You've likely heard the term being thrown around in the cryosphere. In this piece we're breaking down what a fiat wallet is, why one might choose to use it, and how to create one should you wish to.
What Is A Fiat Wallet?
A fiat wallet is a place where one can digitally store, send and receive a fiat currency. Very similar to an online bank account, a fiat wallet is simply an account which has a stored value of fiat currencies.
Most crypto exchanges have a fiat wallet feature where they offer fiat wallets alongside crypto wallets to provide users with a more efficient means of buying and selling digital assets. A fiat wallet allows users to bypass delays caused by the bank transfers when depositing a fiat currency on an exchange.
Fiat wallets are also common among fintech products and require e-money licenses in order to operate. In these cases, users will typically gain interest or other benefits from storing their fiat money in these wallets.
Before we continue, a fiat currency is a government issued currency such as the US dollar, Euro, British pound and other major global currencies. Fiat currencies are specific to a country or region, and are operated by the local central bank in the area.
How Does a Fiat Wallet Work?
A fiat wallet, like a crypto wallet, is used to store currency. The money in a fiat wallet, unlike funds held in a cryptocurrency wallet, is merely regular fiat cash, similar to that in your traditional (fiat currency) bank account.
Users may use a fiat wallet on a crypto exchange to make quick transactions between a fiat currency and a cryptocurrency without having to go through their banks, or on a fintech platform to gain interest. Fiat wallets act as a stepping stone that connects the worlds of conventional finance and cryptocurrency.
An important note regarding a fiat wallet: Fiat wallets are not connected to any blockchains and remain entirely outside of the crypto ecosystem. While they provide easy points from where one can access the crypto world, they are not a necessity. Fiat money holds the same value whether held in cash, in your traditional bank account or in your fiat wallet on an exchange.
Why Use a Fiat Wallet?
To summarize, people using a fiat wallet are doing so for liquidity reasons. It might take several working days to complete a bank transfer without a fiat wallet. In certain cases, this may be an issue for the user if:
- They want to buy or sell cryptocurrencies quickly during periods of steep price changes
- They don't want their portfolio to suffer during periods of volatility
If the value of a crypto asset drops dramatically overnight, you may have to wait three business days for your fiat money to be deposited onto the platform before you buy the asset. While in normal circumstances this might be acceptable, in this situation you would miss out on an opportunity to acquire it at a good price. If you had a fiat wallet, however, the transaction would be completed quickly and you could benefit from those price drops.
This is a scenario that many cryptocurrency traders and investors find themselves in from time to time. In the crypto market, speed frequently translates to increased profits while sluggish transactions can be quite expensive.
Is It Safe to Use a Fiat Currency Wallet?
A fiat wallet is only as secure as the platform on which it is hosted. There is no difference in safety between the cryptocurrency and fiat wallets, their security levels are tied to that of the platform.
Providers of crypto and fiat wallets employ the most secure security measures to safeguard customer assets. In addition to encrypted data, the crypto and fiat wallet provider will urge customers to utilize multi-factor authentication, which would include using a strong password in combination with another security measure like biometrics or a temporary password.
Store Your Fiat Currencies In Fiat Wallets on Tap
Should you wish to deposit money into a fiat wallet, you can do so using the Tap app. From the home screen, select the Cash wallet option, and select a specific fiat wallet. You can then choose between debit card or bank transfer options, and execute the transaction.
The funds will clear in your fiat wallet as soon as the bank clears the transaction, after which you are able to use the funds as you please, or store them indefinitely. Users also have the option to transfer funds from their fiat wallet directly to their bank account, simply select this option from the fiat currency you have chosen.