Tether is a digital currency that appeared on the market in 2015 and is now one of the best-known representatives of this type. The main difference to classic crypto currencies such as Bitcoin: The tether tokens (USDT) are linked to a real equivalent. Tether is designed to make it easy to convert cash into digital currencies. Users can buy and sell the digital coins and use them for transactions of stable value across multiple platforms.
- Tether is a digital means of payment that is one of the so-called stable coins.
- Tether Limited – the company behind the currency – promises to deposit one US dollar for every USDT token.
- Trading with Tether works both directly through Tether Limited and through various online exchanges.
What are stable coins?
Basically Stable Coins are (often “Stablecoins” written) crypto currencies in which the minimization is to price fluctuations in the foreground. The high volatility is considered to be one of the biggest problems facing digital currencies. The value of a Bitcoin rose from $ 1,000 to just under $ 20,000 in 2017, but fell to well below $ 5,000 by the end of 2018. So that the exchange rate fluctuations of the stable coins are as low as possible, their value is linked to an underlying good. This can be, for example:
- a currency such as the US dollar or the euro
- a commodity such as gold
- another cryptocurrency, for example Ethereum
Tether is backed by traditional currencies
The first and most widespread form of stable coins are the cryptocurrencies supported by fiat money. Fiat money are objects of no value of their own that function as a medium of exchange – just like bank notes or coins. Tether also belongs to this category of cryptocurrencies. Such cryptocurrencies enable investors to exchange their portfolio of digital currencies for cash if necessary. Stable coins function on the one hand as a store of value and on the other hand as a unit of account. The following list summarizes the most important features of currency-based stable coins:
- The value is linked to one or more fiat currencies(usually the US dollar) in a certain ratio .
- The currency deposited as security is stored in accounts of external financial institutions.
- The amount spent must correspond to the supply of stable coins circulating on the market .
- A central authority or organization manages the material assets.
The main advantage of stable coins like Tether is the stabilization of the price through assets outside the market for cryptocurrencies. The underlying assets therefore do not correlate with one another. Centralized administration, on the other hand, is considered to be the most significant disadvantage, as many users value cryptographic currencies primarily because of their decentralization.
How exactly does Tether work?
Tether is originally based on the blockchain technology developed by Bitcoin – i.e. on a continuously updated and linked list of data records. In the meantime, however, the company is using the Litecoin blockchain due to the higher speed of transaction processing. The USDT token is linked to the dollar. There is now an alternative version, the EURT, which is based on the European currency.
In both cases, the so-called omni protocol is responsible for creating and destroying the coins. To do this, the open source software connects to the blockchain and stores the transaction data there. This makes the entire process transparent . According to Tether Limited, each token is covered in a 1: 1 ratio with the US dollar or euro. Through its bank, the company ensures that, for example, one USDT is issued for every US dollar deposited. A later exchange for fiat money is possible both at Tether Limited and on various exchanges for digital currencies – so-called online exchanges.
If you want to buy and use USDT or EURT, you need an e-wallet . This is a kind of digital wallet that is used to store the coins. So the first step is to create an account with a relevant provider. There is a wide range of different online platforms. The most famous marketplaces include:
After creating an account, you can start trading with Tether. The online exchanges usually charge a small fee for each transaction for providing the platform. The exact conditions differ from provider to provider, which is why it makes sense to compare them beforehand.
For the price stability of the Tether course, trust in Tether Limited is of enormous importance. To prove that for every USDT token there is a US dollar held in reserve, the company hired the law firm FSS. This proved the congruence of bank balances and existing tether coins on the basis of random samples. However, the corresponding report is criticized from some quarters. For example, the audit was not subject to United States general accounting standards. This has in no way harmed Tether’s course. The exchange rate fluctuations have so far been extremely small.