Interesting write up!
From a Bitcoin perspective, the FIAT financial system’s underlying technology can be viewed as a centralized, trust-based framework that contrasts sharply with Bitcoin’s decentralized, trustless design. Let’s break it down:
The FIAT system relies on a network of intermediaries—central banks, commercial banks, payment processors, and governments—that collectively manage and control the issuance, circulation, and validation of currency. At its core, this system is built on **ledger-based accounting**, but unlike Bitcoin’s transparent blockchain, these ledgers are private, fragmented, and maintained by trusted institutions. For example, when you deposit money in a bank, the bank updates its internal ledger to reflect your balance, but you don’t have direct access to verify it—you trust the bank to be honest.
The "technology" of FIAT isn’t rooted in cryptography or distributed consensus like Bitcoin. Instead, it hinges on **legal frameworks and human-enforced trust**. Central banks, like the Federal Reserve or the European Central Bank, issue currency (e.g., dollars or euros) by decree, backed not by a tangible asset like gold (since the end of the Bretton Woods system in 1971) but by the "full faith and credit" of the issuing government. This issuance is often executed through mechanisms like **fractional reserve banking**, where banks create money by lending out more than they hold in reserves, effectively inflating the money supply. This process is opaque to the average user and lacks the algorithmic predictability of Bitcoin’s fixed 21 million coin cap.
Transactions in the FIAT system are processed through centralized clearinghouses (e.g., SWIFT for international transfers or Visa/Mastercard for payments). These rely on proprietary software and databases, not open-source protocols. Every transaction involves multiple points of trust: the merchant trusts the payment processor, the processor trusts the bank, and the bank trusts the central authority. Contrast this with Bitcoin, where transactions are validated by a decentralized network of miners using **proof-of-work** consensus, eliminating the need for intermediaries.
From a Bitcoin lens, FIAT’s "tech" is vulnerable because it’s not immutable or censorship-resistant. Governments can freeze accounts, banks can fail, and central banks can manipulate supply (e.g., quantitative easing) without public consent. Bitcoiners often criticize this as a system of "IOUs" rather than hard money—your dollar is a claim on value, not value itself, subject to inflation and devaluation. Meanwhile, Bitcoin’s blockchain ensures every satoshi is accounted for, verifiable by anyone, and secured by cryptographic math rather than human promises.
In short, the FIAT system’s underlying "technology" is a patchwork of centralized control, paper-based trust, and legacy infrastructure—a stark foil to Bitcoin’s transparent, decentralized, and mathematically enforced design.
