Blockchain technology is gradually taking over the world; from about a decade ago, back when it was used as a ledger for verifying and recording transactions on the Bitcoin blockchain, it has been the standout innovation of the decade. It was created in 2009 by the ever-elusive Satoshi Nakamoto, a name widely believed to be a pseudonym for a brilliant computer scientist-cum-cryptographer or a group of such people whose identity remains unknown till date.
Satoshi wanted a new form of money, free from central authorities or a single administrator which could be sent on a decentralized, peer-to-peer network and would solve the double-spending problem of digital currency-this led to the birth of Bitcoin.
Then came Ethereum, and with that came increased performance. More importantly, Ethereum introduced smart contracts functionality and a platform for building and deploying decentralized applications (commonly known as dApps), allowing us to improve process workflow by automating a lot of processes which were naturally tedious and time-consuming.
However, blockchain technology has developed at a mind-blowing pace, and has since undergone massive adoption in a lot of industries. The financial services industry – home to payment processing companies, banks, trading exchanges, insurance providers – and the cryptocurrency space have been the most massively-disrupted, with there currently being well over two thousand cryptocurrencies listed on CoinMarketCap (2079, as of the time of writing).
Cryptocurrencies are a form of digital currency with distributed ledger technology (or blockchain) as the underlying technology. They are being used on the new Internet – the Web 3.0, that is – as a transfer of value and a medium of exchange for products and services. Believed to be the future of money (at least by most people, not counting the ones who’ve outright labelled it a scam), they’ve opened up a new world of possibilities for us.
Imagine being able to conduct cross-border transactions at almost zero charge with a high level of security, and the transaction gets verified almost instantly. Sounds futuristic, right? Not anymore-maybe back in 2009, though. The most amazing thing is that the above example is just one of the numerous applications of this groundbreaking innovation-blockchain technology truly is the future.
While cryptocurrencies are exciting, they still have a ways to go; evidenced in the large fluctuations and huge price swings experienced in the crypto market. especially over the year 2017. Volatility is still an issue, with the market still being largely unregulated.
Amid the volatility and price fluctuations, quite a number of cryptocurrencies stand to provide us with some relative stability. This level of stability is attained by pegging the value of these cryptocurrencies to a stable asset (such as gold or fiat currency). These cryptocurrencies are part of a group comprising of TrueUSD, DAI, Saga among others-with the most popular one being Tether.
Tether affords us the opportunity of exploring the immense possibilities of blockchain technology without having to worry about the aforementioned volatility. The price of Tether is ‘tethered’ (that is, pegged-now you get the name) to the US dollar. This means your funds in USD will still retain their valuation when you move them onto the Tether blockchain in a 1:1 ratio.
What is Tether?
Tether belongs to a class of cryptocurrencies (collectively known as stablecoins) backed by real-world assets. In the case of Tether, these are real-world fiat currency assets in USD, Euros and – soon – Japanese Yen in the reserve account. Tether has a one-to-one ratio with the underlying currency backing it. For instance, one US Dollar-Tether equals one U.S. Dollar.
Since it is fully backed by actual assets in the company’s reserve account, Tether maintains a relatively-high level of price stability and offers users protection – to a great extent – from the volatility of the cryptocurrency market. What this simply means is that if there are, for instance, a million dollars in Tether Limited’s reserve account backing the US Dollar-Tether, then there should only be approximately a million USDT in circulation.
Tether Limited is the company responsible for managing tethers, and it is mainly composed of employees of Bitfinex, one of the world’s largest crypto-fiat exchanges. Bitfinex also doubles as the major cryptocurrency exchange for USDT/USD trading pairs.
Tether is a token that exists on both the Bitcoin and Ethereum blockchain. While tokens are issued separately for either chain by Tether Limited, they can be spent interchangeably without any hassles (e.g., it is possible to spend USDT issued for the Ethereum blockchain on the Bitcoin blockchain). Although the US Dollar-Tether (USDT) is the only major Tether token currently in circulation, support for the Euro and the Japanese Yen will be implemented soon.
Businesses – including exchanges, wallets, payment processors, financial services and ATMs – can seamlessly integrate with Tether and use ‘tokenized’ real-world fiat currency on blockchains. Tether leverages the limitless possibilities of Blockchain technology and enables us to store, transfer and receive digital currency person-to-person, from anywhere in the world and for a fraction of the amount charged on similar platforms. Transactions on the Tether platform are secure and verified almost instantly.
Additionally, the platform is transparent and, as such, a record of every transaction carried out is made publicly available for easy auditing and verification.
What is Tether Needed For?
A lot of people wonder: why would I need to convert my dollars to Tethers when I could just simply keep them in a regular fiat account?
Well, most people would do just that but the truth is this: it actually depends on how you look at it. Most people get into investing in cryptocurrencies for the sole purpose of making huge gains when their holdings ‘moon’.
However, some – more than the bulls and bears of the cryptocurrency space- are just plain fascinated by blockchain technology. They embrace the innovation and are always exploring the possibilities, looking for novel, exciting ways to incorporate blockchain technology into their everyday lives.
So, if you plan to get into the cryptocurrency market having some level of confidence as to the value of a token in years to come, then the USDT will prove to be very useful.
Tether is widely accepted across a lot of exchanges and it is every bit as fast as Bitcoin. With Tether, the limitations to conventional banking systems are completely eliminated. A trader buys an amount of USDT, then tokens are generated and issued by Tether Limited, and at some later point decide to trade the USDT back into fiat-it’s that simple.
