What is cryptocurrency Tether (USDT) and how does it work?
Being one of the Top-3 cryptocurrencies, Tether has emerged as a prominent player and continues enjoying trust of users all over the globe. Often referred to as USDT, this stablecoin that has become increasingly popular due to its unique characteristics. Serving as a bridge between traditional currencies and the digital realm, this digital currency aims to provide stability and liquidity within the volatile cryptocurrency market. However, controversies and concerns have also surrounded this digital asset, raising doubts about its transparency and the extent of its backing. In this article, we will delve into the concept of USDT token, exploring its purpose, mechanism, and the controversies it has faced, ultimately seeking to understand the nature of this intriguing stablecoin.
What is Tether?
Tether (USDT) is what's referred to as a Stablecoin — a cryptocurrency the price of which is pegged to the cost of US Dollar. Tether Limited developed USDT to serve as the internet's Digital Dollar, with each token having a value of $1 USD and being backed by $1 USD in actual assets. Millions of crypto users can trade, hedge, and conduct transactions on different blockchain networks – they support Tether without the use of a reliable third-party middleman. Tether, although being a well-liked option on cryptocurrency exchanges, has an ambiguous past because of the company's suspected involvement in influencing the price of Bitcoin and improper reserve management.
What are stablecoins?
The value of stablecoins is intended to remain constant. Stablecoins offer an alternative digital currency that is more appropriate for everyday usage than other forms of crypto since they do away with volatility. Hence, if a crypto holder has USDT reserves and decides to purchase a car one day, they can count on having the same sum of money on their wallet no matter how much time passes.
Investors find stablecoins to be appealing financial assets because they enable cross-border payments, ensure minimal transaction costs, and combine the advantages of stable fiat money with cryptocurrency.
Simply explained, and as the name suggests, stablecoins are designed to maintain their stability.
Through fully backed Tether reserves, all Tether tokens seek to maintain a 1:1 value with their equivalent fiat currencies. Tether Limited Inc. asserts that it is an entirely transparent company that publishes daily reports on the value of their reserves.
How does Tether (USDT) work?
Each Tether (USDT) token released is backed by assets valued at one US dollar. All Tether may now be issued on any chain that Tether currently supports, despite having been first issued on the Bitcoin blockchain via the Omni Layer protocol. Once Tether (USDT) has been created, it may be used in the same way as any other coin or token on the chain it was created on. The blockchains of Bitcoin, Ethereum, EOS, Tron, Algorand, and the OMG Network are presently supported by Tether.
Because Tether employs proof-of-reserves, their reserves will always be equal to or more than the total quantity of Tether in circulation. Their website can be used to confirm this.
What Makes Tether (USDT) Unique?
Even though the issuer of Tether is under frequent suspicions, USDT ensures since it has been used and accepted for years. It is widely recognised as a payment mechanism and a medium of exchange by many businesses and protocols inside the blockchain ecosystem. Tether is immune to market dangers like Black Swan occurrences because of its enormous reserves. Peer-to-peer trading and PoW or PoS security are two additional features that USDT shares with other cryptocurrency tokens on the network, making it an attractive hedge for both consumers and traders.
What Gives Tether (USDT) Value?
Since the USDT does not theoretically appreciate or depreciate in value, it offers liquidity and acts as a hedge against market volatility. The USD reserves of Tether are the only factor affecting the price of Tether (USDT). The value of Tether will always equal one US dollar as long as it is backed in 1:1 ratio.
How Many Tether (USDT) Coins Are in Circulation?
At the time of writing this article, the total number of USDT tokens in circulation is 83,341,708,027 . Depending on the market's liquidity and demand, this supply may rise or fall.
How Is Tether (USDT) Secured?
There are several networks where the USDT tokens may be issued, including Bitcoin, Ethereum, EOS, Tron, Algorand, and OMG Network. Since these blockchains contain the smart contracts and tokens, the nodes and miners that maintain the security of these networks using Proof-of-Work or Proof-of-Stake also take care of the base security. The code on these platforms is regularly audited to make sure it is safe, current, and consistent with the current architecture. Tether also makes sure USDT is still compliant with each network.
