” Historians point out that this decision led to the decline of the Mongol Empire—caused by excessive spending and hyperinflation.

The 17th century Europe repeated the same mistakes. Sweden attempted but failed to return to the silver standard, and America maintained a gold standard until almost the 20th century. The turning point was in 1972. President Nixon declared the abolition of the gold standard, and the world completely entered the era of fiat.

Why Transition from the Gold Standard to Fiat?

Under the gold standard, the amount of gold held by the government was the only limit to the currency. In other words, without gold, no currency could be created. Even in the face of an economic crisis, there are no measures to take without gold.

On the other hand, fiat is a system that can “create something from nothing.”

Strengths of fiat:

• Central banks can respond to economic crises through interest rate adjustments and quantitative easing.
• Low production costs (no need to mine for gold)
• Functions as a unified coin in international trade

Critical Weakness:

• There is no intrinsic value—meaning that if the government prints it infinitely, hyperinflation will occur.
• Historically, it has led to financial collapses multiple times.

The Emergence of Bitcoin — A Rebellion Against Fiat

After the financial crisis of 2008, a programmer posed a question: “Is it possible to create a coin that doesn't rely on the government?”

This is the birth of Bitcoin and cryptocurrencies.

Fiat vs Bitcoin:

The biggest feature of Bitcoin is that the supply is fixed. Therefore, it cannot be printed infinitely like a government can. It will be capped at 21 million coins by the year 2140. This is the mechanism that protects against inflation.

Why is cryptocurrency still small?

The cryptocurrency market is sized at 1 trillion dollars. In contrast, fiat currency is sized at 100 trillion dollars. There is a difference of about 100 times.

The reason is simple — cryptocurrency is still not widely accepted.

Task:

• The volatility is too high (a 50% fluctuation in the short term is common)
• The regulations are unclear.
• The transaction speed may be inferior to fiat.
• Most people still do not understand

However, as the market matures, these challenges may be resolved over time.

What will the future hold?

**Future of fiat: ** Unstable. Looking at history, it has repeatedly led to crises due to excessive spending and hyperinflation.

The Future of Bitcoin: Uncertain. There is still a long way to go, with numerous regulatory and technical challenges ahead.

However, what many economists are paying attention to is the future where these two coexist. Fiat supports the overall foundation while cryptocurrencies like Bitcoin function as “alternative assets,” “international settlement layers,” and “stores of value.”

In the end, it may not be a world where one side wins, but rather a world where they complement each other.