Today we are going to review what Tether (USDT) is. It is a stable cryptocurrency. The nature of a stable cryptocurrency should not be subject to price fluctuations. Tether is based on the US dollar (USD), so the value of a Tether coin will also correspond to the exchange rate of one dollar.
This is due to the fact that the cryptocurrency is based on the dollar and a very large market capitalization, a product of all the coins in circulation and their current price. Most cryptocurrencies are based on their own blockchain, or Bitcoin or Ethereum. Tether uses the SHA256 algorithm, which is Bitcoin’s algorithm. The amount of withdrawable coins is strictly limited by the amount of money deposited in the Tether account.
Being a stable coin, it is impossible to mine. The only way to obtain it is to transfer fiat money to the organization’s account or buy them on the cryptocurrency exchange. Thanks to the stability of USDT, investors can hold their digital assets similar to regular fiat currencies, but at the same time retain the ability to easily exchange them for other currencies on the cryptocurrency market. It was these key features that made this currency popular; however, it is not completely immune to risk.
What is Tether (USDT)?
Tether (USDT) is a token called a stablecoin (a cryptocurrency that holds a fixed value relative to other types of currency or crypto assets), issued on the Bitcoin blockchain and launched by the company Tether Limited. It is considered the largest stable cryptocurrency issued in the market. Moreover, it is based on the stable value currency US dollar (USD), with an equivalence of 1:1. That is, 1 USDT = 1 US dollar. USDT can be easily exchanged for USD at any time.
Tether was issued through the Omni Layer protocol and is a unique currency in many ways. It was launched in 2015 to represent the digital cryptographic value of a traditional currency, namely the US dollar. Tether has functions like other cryptocurrencies, it runs on a decentralized network, it is also stored there and all data is processed there. What distinguishes it is the centralized issuance and a value that always remains at one dollar.
In other words, Tether is an unregulated token. The main purpose of creating this cryptocurrency was to facilitate transactions with a rate fixed in the US dollar, in order to circumvent state intervention and regulatory oversight. Each USDT unit is backed by one US dollar held in Tether Limited’s reserves and can be exchanged through the Tether platform. Each USDT token can be carried, stored, and issued as bitcoins or any other cryptocurrency.
History of Tether?
Tether USDT is an idea born in 2014 in the mind of J.R. Willet, who along with Brock Pierce and Craig Sellars were working on the development of mastercoin. This was a blockchain that served as a communications protocol, running on top of Bitcoin, creating a series of layers on which other cryptocurrencies or tokens could be run. Pierce and Sellars, decided later, through Omni Layer, to launch their independent project called Realcoin, using the Bitcoin blockchain.
Realcoin was considered the biggest project at the time. However, its name would change on November 20, 2014 when Reeve Collins, CEO of Tether Limited, announced that the project would be called Tether. He also announced the creation of three simultaneous currencies: USTether (USDT), EuroTether (EURT) and YenTether (YENT). In this way, Collins announced to the world the birth of three stablecoins, thus initiating the history of USDT and its peers. Coins added to the Bitfinex platform at the beginning of 2015.
How does it work?
Tether runs on open blockchain technology, leverages the security and transparency it provides while meeting international standards and compliance regulations. Its main value is to convert cash into a digital currency to anchor the value to the domestic currency price. Tether must always be backed by reserves that include traditional currency, cash equivalents, and, from time to time, other assets and receivables from Tether loans to third parties.
The main idea behind this stablecoin is to take a step towards a secure blockchain ecosystem. Today, many new entrants who cannot afford to enter a volatile market or who do not have enough capital are buying Tether as a reserve. Thanks to its stability, it can be used later, as its price remains anchored to the dollar. In addition, there is no way to mine Tether, as a necessary step to keep the value of the currency stable at 1 USD.
Is it closer to fiat currencies?
The stable coin Tether (USDT) is currently one of the main channels for converting fiat currencies into cryptocurrencies. Its close relationship to the USD 1:1 value makes it a cryptocurrency very close to legal tender currencies. This is because it allows you to perform various transactions in cryptocurrencies and then exchange your balances for USD. In this way, the value of the currency is preserved, since it is not subject to the different variations that all other existing cryptocurrencies have, as a result of market volatility.
Having a USDT is the equivalent of having 1 USD that will not lose its value. In this way, you can access almost all types of operations without having to use dollars and being able to use USDT as an exchange currency of the same value, but with the additional benefit that it operates as a cryptocurrency with all its advantages such as greater liquidity, low cost in transaction fees, faster transfers without limits to any place in the world, etc.
What are the advantages of using Tether?
Here are some of the advantages of using this cryptocurrency as a peer of USDT
- USDT operates as a normal cryptocurrency with all the advantages this entails. It sets no limits on its transfers and can be sent anywhere in the world quickly and at a low cost per transaction.
- It does not have the volatility problems that affect other cryptocurrencies. This is because its value is tied to the value of the dollar. This benefits when making any type of payment in cryptocurrencies at a stable value of the currency.
- It allows to carry out operations of buying and selling cryptocurrencies within the Exchange platform while maintaining the value of the investments. Since you can perform transactions in cryptocurrencies and at the end the remaining balances can be easily converted into USDT.
- Being directly related to the dollar, this cryptocurrency allows trading at the value of the USD and knowing its real value at all times.
Controversies about Tether
Tether and its token USDT, is causing a lot of controversy in the cryptocurrency community. One of the reasons is the centralized structure of the project itself, where a private company is the sole issuer of the token. Another controversy created around USDT is the connections of Tether Ltd. registered in the British Virgin Islands with one of the largest cryptocurrency exchanges, Bitfinex, where for a long time Tether was traded, which may raise suspicions, among others, of unfair competition.
In addition, information about Tether’s ties to Bitfinex was kept secret and leaked only after the publication of the so-called Paradise Papers (the results of a journalistic investigation that revealed the outflow of billions of dollars to tax havens) in October 2017. Currently, Bitfinex does not offer direct trading of USDT on its platform. However, Tether’s biggest controversy is its lack of transparency.