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What is Tether?

USDT

Tether is a stablecoin that is also a cryptocurrency. What distinguishes this cryptocurrency from others, such as bitcoin or ethereum, is that its mission is to replicate the price of…

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What is Tether?

Tether is a stablecoin that is also a cryptocurrency. What distinguishes this cryptocurrency from others, such as bitcoin or ethereum, is that its mission is to replicate the price of a dollar, meaning that one USDT, in theory, will always correspond to one dollar. It is therefore a digital currency designed for mass use. As such, it lacks volatility, but rather has the same volatility as the US dollar.

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Tether – what is it and how does it work?

As for how this crypto works, we must point out that the company behind it is known as Tether, and the token is known as USDT. Roughly speaking, USDT uses an algorithm to make the price of each of these tokens the same as the price of a dollar. That is, if we bought $1,000 in USDT, it would always have the same value as $1,000. With all this in mind, it should also be added that the algorithm used is the same as for bitcoin. Although we must make it clear that this digital currency is very different from the rest of crypto.

As a stablecoin, it is not mined. More coins are simply created, and their price varies according to the US dollar. It is worth mentioning that the USDT cryptocurrency carries the same risks and fluctuations in the exchange rate as the USD. Tether will not protect you from inflation.

Nevertheless, the main attraction of USDT is its utility. In practice, it is one of the most widely used currencies, sometimes even surpassing bitcoin in interest. The reason is that it has the advantages of being a cryptocurrency and equivalent to the dollar. For example, if we want to invest in crypto, but don’t want to have all our capital invested, or are waiting for a better market moment, it might be a good idea to have a certain amount of USDT in our wallet so that when the right moment comes, we can buy cryptocurrencies much faster, since we will be with our capital already inside the exchange.

Tether is also used for international transfers. With the current monetary system, the transfer processing time exceeds 4 days, and sometimes even a week. In addition, the commissions for this operation are high. However, with Tether we can transfer the same amount, but within minutes and almost without commissions. This is the attraction of crypto. It is also more accessible to those who want exposure to the dollar price. For example, in the case of a country that suffers from high inflation or hyperinflation, as in the case of Argentina, having dollars is always something valuable. However, sometimes it is more complicated. With USDT, opening to the USD is much simpler.

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Tether’s disadvantages

However, it should also be noted that this is a currency that has been growing in controversy since its inception. Problems have been detected in its audits, problems during the verification of accounts, individuals and organizations that have used this platform for obfuscation, and other types of legal violations that have always raised doubts about the proper accounting of Tether.

From an investor’s point of view – Tether would not be an asset to consider, because as such it will not be revalued. It will fluctuate in the same way as the US dollar.

The idea behind tools like Tether is that users of the ecosystem can avoid the price volatility of other cryptocurrencies, such as bitcoin or ethereum, whose value can change in a matter of minutes. However, this does not mean that its price cannot fluctuate.

Currently, Tether connects to various blockchains, including the bitcoin, Ethereum and Tron sidechains. Likewise, it has experienced an increase in trading volume in recent years, playing an important role as a cryptocurrency exchangeable for bitcoin and other crypto.

How was USDT created?

  • Tether’s history dates back to one of the first stablecoin initiatives built on the Bitcoin blockchain. This initiative was known as Mastercoin. In mid-2013, investor Block Pierce and programmer Craig Sellars were working behind the scenes to develop a protocol that would interact with Bitcoin.

  • Mastercoin was the name of a project that contemplated hosting stocenized representations of the dollar and gold. The idea was to expand Bitcoin’s financial capabilities by integrating a side-chain that would allow it to generate new products and assets without undermining the adoption of the parent cryptocurrency.

  • As the years passed and new entrepreneurs joined the project, the first steps were taken in 2014 towards the creation of Tether on Bitcoin’s sidechain, Omni Layer. In addition to a token representing the dollar, one for the euro and one for the yen were minted.

  • The founding goal of Tether was to offer a solution to two problems facing the cryptocurrency market at the time: high price volatility of major crypto assets and low convertibility of fiat currencies.

  • The idea was to make it a token with a stable price and easy access, features that subsequently popularized USDT over other market proposals. To this day, almost every cryptocurrency user has knowledge of USDT, as well as being aware of the legal turmoil that has arisen around it.
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Łukasz Michałek
Łukasz Michałek
Founder of the rapidly developing cryptocurrency channel "Biblia Kryptowalut" on YouTube. He also co-creates the Arena Trading group with Marek. Łukasz is fascinated and passionate about blockchain technology and cryptocurrencies, which constitute the central element of his activity in the cryptocurrency industry.
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