Everything you need to know about Tether, the blockchain bridge between digital currencies and fiat.
Tether aims to provide 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 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.
- There is no concrete evidence of Tether Limited being able to support the value of USDT currently in circulation.
- There is no concrete evidence of Tether Limited not being able to support the value of USDT currently in circulation.
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 may be somewhat protected from the volatility of other cryptocurrencies. Some major features of Tether include:
- Stability. Because Tethers are backed by a store of real-world currency, it claims that users can have 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 is 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 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.
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.
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.
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. Given that Tether claims to be backed by fiat reserves, this led some to question where that funding came from.
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