What is Tether?
Tether is cryptocurrency that allows users to make use of digital currency in the same way they use fiat currency. Tether enjoys the same value that legacy currency has, as a store of value, a medium of exchange, and is considered as a means of investment.
The value of Tether is affixed depending on the local currency within which it is exchanged. Therefore, tethers are used as a store of value in US Dollars, Euros or the Japanese Yen, with more currency units coming soon.
Tether is built in the Bitcoin ecosystem. This means it is one of the most secure open source blockchain technology you will come across. To safeguard the interests of users, Tether is also fully compliant with legislation and regulations in the jurisdictions where it is available. Users must also go through the KYC and AML procedure before they redeem or issue tethers.
What is the problem that Tether Solves?
The definition of money includes terms like a medium of transaction, store of value and investment. There are a lot of assets all over the world that are currently stored in the form of money. That being the case, Bitcoin is a considerably better alternative that can be used to perform the services for which money is, as described above.
Estimates suggest global wealth in excess of 200 trillion dollars held in financial institutions like banks, in fiat currency value. Given that Bitcoin is a much better alternative than fiat currency, the challenge that lies ahead is how to move these assets from financial institutions to the blockchain. This is where an opportunity arises, and Tether comes in.
Financial institutions run on trust. However, as we have seen so many times in the past, trust is not always easy to come by. Many such institutions have gone under after breaching the trust of their stakeholders as the custodian of their assets.
Bitcoin, on the other hand, is an electronic payment system that runs on cryptographic proof, instead of trust. Through Bitcoin, two parties can engage one another and transact without the need for a third party invoking trust. This marked the entry of digital currency.
Among other things, the main benefits of cryptocurrency include borderless convertibility and transferability of assets or value, low cost of transaction, pseudo-anonymity, trustless exchange and ownership, transparency and immunity from the problems that plague the legacy banking system. Even with these benefits, however, cryptocurrencies still face some challenges, including volatility in the market price, lack of proper understanding of blockchain technology, infrequent use by non-technical users.
The concept of cryptocurrency, successful ones to be precise, is to do away with the need for trust. However, in order to implement this, most of the platforms still need a third party or encounter some limitations and drawbacks.
How does Tether Solve the problem?
To completely do away with the need for third parties, Tether is pegged on fiat currency. Tethers are issued on the Bitcoin blockchain through the Omni Layer protocol, meaning that they are crypto tokens.
The tokens are backed by the traditional currency in circulation, so there is no loss of value, and they do not risk volatility in value as has been the case with most of the cryptocurrency in the recent past.
Tethers can be redeemed or exchanged at the user’s convenience, for the underlying fiat currency, or alternatively, the user can also exchange them for Bitcoin in the equivalent spot value. Because of these basic concepts, Tether employs the following techniques to solve the problems that plague other cryptocurrencies:
- Tethers are available in the Bitcoin blockchain, one of the most secure, and decentralized platforms known today.
- Anyone who holds tethers can use them in the same way they use Bitcoins
- Tethers can also be used in wallets, exchanges and can be traded with merchants for goods and services
- While it is difficult for non-technical users to understand the technical aspect behind the prices of other cryptocurrencies like derivatives or collateralization, the 1:1 fiat currency backing is very easy to understand, which has helped with the uptake.
- Redemption or issue of Tether is not subject to liquidity limits or price constraints. For this reason, users are free to buy and sell as many tethers as they desire, at the lowest possible fee, and very fast.
What makes Tether better than the competitors?
Tether has managed to get and stay ahead of the pack by combining the best of two worlds. When using Tether, you get to enjoy the best of traditional currency and blockchain technology. At the moment there are lots of people who are still uncertain about blockchain technology and are very adamant about switching from traditional currency. There are others who are also skeptical, but willing to give it a try. With Tether, however, it is easier for both of these types of users, because they have access to everything they need in one place. How does Tether do it?
Stable Currency
When using Tether, you can easily convert fiat currency into digital currency. This is useful as it helps users tether or anchor the value of the currency to the prevailing value of fiat currency like the Euro, US Dollar or the Japanese Yen.
Fully Backed
This is something you do not see all the time, especially with cryptocurrency. Tether has been fully backed by the traditional currency held in the reserves. Tether is backed at a 1:1 ratio, which means that holding $1 in tether is equivalent to holding $1 in fiat currency.
Transparency
Unlike most of the blockchain platforms that are shrouded in secrecy and anonymity about the way they conduct their operations, Tether is an open book. The reserve holdings in Tether accounts are published on a daily basis. These records are also available for professional audit. Upon scrutiny, you will realize that the account reserves always match the number of tethers in circulation.
Integration
There is no secret that Tether is one of the most integrated platforms where you can convert fiat currency to digital currency in the world. You can use, buy and sell tethers at different exchanges, including Shapeshift, GoCoin, and Bitfinex.
How can Tether be categorized?
