What is fiat currency ?

Fiat money is government-issued currency that is not backed by a physical commodity, such as gold. The US Dollar effectively became a fiat currency in the 1930s, because Congress showed that it will dilute the gold standard to shorten recessions.

Does fiat currency get its value from the military power of that government ?

Some people believe that the US uses its military force to give the US Dollar value. But the US have never attacked another country for commercial reasons. And there are many examples of countries with high inflation rates at a time when they are scoring military victories. For example Vietnam or South Africa in the 80s.

Where does the value come from then ?

The strongest statistical correlation is to the economic output of the country (GDP). In fact, macro economists often use the equation

GDP = Money Supply x Money velocity

But there is a more fundamental reason why fiat currencies are so valuable. They are brands.

What is a brand ?

A brand is a word or a sign that influence individuals (humans).

Investors know that brands are often valuable intangible assets.

Accountants often struggle to accurately value a brand. Often the historical cost is the only reasonable approximation.

Brands get their value from positive exposure such as advertising or public relations. (The workings of the public relations industry is usually so well hidden from the public, that is has been described as a submarine.)

Sometimes a brand get free, unsolicited media exposure which I will call organic exposure. For example, a journalist may come across a seemingly ordinary man who is a paper millionaire due to his long term Bitcoin investments. The story goes viral through no or minimal effort from the millionaire.

Fiat currencies also get most of their value from organic exposure.

So Bitcoin has the same intangible value as every fiat currency ?