What Is a Fiat Wallet & How Does It Work?

By Brian Nibley · February 22, 2022 · 4 minute read

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What Is a Fiat Wallet & How Does It Work?

A fiat wallet is a place to digitally store your fiat currencies. Many crypto exchanges offer fiat wallets to users because it makes it easier to buy and sell cryptocurrencies.

One of the main advantages of having a fiat wallet is that it removes the wait time for depositing fiat to an exchange. If a user wanted to get fiat currency like dollars, euros, yen into their exchange account and didn’t have a fiat wallet, it could take several business days for a bank deposit to go through.

This can be problematic for users who want to take advantage of steep corrections in the often-volatile crypto markets. If the price of a coin were to drop significantly overnight, and a user had to wait three days to have their fiat deposited, they might miss the chance to buy at a discount.

With currency held in a fiat wallet, however, the purchase can be made instantly.

How to Use a Fiat Wallet

Using a fiat wallet is not unlike using a bank account, although it functions more like a crypto wallet for a specific type of fiat currency. The only real use of a fiat wallet is to buy any number of different types of crypto or hold the proceeds of a crypto sale.

The mechanics of using a fiat wallet are even simpler than using a crypto wallet. While crypto wallets require making use of QR codes or long strings of random alphanumeric characters (known as addresses), fiat wallets only involve selecting a function and executing it.

Fiat wallets can be used to:

•   Deposit fiat currency from a bank account

•   Deposit fiat currency from the sale of crypto

•   Purchase cryptocurrency with fiat currency

•   Withdraw fiat currency to a bank account

Performing these actions often involves little more than clicking a few buttons, entering the correct number, and perhaps providing some form of two-factor authentication (2FA).

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How Do Fiat Wallets Work?

A fiat wallet works like a crypto wallet in that both hold a form of currency. But instead of corresponding to a token on a blockchain, the funds in a fiat wallet are just your standard fiat currency, like funds in a bank account.

A crypto exchange hosts a fiat wallet just like they host a cryptocurrency wallet. They do this to provide convenience to their users in the ways mentioned earlier.

Holding funds in a fiat wallet allows users to transact between fiat and crypto without having to go through their banks directly. It’s sort of like a stepping stone between the worlds of traditional finance and cryptocurrency.

Alternatives to Fiat Wallets

Fiat wallets aren’t necessary to interact with the crypto ecosystem or use an exchange. In fact, in the early days of crypto, fiat wallets didn’t even exist.

The two main ways to accomplish the same thing that fiat wallets can do would be to use either stablecoins or Bitcoin as a unit of account for other types of cryptocurrency.

In both cases, users can remain within the crypto ecosystem while exchanging funds for other cryptocurrencies. Most exchanges have a variety of trading pairs against BTC and popular stablecoins.

So, rather than cashing out to a fiat wallet, users could potentially cash out to BTC or a stablecoin like USDT or USDC. When they want to exchange for another cryptocurrency, there likely wouldn’t be a need to switch back into dollars beforehand.

The only caveat would be that to get back into the banking system, users would have to sell their BTC or stablecoin for dollars first. In this sense, there really is no exact alternative to fiat wallets, as they represent the only way to hold fiat inside an exchange.

The Takeaway

A fiat wallet is like an exchange wallet for fiat currency. The wallet allows users to hold fiat on an exchange and make use of it with ease. While you don’t need a fiat wallet to trade crypto, it can be helpful for quickly switching funds from fiat to crypto and back again.


How can you get a fiat wallet?

Many exchanges provide a fiat wallet for free upon signing up. Users are automatically granted a wallet for their fiat currency of choice in addition to a wallet for each cryptocurrency they purchase or deposit on an exchange.

How are fiat wallets and crypto wallets different?

Crypto wallets are blockchain-based and contain the private and public keys to a user’s crypto. Fiat wallets are more like a personal checking account. They are simply one way to store, send, and receive fiat currency.

What do fiat wallets do?

Fiat wallets, like crypto wallets, allow users to store, send, and receive fiat currency. When hosted on an exchange, fiat wallets also allow users to purchase cryptocurrency, provided the exchange has trading pairs against both the fiat and the crypto in question.

Fiat wallets make it easy for users to exchange fiat currency for crypto and vice versa without having to interact directly with their bank.

Photo credit: iStock/tommaso79

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