Cryptocurrencies are characterized by fluctuating prices or general instability. But these are the changes that traders and investors take advantage of; play your game right, and you can expand your portfolio with time.
However, transferring your fiat cash to your desired cryptocurrency for trades is not always hassle-free. And since time is of the essence, Tether is a stablecoin that thousands of cryptocurrency traders rely on because of its stability.
Tether is also a way for people to save their money without depending on a bank.
So, what is Tether, and why is it the lifeblood of cryptocurrency?
How Does Tether USDT Work?
Tether is the digitalized equivalent of the US dollar. It is tethered, you guessed it, to the US dollar. This means that the price of one Tether token will be equal to a dollar. The network allows you to trade fiat money in the decentralized finance sphere.
Unlike cryptocurrencies like Bitcoin and Ethereum, Tether and other stablecoins are centralized finance. This means they are not subject to the highs and lows decentralized digital assets are renowned for. They are controlled by a brick-and-mortar company with reserves to secure your funds.
Tether was created in 2014, the first and most perhaps the most secure of all stablecoins. And like many other altcoins, this protocol was launched to correct the discrepancies with trading cryptocurrency.
But why is it secure? That is a good question. Just recently, the crypto sphere was shaken when Terra USD, another stablecoin, fell far below the value of one dollar. It had promised a 1:1 value to the US dollar but fell to less than a fraction of the price.
Currently, as of early July, it trades at the value of $0.049. The fear that something similar could happen to Tether affected the market capitalization, but it did not last.
Tether still trades at the initial ratio of 1:1; with a market capitalization of 65 billion dollars. So, what makes it stand out? Why do many people still trust this stablecoin?
In 2014, Brock Pierce, Reece Collins, and Craig Sellers created the Tether stablecoin because Bitcoin and other cryptocurrencies in the sphere had fluctuating prices.
Despite not being connected to the fiat currency, the prices of these coins could not remain fixed, or at least grow at a more controlled rate.
This gave birth to the idea that a bridge between fiat money and digital assets could be created. It would allow users to maximize cryptocurrency transactions without losing funds to fluctuation.
Stablecoins are also built on blockchain software; Tether was initially hosted on the Bitcoin blockchain. The newer version is an ERC20 token, which means you can also use Tether to execute smart contracts on the Ethereum blockchain.
Therefore, the security that is associated with these blockchains extends to Tether tokens.
Now, how does Tether USD work?
Well, you buy the amount of Tether tokens you want at the rate of a dollar to a token. You will get the equivalent amount of coins in your wallet and can begin to exchange it however you like.
The tokens can be sent to another party, used to enter and exit cryptocurrency trades, and even used to facilitate the payment of transactions.
This is a far more stable method of participating in cryptocurrency without being subject to extreme price changes. You can convert the TetherUSD tokens into Bitcoin, Ethereum, and other cryptocurrencies.
The Tether token remains pegged to a dollar and does not trade below it because of the transport system the network has fashioned. Even when the coins are minted, they are not released until they become authorized.
That way, the value remains controlled and within a dollar range, even when there is a high demand for it.
Why is Tether USD So Important?
Tether USD is the lifeblood of cryptocurrency. Without this token, it may be difficult, if not impossible, for traders to maximize their profits.
Despite the fast execution speed that most blockchains boast of, transactions may become harder to execute when there is high activity in the crypto sphere. And, of course, thousands of transactions happen every day.
A quick example is when the price of a token suddenly appears to be on a fast downtrend. People would rush to sell their tokens and a lag will follow suit when attempting to convert from said token to fiat money, or vice versa.
Even the transaction time that a centralized bank or ATM uses can affect your profit, and every seasoned trader knows this.
It is easier and faster to buy Tether USD or USDT, as it is also known, with fiat money. The value does not change, even when you leave it for decades.
Rest assured that when you buy $50 worth of Tether, you will find that same amount in your wallet. Compared to Bitcoin, Ethereum, or other altcoins, which would you rather trade with?
Tether USD is so important because it provides stability in an unstable decentralized finance world. Even when that instability affects other stablecoins, USDT remains unshaken.
Like the meaning of its name, Tether tethers the US dollar, one of the strongest centralized currencies worldwide, to the cryptocurrency sphere.
And considering that the crypto market is relatively new, the world needs a bridge to it.
