Tether (USDT) – All you need to know

Quick definition

Tether (USDT) is a stablecoin: a cryptocurrency tied to the value of an asset – in this case, the United States Dollar. 

Key details

  • Tether is designed as a means of converting cash into cryptocurrency.
  • It is backed by the value of the US Dollar and loans to affiliate companies, making it a hybrid stablecoin.
  • This means the value of 1 USDT remains close to $1 at all times. 

What is Tether?

Tether is a cryptocurrency that is anchored to the value of the US Dollar. The project was originally called Realcoin when it launched in 2014, before rebranding as Tether later that year. The company that operates Tether also offers a stablecoin pegged to the value of the Euro.

It is now one of the world’s most valuable cryptocurrencies by market capitalisation, describing itself as ‘digital money for a digital age.’ Tether issues tokens on the following blockchains: Bitcoin (Omni and Liquid Protocol), Ethereum, EOS, Tron, Algorand, SLP and OMG.

Many exchanges – such as Binance, CoinSpot, BitFinex, and Kraken – offer Tether as a tradeable asset, and it is a popular intermediary between fiat money and other cryptocurrency projects. In addition, it is a digital store of value that can hedge against inflation. 

The key use case of Tether is everyday transactions, and its suitability for this purpose is what sets it apart from other more volatile cryptos like Bitcoin and Ethereum. Because Tether doesn’t experience rapid and sizeable price fluctuations, it can be used to pay for a meal, groceries, or any other practical application. It is truly utilitarian in nature. 

Tether is created by locking away loans from the economy and allowing them to take a digital, encrypted form. Tokens are not mined, and Tether owns, mints and manages the entire supply of USDT, which has led to question marks around its level of decentralisation. However, Tether remains a stable and eminently usable cryptocurrency.

Buying Tether and storing it in a wallet is quick and easy; check out our guide to find out how to do it. 

A brief history of Tether

Tether is one of the oldest cryptocurrencies around, and below, we have outlined its history up to the present day. 

  • Tether finds its origins in a whitepaper penned by J.R. Willet in January 2012, which described new currencies running on top of the Bitcoin Protocol.
  • Tether’s precursor, Realcoin, was announced in July 2014 as a Californian startup operated by Brock Pierce, Reeve Collins, and Craig Sellars.
  • By January 2015, major crypto exchange Bitfinex had begun offering Tether on its platform as a tradeable asset.
  • Tether originally used Taiwanese banks to process US dollar transactions, but on 18th April 2017, Wells Fargo blocked these transactions, and an unsuccessful lawsuit against the banking giant followed. 
  • Several controversies have occurred in recent years, such as allegations by U.S. federal prosecutors that Tether was used to manipulate the price of Bitcoin, and in 2021, AG James claimed that Tether had lied about its reserves and covered up losses.
  • However, Tether remains a popular and valuable cryptocurrency that is used by millions of people all around the world. 

How does Tether work?

Tether ties itself to the value of the USD and loans to affiliate companies by holding reserves of fiat currency equivalent in value to the Tether in circulation. Because this currency is locked away from the economy, Tether is free to allocate its value to the digitally-available USDT. This means that users can easily transfer real cash into digital cash.

The company is a trusted third-party holder of this money and is able to achieve this by capitalising on the security advantages of encryption via cryptocurrency. Moreover, the complexity that could arise from having to audit both fiat and digital currencies is reduced by Tether’s simple process of implementation that is enabled by something called the Omni protocol.

Through this combination of simple processes, Tether is able to perform as a strong and trustworthy digital stablecoin, though there are question marks against its claims of decentralisation. This is because one company (Tether) owns, mints, and manages the entire USDT supply, meaning it isn’t democratic or entirely transparent.

Sources & references
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