What is Tether USDT? All you need to know
- 1 What is Tether (USDT)?
- 2 How Does Tether (USDT) Work?
- 3 What Makes Tether (USDT) So Important
- 4 Why should you buy USDT?
- 5 How to buy USDT
- 6 How to store USDT
- 7 What can you do with USDT after purchasing it?
- 8 USDC vs USDT — What Are the Differences and Similarities?
- 9 Tether USDT controversy
USDT (United States Dollar Tether) is a token de criptomoeda issued in various protocols blockchain. Is stablecoin, i.e. a type of cryptocurrency designed to maintain a stable or unchanged market cap like the asset to which it is pegged.
In the case of USDT, its market value is linked to the US dollar. Others stablecoins, such as EURT (Euro-pegged) and CNHT (Chinese Yuan-pegged), are also designed to maintain stable price assessments.
Popular cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH), are constantly exposed to large oscillations observed in their market prices. Unlike these, the purpose of USDT is to maintain a stable valuation, which allows it to be used as a secure mode of storage and a stable medium of exchange, rather than being a speculative form of investment.
What is Tether (USDT)?
Tether (used interchangeably with USDT) was first launched in 2014 by Tether Limited, a company that operates and issues blockchain-based assets.
All assets issued by the company are linked to the market price of traditional currencies.
Since its launch, Tether USDT has become the most used stablecoin in the world and continues to grow in popularity. He achieved this despite some controversy that surrounded him in the early stages of the project.
Nowadays, Tether's popularity is mainly driven by its ability to provide liquidity and a hedge against market volatility, living up to its name as a tethered stablecoin.
How Does Tether (USDT) Work?
These available options allow more assets to be created on their native blockchains. In fact, the Ethereum blockchain currently holds the biggest market for USDT.
To better understand how USDT works, we must consider how it is created. Tether was originally issued on the Omni Layer Protocol.
The Omni Layer protocol is an open source, decentralized asset platform built on top of the Bitcoin blockchain.
This blockchain-based technology makes it possible for Tether Limited to mine and burn tokens in its custody based on the amount of fiat reserves (USD) that must match the supply of USDT.
In theory, each token has a corresponding US dollar stored as collateral in the company's reserves. According to Tether Limited, it is technically possible for the total number of tether tokens in circulation to be traceable and reported through the protocol.
However, this statement propagated one of the biggest criticisms about USDT, which is its unwillingness to undergo a thorough audit.
What Makes Tether (USDT) So Important
Basically, the main purpose of Tether is to provide a hedge against market volatility. If you are still new to the crypto world, you have probably learned that market volatility makes cryptocurrency trading a very risky adventure.
The simple way to explain volatility is to describe it as the extent to which an asset's price fluctuates over time. In other words, crypto assets are volatile because their prices tend to aggressively and unpredictably move up or down at any given time.
Why should you buy USDT?
1 Price stability
Price stability is the reverse of price volatility. Consequently, Tether is designed to provide price stability for investors and brokers, making it the best alternative to fiat. It eliminates risks, complications and pump and dump potential, often associated with other cryptocurrencies.
To clarify these risks, consider the following scenario between you as a merchant and a foreign customer:
- The customer sends you 1 BTC worth $ 18.000 in exchange for goods.
- Upon receipt, the price of BTC shockingly drops within the next hour by 10%.
- You are perplexed due to the unstable price of BTC.
As Tether allows the transfer of real money to digital money, a USDT payment ensures that you get almost the exact fiat value of your cryptocurrency without suffering any loss.
2 Extra-fast transaction time
Using Tether makes business transactions faster. It eliminates the long length of time it takes to complete a transaction using fiat USD.
Traditionally, it takes 1-4 business days to complete a US dollar transaction using most banking systems. On the other hand, USDT transactions are completed in a matter of minutes.
3 Very attractive transaction fee
Tether transactions involve minimal fees. Transferring USDT is much cheaper than employing transfers from Society for Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT charges more than $20 to $30.
You also risk paying extra fees if you use a fiat currency not supported by SWIFT. This includes conversion fees and paying a certain percentage on transfers.
4 Security and Transparency
The Tether platform is built on top of blockchain technology. Globally, financial bodies recognize blockchain to provide one of the most secure and transparent data technologies that can be trusted while meeting international compliance standards and regulations.
How to buy USDT
You can buy USDT on an exchange with your own credit card or using other cryptocurrencies on an exchange that can be view here.