USDT: Tether's History & Founders
In order to give the world a robust digital token ecosystem,Tether CEO Reeve Collins and his partners (Brock Pierce and Craig Sellars) founded the company in 2014. The currency, which was first known as Realcoin, was unable to compete with well-known altcoins. However, it changed its name to Tether and modified its issuing method after a number of revisions. In order to survive in the era of digital money, the transition was vital. This is how the stablecoin Tether, which eventually evolved into a practical option for both companies and people, was created.
Tether is an ecosystem for digital tokens that provides a secure way to transfer, receive, and store them. The business that issues Tether token is called Tether Limited. Rumours about the company's affiliation with the Bitfinex cryptocurrency exchange, which listed the coin initially, surfaced soon after the introduction. Such information was validated after research and investigation by Paradise Papers. The company iFinex Inc., situated in Hong Kong, also owns Tether Limited.
In 2019, Tether surpassed Bitcoin in terms of trading volume reaching the highest daily and monthly trading volumes on the market. In 2021, USDT's on-chain volume exceeded the $1 trillion threshold, which means this is one of the most prosperous cryptocurrencies in history.
With daily transactions totaling millions of dollars, USDT is still one of the top cryptocurrencies in use today. USDT is expected to continue to be a top option for cryptocurrency consumers due to its practicality and security.
How to Mine / Stake USDT?
It is not possible to mine tether since it can only be created with actual money as backing. Some bitcoin users find this confusing because the concept runs counter to digital currency. However, this specific coin stands in a middle ground between fiat money and digital assets.
However, you can stake USDT through various platforms and protocols. Some popular options include Binance, Kraken, Huobi, KuCoin, and Poloniex, which offer staking services for USDT. Additionally, you can explore decentralized finance (DeFi) platforms like Compound, Aave, and Yearn.finance, which allow you to earn rewards by staking USDT in their liquidity pools or lending markets.
How are Tether tokens created?
Users (individual investors, exchanges, trading businesses, etc.) first fund Tether's bank account with their fiat money. They need to undergo Know Your Customer (KYC) authentication verification.
The equivalent number of tokens are subsequently issued by Tether and sent to the user's cryptocurrency wallet. This manner, each Tether token has a 1:1 relationship with a fiat currency to serve as its backer.
Tether distributes the same number of tokens worldwide as the customer deposits, minus any transaction costs. It generates revenue by investing the funds received from deposits in secure assets. This enables them to profit on deposits in a manner similar to that of a conventional bank.
What are Tether's advantages and disadvantages?
Despite its controversy, Tether was the first stablecoin ever created and presented a novel idea to the cryptocurrency industry. Let's examine some of its pros and cons:
<p>Tether price will always strive to have a value that is equivalent to that of the US dollar or other fiat currencies since it is not designed to fluctuate. </p> </li> <li> <p>Tether, the first stablecoin in the world and the third-largest cryptocurrency by market cap, is a well-liked virtual currency that is widely used as a medium of trade.</p> </li> <li> <p>USDT is a very accessible cryptocurrency that can be found on the majority of crypto exchanges.</p> </li> <li> <p>Within minutes, users may purchase and trade this coin, paying minimal transaction fees when sending Tether (USDT) between wallets.</p> </li>
<p>The openness of Tether and the validity of the amount of backing in its reserves are also issues that many people in the crypto world are concerned about.</p> </li> <li> <p>There are suspicions that Tether's real goal is to keep the price of Bitcoin high, which might lead to charges of market manipulation.</p> </li>
How to use Tether tokens
In return for the matching token value, you can convert your country’s native currency into Tether’s reserves. You may, for instance, swap $5 for $5 worth of USDT.
The cryptocurrency is ‘burned’ and removed from circulation when users trade Tether tokens for fiat money.
