Fiat currency is a form of incumbent money meaning it is issued and controlled by governments and based on trust. It is also a cryptocurrency predecessor and competitor. Some examples of fiat are USD, EUR, and JPY (Japanese Yen). Fiat has been used since the 1934 Gold Reserve Act but recently many cryptocurrency enthusiasts have pointed out several issues with fiat that crypto strives to prevent.
The concept of digital currencies has been around since the early 1980’s with David Chaum a University of California - Berkeley professor/cryptographer building the idea. Chuman launched his idea with his company DigiCash in the mid-1990s via his product, eCash. It wasn't until the late 1990s when the term cryptocurrency was finally created when Wei Dai introduced the concept of b-money, a decentralized electronic money system. These ideas are widely credited to have influenced the development of Bitcoin.
In 2009, bitcoin was launched by an unknown developer Satoshi Nakamoto, who launched cryptocurrency into a popular mainstream currency. This was largely because it was a better implementation than previous cryptographic currencies; it allowed crypto to become decentralized and open source, meaning there was no risk of tampering or excessive control. Overall, it was a sturdy base for future coins and better than fiat.
A disadvantage with Fiat is that it is controlled by banks and/or the government which can seize money at any time. According to the Institute for Justice, in 2018 the federal government forfeited over 3 billion dollars. This is referred to as civil asset forfeiture and has caused issues like policing for profit and Due Process/Amendment concerns. This creates an advantage for cryptocurrency because its decentralized governments can’t seize it as there is no override.
An advantage that cryptocurrency has is that it has a fixed supply and can be backed by physical objects. Crypto cannot be created out of thin air, like fiat currencies, which can just be printed. Cryptocurrencies While fiat currencies like USD are incumbent they are not backed by anything. In the past, the U.S. Dollar was backed by gold but ever since the previously mentioned 1934 Gold Reserve Act, it hasn’t been tied to anything. This can lead to problems like infinite money spending, inflation, and devaluation of the dollar. During the great depression when the act was initiated, and helped the economy recover today it can cause more harm than good. This is something the Crypto Currencies can prevent due to its ability to not be altered once put into the world.
Further, it is much easier to forge fake fiat currencies than cryptocurrencies. In fact, because of currencies like Bitcoin, cryptography implementation would be physically impossible. While with fiat, it is not easy to forge bills, there have been many instances of forgery.
At the end of the day, fiat is still predominantly the most used currency but over time several drawbacks were discovered and/or created. Would it be better to start from scratch and rebuild with cryptocurrencies?