How to store USDT
You need a USDT wallet to keep your assets safe. So what is a USDT wallet? Simply put, a USDT or tether wallet is a secure digital tool that allows you to interact with your assets (this includes storing, reading price balance, and sending).
There are different types of wallets available for use. Some of these wallets are software applications that can be downloaded for mobile use. Some are web-based and we currently have hardware wallets. See our guide to cryptocurrency wallets here.
The most commonly used mobile-based wallets come with a unique public address that you can use to receive funds from third parties. A popular Ethereum-based USDT address (ERC-20) starts with “Ox…”.
Like a traditional bank account number, this address identifies you as the owner and recipient of the funds. These wallets also provide a personal Private Key to access and spend your USDT funds.
NOTE: It is a prerequisite that you provide your USDT address to buy USDT on an exchange.
NOTICE: Once your funds are transferred to your USDT wallet, you must protect your private key to prevent your funds from being stolen. Anyone with the private key can transfer or spend their tether funds.
What can you do with USDT after purchasing it?
There are many things you can do with USDT. These include;
1. Hodl or store it in the crypto wallet.
You can just decide do Buy and Hold, in the wallet and wait for the right opportunity to exchange it. It is important to understand how each strategy works in order to choose the one that best fits your profile. Buy and Hold, or simply HODL, is a long-term oriented investment strategy, usually more than a year. In this case, the investor does not need to know technical analysis, nor does he need to have time to follow the market, as in other strategies.
2. Send or transfer USDT tokens
You can easily send or transfer your tether tokens anywhere in the world. It's a quick and inexpensive way to move money.
3. Spend or buy stuff with Tether
Many companies now accept Tether as a viable and reliable payment option, especially as it is pegged to the US Dollar.
4. Trade USDT for fiat or other crypto assets
You can easily convert USDT to real money. Also, you can convert Tether tokens to any other cryptocurrency.
5. Donate USDT tokens
Many charitable organizations around the world accept Tether as donations. As a stablecoin, USDT allows you to see the exact fiat equivalent amount you want to donate, without the hassle of exchange fees, especially if you are donating to an international organization.
USDC vs USDT — What Are the Differences and Similarities?
USDC or USD Coin is another type of US dollar-indexed stablecoin similar to USDT.
It has the same characteristics and can serve as an alternative to USDT.
The two projects share many things in common. The most notable denominator among them is that both are stablecoins. In addition, they also share some other similar values which include:
- Both are controlled by a central issuing company that regulates and maintains custody of their circulation. While Tether Limited is responsible for issuing USDT, USDC is held by Circle Limited and Coinbase.
- Like USDT, USDC can be purchased with a credit card or traded with Bitcoin, Ethereum and other cryptocurrencies.
- The main ledger on which they are issued is the Ethereum-based (ERC-20) blockchain. Both are also available on several other platforms.
Tether USDT controversy
Serious questions have been raised in the crypto community about the legitimacy of Tether tokens. Tether Limited stated that its more than 19,7 billion tokens currently in circulation are 100% guaranteed by Tether's dollar cash reserves.
In essence, the company stated that each USDT in circulation is guaranteed 1:1 by one dollar or cash equivalent in reserve.
However, many critics lamented Tether's inability or unwillingness to verify this claim. Here's why.
In November 2017, Tether Limited allegedly announced that a hacker embezzled nearly $31 million worth of Tether from its treasury wallet.
A few months later, the company's required audit to ensure the proper sum of real-world assets in the reserves never took place. Instead, he parted ways with the auditing firm. Tether also declined to reveal his banking relationship with Deltec Bank in the Bahamas.
In October 2018, Tether Limited announced in a letter that it had approximately $1,8 billion in reserves with Deltec Bank.
These funds would supposedly be enough to cover all of the Tethers in circulation at that time. Even so, the company refused to undergo a formal audit by a reputable company.
In April 2019, Tether Limited's parent company and owner of Bitfinex Exchange, iFinex Inc, was accused of hiding an $850 million loss in corporate funds from its investors and customers. The lawsuits revealed that Bitfinex allegedly took around $700 million from Tether cash reserves, linked to Crypto Capital.
The controversy surrounding Bitfinex and some other related stories, including Tether's inability to conduct the necessary account audits, is particularly worrying. Do your own research and always exercise caution when transacting with any cryptographic.
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