What is Tether?

No form of money is going to be completely stable. Even the likes of the Euro and the US Dollar will have changing purchasing power over time and will be effected by the likes of inflation. However, because these changes are usually not significant in the grand scheme of things, it is able to be used day to day as a means of exchange.

Cryptocurrencies do not have this luxury. They have more extreme fluctuations on a day to day basis which means that it is not going to be as practical as a means of exchange.

Volatility is much more significant in the cryptocurrency space and is usually seen as being a more speculative asset class. Initially, the infamy that Bitcoin received from being the main medium of exchange for the Silk Road marketplace (a dark web marketplace for illegal goods and services) led to people thinking that all cryptocurrencies aim to be used as a currency.

Naturally, this is not nearly the case. It was in 2017 that the popularity of cryptocurrencies really took off. It entered the mainstream and everybody was talking about the massive volatility in the space.

Bitcoin went from under $1,000 to nearly $20,000 in less than twelve months. Many people saw it as a quick way of building wealth and it resulted in a bubble. However, when the bubble burst, the volatility worked the opposite way and prices dropped rapidly.

This is why volatility acts as a double edged sword. Nobody wants to use this as a medium of exchange if its value and change so rapidly from day to day.

If a cryptocurrency is to be adopted as a medium of exchange in the mainstream, this volatility needs to be reigned in. This is what Tether aims to do. It is known as a stablecoin. Its aim is to ensure that the purchasing power stays relatively consistent without much volatility.

This means that holders will be more likely to use these tokens rather than just storing them. It effectively acts as a cryptocurrency that has a fixed price and is linked to a fiat currency. For Tether, that fiat currency is the US dollar.

Stablecoins add more stability when trading goods and services. There are not as many concerns about price volatility leading to a loss of value in the deal. Tether allows for comparative value between fiat currencies and cryptocurrencies.

 

What exactly is Tether?

Tether is almost a combination of a fiat currency and a cryptocurrency. It has its value pegged to that of the US dollar. Tether Limited have issued this cryptocurrency asset and it works using the Omni protocol. All of these transactions will be part of a Bitcoin transaction record, both having an identical transaction hash.

Tether is currently the most popular coin using the Omni protocol as well as being the most popular stablecoin in the world. Some exchanges such as Poloniex and Bitfinex use it instead of the dollar. In basic terms for the issuance of each Tether, there will be the equivalent sum in dollars maintained as a reserve.

Its goal is to iron out a lot of the volatility seen in the cryptocurrency space and allow users access to using cryptocurrency in the same way they would as fiat currency.

The value is always aiming to be equivalent to $1. There is also a pegging to the Euro because the control the European Union has over the currency, as well as taking up a significant portion of the financial market in the world.

Benefits of using Tether

By using a stablecoin such as Tether, you will be making your cryptocurrency investments more stable, acting as somewhat of a backup fund. There is also widespread acceptance of Tether by many major platforms in the cryptocurrency space.

A lot of platforms were struggling to cater for the US dollar, but now they can provide access to loads of new markets thanks to Tether. The main benefit of Tether is that it allows for the transferring of fiat currency into digital cash.

This means you can gain the benefits of conducting transactions using the blockchain. It makes it very easy and quick for you to transfer fiat currency into cryptocurrency. It is also the preferred option when purchasing cheap coins when the market is dropping.

How does it work?

Tether Limited is based in Hong Kong and they utilize a one to one ratio in their operations. They keep fiat currency in their reserves. This is supposed to be equivalent to the total amount of Tether that is currently in circulation.

In order to make the process of dealing with both fiat currency and cryptocurrency, they utilize the Omni protocol. This is a flexible platform that caters for a variety of digital currencies and assets. Each Tether (USDT)  is $1 and at any time you are able to redeem it for fiat currency worth $1.

It offers increasing liquidity, as well as being a hedge for volatile markets. As they have a pegging to fiat currency, there should not be any volatility or dropping of its value.

This is why it is not as risky as normal cryptocurrencies. It also eliminates the need to constantly be converting crypto into fiat currency, which is a lengthy and often costly process.

Instead, when the markets are dropping, an investor can put their assets into Tether without having to experience any significant losses or convert the digital currencies back into fiat.

Potential concerns

Tether has been struggling to hold down a solid relationship with a bank since they started in this space. Through recent concerns over Tether’s banking, there was some variance in the price away from the 1:1 ratio.

In some cases, this was up to 5% volatility. This led to a lot of turmoil in the markets. This is why people are currently careful when using Tether for long term holdings.