Tether is a cryptocurrency, just like Ethereum, Bitcoin and many others in the market at the moment. One big difference between Tether and the rest of the cryptocurrencies you will come across is that Tether was designed to be stable. The price is not volatile. This is one reason why it stands out, and a lot of people are drawn to it.
What’s Tether’s vision on Security?
If there is one thing you can be certain about when using this blockchain is that the tethers are stable, secure and reliable, and this is a platform whose integrity is beyond doubt. Tether is a platform that is virtually free from third-party interference and malicious attacks. The blockchain technology used in Tether is world-class, meeting some of the highest international compliance standards, and regulations. The following are some of the security features that are built into Tether that should give you confidence when using this blockchain:
Stability
While most of the other cryptocurrencies in the market at the moment are unstable and tend to experience fluctuating values given the market price demand and supply, Tether seems to be very stable. This is because the Tether infrastructure was designed for stability.
Auditing
As an investor in Tether, you have access to the complete Tether balance sheet. This is important to assure you of the integrity of this network. Besides, from time to time financial institutions and legal authorities might need an audit for different reasons, which means this is a network that is barely struggling with fraud and losses.
Proof of Funds
This is an algorithm that has helped to make the platform more transparent. The Proof of Funds algorithm gives a clear picture of all the transactions that are being done on Tethers, including the updated value of the Tethers, as per the market economy. You can actually see the entire transaction record of Tether through this algorithm.
Blockchain Technology
Tether commands a lot of trust from users because it is leveraged on blockchain technology. The Tether wallet is encrypted through Omni Layer protocol, and together with smart contracts, this is one of the safest blockchain platforms you can use.
One of the perks of running on blockchain technology is that users get to enjoy the best of transparency and security of one of the leading blockchain platforms in the world. This is a major confidence boost for anyone who is interested in using Tether.
Examples of Tether use cases/applications
Tether was designed to target three groups of users:
- Individuals
- Merchants
- Exchanges
Individuals
There are a lot of individuals who are currently using Bitcoin for different reasons at the moment. This includes profit-seeking traders, long-term investors who use Bitcoins to secure their property, tech gurus who use Bitcoin for privacy and to avoid paying unnecessary fees, developers who are working on cutting-edge technology that might change the world as we know it. Whichever of these categories of users you are in, Tether will be useful to you in several ways, including the following:
- Eliminate the need for intermediaries or middlemen when carrying out fiat transactions. These transactions can also be carried out anonymously
- Using secure private keys to store fiat value
- Ease of moving cryptocurrency in and out of exchanges, alleviating the risk of keeping fiat currency in exchanges. Should you have any concern about an exchange, you can move your money instantly.
- Avoid the risk of having to open a fiat bank account to store value for future reference
- Support applications that run in the Bitcoin ecosystem, and also support Tether
- You can literally perform everything that you do on Bitcoin on Tether
Merchants
For merchants, Tether allows you to stop worrying about payments, and instead pay more attention to your business. At the moment merchants all over the world are concerned about the lack of an affordable, global payment solution. This makes the cost of doing business very high. Instead of worrying about these, Tether offers merchants the following benefits:
- Ability to enjoy novel services of fiat currency features, like gift cards and microtipping
- Reduce the cost of doing business, enhance privacy and do away with chargebacks
- Merchants no longer have to pay conversion fees when exchanging currency between fiat and Bitcoins. Tether also helps them do away with the tedious processes involved.
- Give the price of their goods and services in fiat value instead of Bitcoin
Exchanges
There is a lot of complication involved in transactions that involve fiat deposits, especially when using legacy financial systems. Most complications that arise are as a result of the risk involved, speed of completing transactions and the cost of transactions. Some of the challenges that users involved experience include:
- Unfavorable fees for currency conversion
- Wasting 3 – 7 days to clear international wire transfers
- Expensive costs for small value transfers
- Challenges in liaising with banks for security, compliance, and building trust
- Integration with banks that do not have APIs
- Identifying the best partners, considering transaction fees, protection against fraud and reversibility of transactions
By taking these into consideration, exchanges that use Tether are able to avoid the complications above, thereby enjoying several benefits in the process, including the following:
- Ability to carry out any type of transaction that can be done with Bitcoin
- Using crypto processes to protect customer assets, like HD wallets, cold wallets, hot wallets, multi-signature security, and enjoying the benefit of easy auditing.
- Adding tethered fiat currencies into the Tether platform as trading pairs
- Outsourcing fiat custodial services and risks to Tether, thereby only managing the cryptocurrency
- Accepting cryptocurrency instead of using payment providers like legacy banks, which makes it easy for the users to move currency faster, and affordably.
There are several risks that are associated with holding fiat currency in an exchange. Considering how often financial entities find themselves in insolvency, this is not a very good option. Using tethers, however, customers who use exchanges are exposed to less risk than using fiat currency in the exchanges.
Resources
https://coincheckup.com/coins/Tether
https://tether.to/wp-content/uploads/2015/04/Tether-White-Paper.pd