Basically, the ‘tethered’ funds are free of market volatility as compared to keeping the funds in volatile cryptocurrencies-Bitcoin, for instance. Of course, holding Bitcoin can go very right majority of the time (as seen over 2017, with more than 650% gains recorded) but then, there’s always a chance that you lose. For the few times when Bitcoin and other volatile cryptocurrencies might crash and markedly lose their buying power just over the duration of a transaction, Tether enables traders and new-age bankers to maintain requisite levels of liquidity and consistency.
More than that, Tether affords cryptocurrency exchanges the freedom of having crypto-fiat trading pairs without being exposed to laws and regulations governing fiat currency. Although at the start of 2018, the United States Commodity Futures Trading Commission (CFTC) went after Tether Limited and Bitfinex, issuing a subpoena to both amid mounting questions about Tether. Most importantly, there was increasing speculation as to whether the money claimed to be in the reserve account was really there.
Most people, especially beginners in the crypto space, would love to know a number of things about Tether, such as:
– How does Tether work?
– Is Tether secure?
– Does Tether support every known currency?
– Are all countries allowed to hold Tether?
All these questions and more will be answered shortly.
1. How does Tether work?
The Tether platform runs on blockchain technology and leverages the Omni Layer, a digital currency and communications protocol layer built atop the Bitcoin blockchain to enable advanced functionality such as user currencies, smart contracts and decentralized exchanges. The open-source Omni Layer interfaces with blockchains to enable trading of digital assets and cryptocurrencies-in this case, ‘tethers’.
Tethered currencies on the Tether blockchain are fully backed by real-world fiat currency assets in the company’s reserve account. Tethers can be traded and/or redeemed for cash in accordance with Tether Limited’s terms of service. The conversion rate is pretty straightforward: 1 tether USD₮ equals 1 USD.
The Tether Platform is said to be ‘fully reserved’ when the valuation of the total number of tethers in circulation is less than or equivalent to the fiat currency assets held in the reserve. These statistics can the viewed by anyone on the Transparency page, constantly updated almost in real time.
You can read the whitepaper for more detailed information on the technical breakdown of the question ‘How does Tether work?’.
2. Does Tether support every known currency?
No. Tether currently supports the US Dollar (USD) and Euro (EUR), although support for the Japanese Yen (JPY) will soon take effect. Tether has a ticker of ₮, and symbols for tethered currencies are usually written with Tether’s ticker at their end (i.e. USD₮, EUR₮, and JPY₮).
3. Who can use Tether?
With Tether, businesses (cryptocurrency wallets, exchanges, payment gateways for example) can seamlessly conduct transactions with digital currency, with the added benefit of exploring the groundbreaking possibilities of blockchain technology. As a matter of fact, a number of large businesses in the digital currency space already integrate with Tether.
Individuals can also enjoy such benefits by transacting tether using tether-enabled platforms, wallets and exchange accounts.
4. How does Tether solve the problem of cryptocurrency volatility?
Tethers are not money, but digital assets able to move across blockchains with the same ease as other cryptocurrencies.
Tethers achieve a relatively-high level of stability because they’re pegged or ‘tethered’ to real-world currencies held in a reserve. Tethers hold their value at one-to-one with the fiat currency assets.
5. How do I know my tether is secure?
Tether is built atop the groundbreaking innovation that is blockchain technology, known for being cryptographically secure. Additionally, Tether is fully compliant with security and global government laws and regulations.
All tethers are pegged at one-to-one to their underlying fiat currency (e.g., 1 USD₮ = 1 USD) and are fully backed by real-world assets in the company’s reserve account. To uphold high transparency standards, a record of all assets held and transferred in and out of the reserve account is published in real time.
Tethers can be securely held, transferred and received across the blockchain and they can also be redeemed for fiat currency. This must, however, be done in accordance with Tether Limited’s terms of service.
6. Where can I use Tether?
Although Tether is still in Beta, the goal is to make Tether usable everywhere where digital currency is accepted, and even in places where they’re currently not accepted.
7. Is Tether transparent?
Yes. By leveraging blockchain’s transparency, the Tether System is fully accessible at all times and allows for regular auditing. Every tether is fully backed by the underlying fiat currency.
8. How much does it cost to use Tether?
Tether does not charge any commissions, has near-zero conversion fees, and offers unbeatable rates. Additionally, transactions between Tether.to wallets are always free.
When sending tethers from a Tether.to wallet to a third party tether-enabled wallet, transaction fees will be waived. However, charges incurred when sending tethers outside of the Tether.to wallet are not determined by Tether.
9. Do I have to complete the KYC process?
Yes. Completing the know-your-customer (KYC) form and getting approved is a necessary requirement for issuing and redeeming USD₮, EUR₮, and soon JPY₮.
10. In what countries and states does Tether have limited functionality?
Tether is built for security and transparency, and it is fully compliant with government regulations.
As a result, Tether does not operate in countries and U.S. states where digital currencies are still largely unregulated. Users from these regions will be unable to access the Tether platform and Tether will also be unable to offer services to people living in these regions.
Current countries with limited functionality:
Afghanistan, Bosnia and Herzegovina, Democratic People’s Republic of Korea, Ethiopia, Iran, Iraq, Lao People’s Democratic Republic, Syrian Arab Republic, Uganda, Vanuatu, Yemen.
New York and Washington represent the only two states in which Tether has limited functionality.
However, tether can still be accessed through cryptocurrency exchanges in the above mentioned regions.