What Is A Fiat Wallet? A Threat To Your Privacy and Security (2023)

Athena Alpha

What is a fiat wallet? It’s a question we sometimes hear and we’ll of course explain it simply below, but beyond that simple answer there’s a sinister side as to them. We strive to be unbiased and a trusted Bitcoin resource for the community. As a result, our view is that they are a threat to your privacy and encourage gambling behaviour.

Centralised crypto exchanges that offer fiat wallets to their users claim it makes things easier and better, but of course that’s not the whole story. After all, they’re not even required to buy bitcoins! So why do they even exist at all? Let’s explore.

What Is A Fiat Wallet?

A fiat wallet is a place where you digitally store, send and receive a fiat currency. You likely already have a fiat wallet in the form of an everyday bank account where you no doubt store the millions of dollars you have!

The next question you’re now probably thinking is what is a fiat currency? A fiat currency is any currency that is issued by a governments central bank. Examples include the US dollar, Euro, GBP and others. They are usually the only legal tender inside that country, although some like the USD are also used in other developing countries too.

When talking about fiat wallets in the context of Bitcoin and other cryptocurrencies, they are the same as your bank account, but integrated into centralised crypto exchanges to help facilitate the instant buying of cryptocurrencies.

How Do Fiat Wallets Work?

Fiat wallets work just like your everyday bank account except they’re operated and controlled by a cryptocurrency exchange company instead of your bank. You transfer funds (USD, AUD, JPY etc) into it (which can take hours or days) and then from there you can instantly buy other cryptocurrencies on their platform.

How To Use A Fiat Wallet

You can use a fiat wallet (when they permit you to) in a number of different ways:

  • Deposit currency to the crypto exchange fiat wallet from a bank account
  • Withdraw currency from the crypto exchange fiat wallet to buy bitcoins
  • Deposit currency to the crypto exchange fiat wallet from the sale of bitcoins
  • Withdraw currency from the crypto exchange fiat wallet to a bank account

How To Set Up A Fiat Wallet

Setting up a fiat wallet generally involves two main steps:

  1. Find A Platform: To begin with you’ll need to find a provider or fiat wallet app that is financially licensed in your local area. Unlike Bitcoins permission-less properties, you always need permission to use a fiat wallet. You can search online or through your phones App Store
  2. Sign Up & Verify: Create a new account on the platform and be prepared to hand over basically all your private information. Due to Know Your Customer (KYC) laws, it’s mandatory for businesses to demand – and store permanently – information such as your name, DOB, address, phone number, drivers license, passport, photo and more. Once you’ve uploaded all this information to the platform it may take a day or more for them to verify it

How To Deposit To A Fiat Wallet

Once verified, you’re then permitted to transfer your fiat money into and out of the new fiat wallet. As noted, these transfers take a lot longer than what it takes to send Bitcoin and can take days.

They will supply instructions to you on how to deposit money into your specific fiat wallet. This normally includes multiple ways such as via bank transfer, credit card linking and other fiat wallet apps like PayPal. Once they have “cleared” your fiat funds will be displayed in your new fiat wallet

How To Withdraw From A Fiat Wallet

If you want to move funds from your fiat wallet back into your bank account then you’ll need to withdraw them. This normally includes a web interface where you enter in the bank account details you want the funds to be sent to and click send. Again, this transfer often takes days to clear.

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Crypto Wallet Vs Fiat Wallet

Bitcoin Simba Rafki Meme

When comparing fiat wallets that are used on centralised crypto exchanges, the main difference is that crypto wallets are blockchain based while fiat wallets are not. This means that a Bitcoin Wallet uses the decentralised Bitcoin Blockchain to store and track any transactions that are sent and received. You can learn more about sending and receiving crypto with our step-by-step guide on How To Send Bitcoin.

Fiat wallets in contrast use centralised bank databases to store and track transaction data. Crypto wallets can also send and receive funds much quicker and require a Private And Public Key to operate.

Is A Fiat Wallet Safe?

A fiat wallet that is controlled by a business is only as safe as that business.

For some well established companies such as a major bank in a first world country, a fiat wallet (or bank account) is quite safe. In the USA, they’ll often be Federal Deposit Insurance Corporation (FDIC) insured up to $250,000 USD meaning that even if the company goes under, your fiat is safe and “backed” by the government.

Learn More: Is Bitcoin Safe? What Savvy Investors Need To Know

For centralised crypto exchanges, having a fiat or crypto wallet with them can and regularly does result in the complete loss of all funds when they go bankrupt. It’s for this and other reasons that we do not recommend using fiat or crypto wallets that are controlled by centralised exchange companies.

The Athena Assessment

With fiat wallets, you must trust a third party such as a bank, a fiat wallet app like CashApp or a crypto exchange like FTX with your funds. This trust is routinely broken with FTX being only the latest example.

Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

Satoshi Nakamoto

Fiat wallets are also not required to buy bitcoins. Instead, we only recommend buying bitcoins from No KYC Crypto Exchanges. To help with this, we have a custom built page that ranks all the top non-KYC Crypto Exchanges. This ensures your funds are completely under your control and also fully protects your privacy. Our Crypto Exchange Rating Methodology also ensures you know exactly how we rate each exchange.

While many crypto exchanges champion fiat wallets as allowing you to “quickly buy crypto”, the truth is they undermine your privacy, security and worst of all, encourage day trading or trying to time the market. This is essentially a form of gambling where the only winner is the house, which in this case is the crypto exchange.


Is Bitcoin A Fiat?

No. Bitcoin is the first and most globally recognised cryptocurrency. That means it’s a digital currency backed by maths and cryptography, rather than by a single country or government.

Can I Keep Money On My Fiat Wallet?

Yes. Money in the form of fiat currencies such as USD, GBP or NZD can only be stored digitally in a fiat wallet. This can be hosted either by a normal bank, or by a centralised crypto exchange.

What’s The Best Fiat Wallet?

In the context of cryptocurrencies, we would argue none. You do not need a fiat wallet on a centralised cryptocurrency exchange in order to buy and sell bitcoins. This can be done directly, peer-to-peer using free and open source exchange software such as Bisq.

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