If you pull a dollar bill out of your wallet, you are holding what is fiat currency. That sounds fancy, but “fiat” is just Latin for “let it be done” or “by decree.”
It means the money has value only because the government says so.
Historically, money was backed by gold. You could walk into a bank and trade your paper bill for actual gold. The paper was just a receipt.
Today, there is no gold backing your dollar. It is backed by nothing but trust in the government. If people lose trust in the government, the value of the money collapses.
This gives the government unlimited power to print more. Since they don’t need to find more gold first, they can print as much paper as they want.
Bitcoin is the opposite of fiat. It isn’t created by decree; it is created by work (mining). It has a limited supply that no government can change.
So what is fiat currency? It is money that is easy to print, easy to devalue, and relies entirely on trust.