Updated: Dec 20, 2019
Tether is a cryptocurrency created on blockchain technology, with the native token traded under the USDT symbol. The crypto coins, which are in circulation are backed by an equal amount of various traditional fiat currencies such as Euro, Dollar, or Yen. USDT particularly belongs to a category of fiat collateralized stable coins, which attempts to keep its values stable.
This short guide will walk you through the purpose Tether was designed for, its creators, the way it works, and various uses and applications.
What is Tether Designed For?
USDT belongs to a new breed of crypto coins known as stable coins. These coins were designed as a solution to the wide price swings, observed in other popular cryptocurrencies, such as Ethereum and Bitcoin, which was a deterring factor for the average investor.
Tether’s creators designed the cryptocurrency as a model of storage value and a medium of exchange, as opposed to something that could only be used as a medium of speculative investment. The technology behind Tether aims to keep the values of this cryptocurrency stable.
USDT was specifically created to bridge the gap between existing cryptocurrencies and fiat currencies by offering transparency, stability, and minimal user transaction charges.
Who Is the Team Behind Tether?
Tether was launched in 2014 as RealCoin by Craig Sellars, Brock Pierce, and Reeve Collins. It was later rebranded as Tether by the end of the same year by Tether Ltd., which is responsible for maintaining adequate reserve amounts of fiat currency.
Craig Sellers was the CTO of the Omni Foundation (Mastercoin Foundation) that implemented the idea of building new currencies, on top of the Bitcoin Protocol through a whitepaper published in 2012.
Brock Pierce had a major role in founding venture capital firm Blockchain Capital (BCC) with brothers Bart and Bradford Stephens. He was also elected, Director of the Bitcoin Foundation in May 2014, and is listed in Forbes Magazine as part of the "top 20 wealthiest people in crypto".
How Does Tether Work?
Tether is part of the fiat collateralized stable coins, which are backed by a traditional fiat currency, as opposed to crypto-collateralized stable coins that do not possess any collateral. The currency is pegged against the U.S. dollar, maintaining a 1:1 ratio in terms of value.
However, it is important to understand that the cryptocurrency cannot be exchanged for U.S. dollars, as no formal guarantee provided by Tether Ltd. concerning exchange or redemption. That being said, Tether does allow the exchange of USDT with other cryptocurrencies. And, any approved client that wires USD to Kraken (the designated exchange for trading USD-USDT pairs), shall receive USDT at the rate of 1$ per Tether.
Hong-Kong-based Tether Ltd. serves as a trusted third party, for holding crypto assets based on the Omni protocol, which is a flexible platform used by numerous digital currencies and assets, anchored to the Bitcoin blockchain.
What are Current and Future Applications of Tether?
For many investors, Tether is primarily used as an alternative to fiat. It provides an avenue where investments can be parked when the market is bearish, especially in countries, where the conversion of cryptocurrencies to fiat is not very easy.
It is also a great medium to transfer funds globally. The minimal transaction fee makes using USDT cost-effective. For instance, you don’t have to pay SWIFT (Society for Worldwide Interbank Financial Telecommunication) transfer fees, which can cost upwards of $30. Additionally, traditional banks tend to charge a percentage on the transfer and an extra foreign exchange conversion fee, if you are using a currency that is not supported by the exchange. Tether negates these issues as well.
USDT offers a stable base to trade other volatile cryptocurrencies. Imagine a scenario, where you convert BTC into ETH, which then proceeds to rise by 10% (after the transaction). Now, you are thinking of making a profit by selling the ETH for BTC. However, during the second trade BTC shockingly falls by 20%.
Even though you played your cards right in this scenario, the inherently volatile nature of the cryptocurrencies (BTC and ETH) would result in you losing money. If you use USDT in this trade, your sole concern would be the price of ETH.
Tether brings several advantages to merchants and vendors as well, probably the reason why it is accepted by so many as the preferred mode of payment. It allows the merchants to concentrate on their core business, taking care of the payments by minimizing chargeback risks, centralized money movement systems, and intermittent conversion.
While there is no formal Tether roadmap, the company does have some very ambitious plans and integrations lined up for this cryptocurrency. For instance, it is planning to support more cryptocurrencies, like GBP. It has also integrated with various other blockchains, including EOS, Ethereum, Litecoin, and Tron.
USDT is the world’s first Tether, and the technology can be best called as simple and in its initial stages. However, Tether has opened the doors for a new way to look at cryptocurrencies.