Everything you need to know about Tether, the blockchain bridge between digital currencies and fiat.
Tether provides a simple interface for businesses and individuals to access a blockchain-based cryptocurrency that is always valued at a 1-to-1 ratio with the US dollar. Tether is created by a company called Tether Limited, and is closely affiliated with the Bitfinex exchange. There are currently over 2 billion USDT in circulation. The Tether company claims to have fiat currency reserves to back up all the Tethers in circulation, but there is no concrete evidence of this. Tether recently and unexpectedly discontinued its relationship with the auditors that were going to verify this claim, causing uncertainty about whether USDT is securely backed by US dollar reserves. Even though the cryptocurrency is pegged at US$1, Tether users should note that this price stability is largely dependent on Tether Limited actually being able to support the amount of Tether currently in circulation, and that a loss of value is still possible.
Tether and Bitfinex controversy
Tether is created by a company called Tether Limited, and is closely affiliated with the Bitfinex exchange.
There are currently over 2 billion USDT in circulation. The Tether company claims to have fiat currency reserves to back up all the Tethers in circulation, but there is no concrete evidence of this.
Tether recently and unexpectedly discontinued its relationship with the auditors that were going to verify this claim, causing uncertainty about whether USDT is securely backed by US dollar reserves.
Even though the cryptocurrency is pegged at US$1, Tether users should note that this price stability is largely dependent on Tether Limited actually being able to support the amount of Tether currently in circulation, and that a loss of value is still possible.
What is Tether?
|Icon||Symbol||Initial release date||Algorithm type||Max. supply|
|USDT, ₮||2014||SHA-256||444,951,082 USDT|
Tether Limited, the company behind Tether tokens, keeps traditional fiat currencies, including dollars, euros and yen, in a reserve bank account. Using the infrastructure of the bitcoin blockchain, Tether promises to back its own digital tokens, called Tethers, with fiat currency.
If, for example, you put US$20 into your Tether wallet, you should have roughly 20 Tethers. Because Tether’s tokens are anchored, or “Tethered,” to real-world currencies, their value is protected from the frequent volatility of other cryptocurrencies. Some major features of Tether include:
- Stability. Because Tethers are backed by a store of real-world currency, users can enjoy the benefits of digital, blockchain-based transactions without being subject to the volatility of most cryptocurrencies.
- Transparency. Tether claims that its fiat reserve account is regularly audited to verify that its reserve accounts can actually back up the value of Tethers in circulation. The balance is updated regularly and publicly accessible at all times. Additionally, all Tether transactions are recorded on the public blockchain.
- Minimal transaction fees. There are no transaction fees when sending money between two Tether accounts or any two blockchain-based wallets capable of storing Tether. However, converting Tethers back into fiat currency may require paying some service or transaction fees to the parent company.
How is Tether different from bitcoin?
Unlike bitcoin, Tether tokens are actually backed by reserves of fiat currency held by the company, Tether Limited. Bitcoin was designed largely to serve as an alternative to traditional currencies, operating on a peer-to-peer level outside of the scope of national borders and financial institutions. Tether, on the other hand, was designed specifically to integrate fiat currencies with the blockchain by converting physical cash into a digital asset.
In addition to being the most popular and widely used blockchain in the world, the bitcoin blockchain is also considered by many to be the most secure. For this reason, some developers choose to issue assets on the bitcoin blockchain. The Omni platform is an additional software layer that works on top of the core bitcoin code, making it possible to issue and trade digital assets on the bitcoin blockchain. Tether makes use of the Omni layer for deploying Tether tokens, meaning that Tether transactions are recorded on the bitcoin blockchain.
Where can I use Tether as payment?
Currently, Tether is still under development. Once the technology is ready for public implementation, the stated vision for Tether is to be usable anywhere digital currencies are accepted. Some example use-cases for Tether include:
- Digital exchanges. Tether can be used as an alternative method for depositing and withdrawing assets from digital exchanges, as well as settling fiat balances.
- Companies using the blockchain. Many companies are taking steps to integrate blockchain technology into their operating structure. Using Tether to handle digital transactions will allow blockchain-based companies to accept a variety of digital currencies while simultaneously pricing goods and services based on familiar fiat values.
- Traders. Traders can use Tether to optimise arbitrage between currencies and exchanges. Tether can also be used to move funds quickly and easily across different wallets and exchanges.
- Peer-to-peer transfer. Individuals operating in different nations may be able to transfer Tethers back and forth, redeemable in their respective currencies at a substantially lower transaction rate than via traditional banking routes.
How to buy USDT
As of today, Tether tokens can be purchased on a number of popular cryptocurrency exchanges, including Bitfinex and Kraken. While the value of Tether tokens is pegged to the US dollar, some exchanges do not offer direct USD/USDT pairings, and you will need to use bitcoin or another cryptocurrency to trade for Tether.
The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. Your capital is at risk.
Spread bets and CFDs are leveraged products and can result in losses that exceed deposits. The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.
Can I make money with Tether?
Not really. Unlike most cryptocurrencies, whose values tend to fluctuate in relation to the market, Tether’s value is designed to reflect the value of the US dollar. By converting fiat currency into Tethers, you can participate in blockchain-based transactions without being subject to the volatility of other digital currencies. Because Tethers are created and issued by the company, Tether, in correlation to their fiat reserves, mining is not applicable to Tether.
Four things you should know
- First and foremost, it is important to be aware that buried within Tether’s extensive “Terms of Service” agreement is this statement: “There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.”
- While the core concept behind Tether tokens is that they are backed 100% by fiat reserves, users may want to exercise caution given that the company does not guarantee redemption of Tethers and is not formally liable to do so.
- Between July, 2017 and August 2017, the supply of Tethers rapidly increased by over US$100,000,000. As Tether claims to be backed by fiat reserves, some sceptics have wondered where this money came from.
- In April of 2017, Tether announced that the company’s primary banks in Taiwan were being blocked by corresponding US banks. Since then, Tether has announced that it is working with other payment processors and gateways, although the company has not yet released specifics concerning money transfers to the public.
What’s next for Tether?
- Tether is taking steps to incorporate more national fiat currencies into its platform, including the Japanese yen (JPY), Tether’s digital euro (EURT) and British pound (GBP).
- Tether is developing a version of its dollar-backed token for the Ethereum platform. Developers will be able to use this for easy transfers and smart contracts.
- Tether has announced that it will begin to make details of the company’s regular audits available to the public.
- Integration with the Lightning network is in the works for Tether, which will enable low-cost, instant transactions of Tether currencies.
Image sources: Shutterstock