Additionally, you may exchange or convert your USDT back to your home currency. The fiat currency to which it is linked will determine how much it is worth.
Users may use the coin for peer-to-peer transactions across blockchains like BTC, ETH, and Tron (TRX), and they can buy Tether, sell, and trade it just like any other cryptocurrency. One of Tether's main uses is to operate as a reliable store of value across investments without having to switch to fiat currency.
Tether Tokens Compared to Other Stablecoins
When on the lookout for a reliable stablecoin, consider the following peculiarities of Tether and other popular cryptocurrencies pegged to US Dollar. Let us compare it with other stablecoins side by side.
USDT vs USDС (USD Coin)
The top stablecoin is now being contested by USDT and USDC, two different assets. There are some significant distinctions between the two, despite the fact that both seek to offer a stable cryptocurrency that is tied to the US dollar.
Tether, a business that also owns the well-known cryptocurrency exchange Bitfinex, is the corporation that issues USDT. Circle, a provider of financial services with Goldman Sachs backing, is the issuer of USDC. One significant distinction between the two stablecoins is that USDC is guaranteed by fiat currency deposits held in regulated institutions, whereas USDT is backed by actual monetary assets. This indicates that while USDC should be more stable generally, USDT is more vulnerable to changes in the value of actual assets.
Tether (USDT) is more widely used for trading and payments than USDC, which is famous for its security and higher adherence to regulatory requirements. This increases USDT's usability for a larger spectrum of users. In the end, both stablecoins offer advantages and disadvantages, but USDT continues to be the most often used option for individuals seeking a stable cryptocurrency.
USDT vs BUSD
The native cryptocurrency of the parallel blockchain to the Binance Chain, the Binance Smart Chain, is BUSD. Users may create decentralised apps (dApps), create their own coins, and employ smart contracts by utilising this network.
BUSD is destroyed (burned) following each transaction. BUSD becomes a deflationary currency as a result of the reduction in supply. 100 million BUSD can be purchased in total. 50 million tokens have been printed and are now in use. As further transactions are completed on the Binance Smart Chain, the remaining 50 million tokens will gradually be created.
BUSD is fully backed by US dollars in FDIC-insured US institutions. On Binance and other crypto exchanges like Paxos, BUSD may be purchased. It is also readily available on Changelly. Unlike BUSD, which is backed by an asset, Tether (USDT) is more frequently used and has been around longer. BUSD gives investors the steadiness that comes with being backed by an asset, even if it may be more volatile than USDT because it is young and cannot boast such a vast availability.
Is Tether a good investment?
If you need a cryptocurrency to make money on, Tether (USDT) is not suitable, just like any stablecoin. Tether price will stay around $1 in any time frame, so you are not likely to make profit neither in the short, nor in the long term.
Is Tether crypto safe?
Tether crypto is considered relatively safe, but it has faced controversies and concerns about its transparency and backing.
Can I make money on Tether (USDT)?
While it makes no sense to buy Tether as an investment, and it is not efficient as a trading asset, it can be used to make some humble profit. You can stake it on lending sites and earn interest on your tokens.
Can Tether (USDT) lose its value?
Theoretically, it can lose its value if Tether coins are no longer backed by fiat currency (real USD). So far, there are no conditions to assume that it might happen. Besides, its market cap is bigger than what other stablecoins have, meaning this is the number one choice among crypto users.
Does Tether have a future?
So far, Tether is considered to be a safe stablecoin and its issuer claims that 100% USDT assets are backed by real US Dollar reserves. This coin has all chances to survive crypto winter and adverse economic conditions.
Which is better: Tether or Bitcoin?
It depends on your purposes. If you need to use a cryptocurrency as a store of value, Tether will be a nice option because it is not prone to fluctuations. If you want to invest or trade, Bitcoin is a better solution since its price can change by 1-5% per day.
*DISCLAIMER: None of the authors, contributors, administrators, or editors connected to OWNR Wallet encourage readers to invest in Litecoin or Ethereum without doing proper research on their own. This article is purely for educational purposes only.