What Is Tether (USDT)?
Tether is a cryptocurrency built on top of the Bitcoin blockchain. It is pegged to the value of other fiat currencies, like USD. They sell themselves as “100% backed” by fiat because every USDT unit is supposedly equivalent to $1.
It is meant to function as a stable medium for transactions across currencies when customers are not trading with fiat currencies directly, so it is pegged 1:1 to the US dollar.
Tether can be sent and received with an address like any other cryptocurrency, but unlike most cryptocurrencies tether is not divisible. The smallest unit of Tether is 1 USDT.
How Does Tether (USDT) Work?
Tether, like all cryptocurrencies, runs on blockchain technology. It operates using the Omni Layer protocol. All transactions are recorded on the Tether blockchain, stored in Tether’s database.
It works much like Bitcoin. Anyone can make transactions with the cryptocurrency using it to pay for goods or services in which they are accepted.
Where to Buy Tether in the US
Tether can be bought on most cryptocurrency exchanges, including Binanace, CoinSpot, BitFinex, Kraken and Bittrex.
However, Tether is only available to buy with Bitcoin, Ethereum, and USD and cannot be bought directly with USD. Instead, you must first purchase Bitcoin or Ethereum and then use that to purchase tether.
Pros and Cons of Investing in Tether (USDT)
Tether is intended to help people transact without having to go through fiat currencies. For example, if someone wants to send money to another person they can do so by sending Tethers.
Tether has the same functionality as most cryptocurrencies, allowing for anonymous transactions with no interference from any third party.
Tether has been around since 2014 and it is one of the older cryptocurrencies on the market. It has been shown to have a fairly stable value and it is trusted by some exchange platforms that offer trading with Tether as an option.
- Tether (USDT) is known to be stable and reliable, trading at around $1 per unit for most of its existence
- The cryptocurrency community trusts Tether, leading it to be among the most stable cryptocurrencies in value
- It has been around for a while, giving it an established history of reliability and trust. This can go some way towards reassuring people that the cryptocurrency is legitimate
- Tether (USDT) is widely available on major exchanges which makes it easy to buy or sell when necessary
- Tether has not made much effort to make its inner workings transparent or accountable to the public. This is concerning for many people who hold Tether units because it makes them unsure about how secure their investment is
- There are accusations that USDT has been used to manipulate the price of Bitcoin, or that it has been used to launder money for criminal activities
- Tether (USDT) is not divisible, which limits its functionality
History and Controversies of Tether (USDT)
Tether first launched in 2014 mainly as a way to provide users with an alternative payment method. It was originally available on the Bitcoin blockchain, but it was later moved onto the Omni Layer protocol which is built on top of Bitcoin’s blockchain.
One controversy surrounding Tether (USDT) is that it has been used by criminals to launder money. There are accusations that USDT has been used for this purpose because it is so easy to exchange Tether units with US dollars, making it difficult to track whether Tethers have actually been exchanged for fiat currencies
Another controversy involves Bitfinex, one of the exchanges where Tether (USDT) is traded. Many suspect that Tether (USDT) has been used to manipulate the price of Bitcoin on Bitfinex. Allegations like this are not uncommon in the cryptocurrency world, but Tether’s lack of transparency makes it hard for anyone to verify these claims
Is Tether a Good Investment?
Tether (USDT) is often referred to as a stable, reliable cryptocurrency, but the lack of transparency about its inner workings makes it difficult for people to trust Tether completely.
Tether is used as a way to transact without having to go through fiat currency which is helpful for some users.
However, Tether’s price cannot be easily checked and many people suspect that USDT has been used for illegal activities, which is a major cause for concern.
If Tether collapses or shuts down then all of the Tethers will become completely worthless because they are not backed by anything other than the trust people have in the cryptocurrency.
For this reason, it is possible that if Tether ceases to exist, it might take other cryptocurrencies with it because people will no longer trust them.
The Future of Tether (USDT) and What Happens if They Collapse
Tether (USDT) has the potential to become more widely accepted in online transactions. It could also become more popular with traders on cryptocurrency exchanges.
However, Tether has some challenges to overcome if it is going to be widely accepted as a viable crypto project, including making its inner workings more transparent and accountable to the public.
If Tether fails or is shut down for whatever reason, all USDT units would become useless, because there would be no way of redeeming them.
If Tether (USDT) fails or is shut down, another company or project could release their own version of the cryptocurrency, as there are some similar projects on the market already.
If this happens, USDT units could likely continue to work as they did before, because they would be the same type of cryptocurrency.
The Bottom Line
Tether (USDT) is a cryptocurrency that was created to provide alternative ways for people to transact online.
However, Tether has not made its inner workings transparent or accountable to the public which makes it difficult for users to trust Tether completely.
Due to how easy it is for users to exchange Tether units with USD, Tether has been accused of being used to launder money for criminal activities.
Tether also has had some controversy surrounding Bitfinex, which is one of the exchanges where Tether (USDT) is traded. Many suspect that Tether (USDT) has been used to manipulate the price of Bitcoin on this exchange.
If Tether (USDT) fails, all USDT units would become completely worthless because they are not backed by anything.
This is a risk to be aware of if you are considering investing in USDT. However, it is not the only cryptocurrency project which carries risks like this.
Investing in cryptocurrencies will always involve some risk, even though some investments are more or less risky than others.
Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.