Understanding and breaking down all the different types of crypto can feel like a huge task—there are so many variations of each coin. To make things easier, we’re going to break down one main form of crypto, Tether. Tether has a lot of benefits, but there are also some important facts you should be aware of. This article will explain what you need to know about the popular stablecoin known as USDT.
What is Tether?
Tether is a stablecoin pegged to the US Dollar and it’s said to mirror the dollar with a 1:1 ratio. This means that 1 USDT is equal to 1 USD. Before we go down the Tether “rabbit hole,” we need to break down the definition of a stablecoin.
In the simplest terms, a stablecoin is a cryptocurrency that ties (or tethers) its market value to another currency or asset, such as gold, oil, or in this case, the US Dollar.
You can think of Tether as a cross between a cryptocurrency and a fiat currency. The reason stablecoins peg themselves to other commodities is to ensure price stability and to maintain their value. Tether and their owner, Tether Limited, run the currency through blockchain technology, yet they are stable like the dollar.
Another way to wrap your head around Tether is by thinking about balloons. Imagine a balloon is tethered to someone. While the balloon is free to float around, its limitations are based on the moving person. Now, imagine that the balloon is USDT and the person is the dollar. The person or dollar is stable, and it’s not moving very much. This means the balloon or USDT is also not moving around either. However, the balloon is still free to make some movements while being tied to the person.
Why is Tether Used?
USDT is often used to avoid price jumps and volatilities associated with crypto—we’ll touch on this. In fact, many crypto investors find that Tether is a good alternative to Bitcoin since it is less volatile, but it’s still considered a cryptocurrency. Other crypto traders use USDT because it’s easier and cheaper to transfer Bitcoin into Tether than the dollar. With USDT, there are also little to no transaction costs and fewer trade delays.
Advantages and disadvantages of Tether
Since USDT and stablecoins are unique forms of currency, it’s important to understand the advantages and disadvantages before buying them.
Advantages of Tether:
- Borderless: Like with all cryptos, you can send and receive USDT anywhere. This crypto doesn’t follow any borders, making transactions seamless and quick compared to the dollar.
- Stability: USDT is always trying to maintain its value to one dollar. This makes it less volatile and more stable than cryptocurrency.
- Protection: Since USDT is a cryptocurrency yet is valued like a fiat currency, traders can easily convert their crypto balance into USDT and back again. Some traders convert to USDT to protect their non-stablecoin crypto against a high influx in prices. Then when the cost of crypto stabilizes, traders will convert their USDT back.
- Liquidity: USDT is said to have a high rate of liquidity, unlike its fiat currency counterpart. However, it’s worth mentioning that there have been some transparency issues associated with Tether Limited and its reserves. Tether Limited is the company that created Tether, and they have yet to complete an audit at the time of writing. Furthermore, Tether is not held to the same supervisory standards as traditional banks are. The lack of transparency and supervision means that Tether’s liquidity and its ability to be issued could be questionable.
Disadvantages of Tether:
- Anonymity: A known issue with USDT is its lack of anonymity. To issue or redeem USDT from Tether Limited, you must input your personal info, such as your banking info. This means the company will have access to your personal data. Alternatively, you can buy USDT from the exchange site. However, these exchanges often have a process called KYC (know your customer), where users must verify their identity to buy crypto.
- Decentralized: Tether Limited owns and controls USDT. This means the coin is not decentralized, and it even depends on the company to function. This has been an issue for some crypto investors that prefer their crypto to be completely free of influence.
- Transparency: Despite USDT being owned by one company, there has been a lack of clarity about how the company operates. Also, Tether Limited has yet to complete a full and public audit. Due to their lack of transparency, it’s hard to ensure that USDT maintains a 1:1 ratio with the dollar. Tether Limited also does not 100% guarantee that its crypto is the same value as the dollar.
Now that we’ve explained all the basics of Tether let’s go into how to buy it.
How to buy Tether
Buying USDT is easy to do on popular crypto exchanges, such as Paxful. Or you can buy it from Tether limited.
Here is the process to buy USDT from Tether Limited:
- Deposit the amount of money you’d like to spend in a Tether Limited bank account.
- Tether will generate and credit the specified amount of USDT to a user’s account.
- If you want to exchange your USDT for another currency, you can deposit your tokens into a Tether Limited account.
- Then, Tether Limited will destroy the tokens and will send you the converted currency.
Tether is growing fast. With plans to make a Japanese and British version of USDT, this coin is evolving rapidly. When exploring your crypto options keep in mind that the crypto world is always changing. It’s always a good idea to stay up-to-date with the latest news. Lastly, remember to do your research before making any final plans.
*The content of this article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.