You’re comfortable with Bitcoin, Ethereum, and Ripple by now. You know the difference between transactional, platform, and utility and tokens. So, what’s all this talk about Tether? Tether (USDT) is a cryptocurrency that’s value mirrors that of the US dollar. This price parity places Tether in a new category all of its own called “Stable Coins” – ones that aren’t subject to high volatility.
Hop over to the website and they claim to convert cash into digital currency. They tether the value to not only to the US dollar, but to the price of other national currencies, like the Euro, Pound, and Yen.
Backed Up By USD
Just like your regular digital currency, Tether relies on the blockchain. Unlike all other cryptos, it claims to be “100% backed up by USD.” This basically means that for as many tokens exist, so do dollar bills. This allows it to enjoy a 1:1 parity.
So, if cryptocurrency inflation can be regulated by currencies like Tether, why would anyone subject themselves to the volatility and uncertainty of other cryptos? Because Tether isn’t without its problems. This cryptocurrency could open up a can of worms in an ecosystem in which currencies are decentralized and untethered.
The Problem with Tether
The fact that Tether is linked to the US dollar is concerning for many in the crypto world. They rely on its decentralized nature. In some ways, the crypto economy has now been tied (tethered) to a centralized dollar substitute.
Moreover, Bitfinex (the leading crypto exchange platform) also runs Tether. This is also counter to crypto philosophy.
If all of this sounds just a little bit sketchy, that’s because it might be. There is building speculation over the truth in the guarantee that the digital currency can be redeemed for USD and other fiat currencies at any time (“no matter what”). And also whether Tether really has the dollar bills to backup all its coins.
Although Tether uses the blockchain technology, it is no longer a decantazlied currency, or distributed smart contract, because it is run by a company. At the same time, Bitfinex is also not a a peer-to-peer, decentralized exchange, but a company. This is completely counter to the original goal of Bitcoin.
Bitfinex has been accused of not having the same reserves of dollar bills as they have Tether tokens. And the fact that the exchange platform has been increasing their supplies in the last few months could be problematic. If this turns out to be true, there could be a crash in the market like never seen before, and has already resulted in a massive pullback in crypto in February.
Moreover, because people are treating Tether as the digital dollar, and buying other cryptocurrencies with it, that may have lead to the value of Bitcoin and other cryptos ballooning at the end of last year.
There’s always two side to every crypto coin. If you can get past the recent headlines and the other existing problems with Tether, it does offer some much needed stability to the crypto world. This alone could cause more investors to climb on board. Its steady value makes transactions easier to carry out. And its ability to be used to trade in most cryptos at the major exchanges is also very useful.
Despite the possible issues on the horizon which may or may not come to light, the currency has worked out quite well so far, being listed as one of the top 20 coins of early 2018. In an insecure landscape, it’s actually quite nice to have a coin that’s stable and not subject to such ravaging highs and lows.