But Tether USD is also important to non-crypto traders.
Initially, cryptocurrency was introduced to reduce the power of centralized finance. Centralized finance is rigged with many discrepancies and irregularities.
What’s more, it takes considerable time and stress to send money from one location to another across the globe.
But with cryptocurrency, you can do it in seconds, without the supervision of a third party. Smart contracts have seen to that, and Tether tokens facilitate the movement.
When you need to pay for something, USDT is a universal token that most traders recognize.
Additionally, the token offers maximum security. This means you may consider securing your wealth with it if you don’t want to leave it with a centralized banking system.
Unlike other cryptocurrencies that are a store of value that increase and decrease, the Tether USD remains the same price.
As the forces of supply and demand dictate, the higher the demand for something, the higher the price. This makes it near impossible for non-stablecoins to perform their initial function.
Many things move the cryptocurrency market daily, explaining the hills and valleys common to crypto charts. The constant battle between the bears and the bulls affects every other token except stablecoins.
Take Tether; there is increasing demand for USDT yearly, but it remains pegged to the dollar.
Therefore, this makes Tether unsuitable for investment. You may save money in USDT, but don’t expect it to grow.
Tether USD Use Cases
Tether is now a real-world digital currency bridge. Anyone can use it anywhere. You can access USDT on different blockchains, wallets, ATMs, and other places you need to spend or send money.
There are 65 billion Tether tokens in circulation, and people use them for various things.
However, it is most important to cryptocurrency traders. Buying Bitcoin, Ethereum, and other coins and selling them for profit would be more tedious if you had to go through your bank all the time.
Think about the processing time for the transaction. When you are settled, your trade would have moved several points.
But you can buy USDT and leave it in your desired wallet to avoid missing out. The coins will be authorized but not issued until you make a demand for them.
And your transaction will not be completed until you provide your private keys. The private keys are a security code no one apart from you should know, like a password.
As such, traders are unafraid of leaving thousands of dollars worth of USDT in their desired exchange platforms or wallets. When you want to trade Ethereum, you can enter a request for Ethereum/USDT.
Then, you can choose to buy or sell. If you buy Ethereum with USDT, your coins will be released based on the “authorized but not issued” security protocol.
Depending on your network speed, you will get the Ethereum worth of Tether tokens within seconds to a few minutes. It helps you make it in and out of your trade at your desired time.
And when you want to sell your Ethereum, you can easily convert it to USDT.
Each time a user requests to buy or sell their Tether tokens, the system mints or burns them at a rate of a dollar to one USDT.
Minting means that the fiat currency you are paying will be converted to the US dollar because that is what Tether is pegged to. For each dollar your money buys, you get a Tether token.
It is created especially for you.
On the other hand, when you spend it, maybe to finance a transaction or trade, the network will burn it. This means the protocol gets rid of it to maintain the stipulated amount in circulation.
Perhaps this makes it the central coin of the crypto sphere. But that is not all Tether does.
You may also use Tether to save money, whether it is because you want easy access to your money or a safe place for long-term savings.
Tether claims to be a transparent company, and they provide daily proof of the total assets and reserves associated with the stablecoins.
Other options include EURT, Tether to Euro, CNHT for Chinese Yen, and gold for XAUT.
Tether USDT tokens can also be sent across exchanges to anyone, anywhere in the world. They will receive it almost immediately, sans the high charges a centralized finance system would charge.
Businesses can also use USDT as a payment option. You will find stores that accept Tether tokens online and off the World Wide Web.
Especially in countries that have accepted and started leaning towards payment with digital currencies, USDT is often one of their go-to choices.
Or, businesses can borrow from the Tether company.
How to Store Tether USD
When you buy tether tokens, they are authorized, which means they become yours. However, they will remain in your wallet until you provide the means to access and release them.
With your private keys, you can claim ownership.
You need software to store the tokens until you need them. This is where the Tether wallet, CryptoWallet, OmniWallet, MyEtherWallet, and the other renowned storage options come in. They are apps and websites where you can store your USDT.
They represent ease of access, as opposed to the hardware wallet options. You can transact your Tether tokens from your desired software wallet through your mobile phone.
On the other hand, the hardware wallet will only work when you plug in your device and fill in the required information. This is a more secure option because your public and private keys are offline, making your tokens hack-proof.
Without access to the hardware device, no one can even begin to guess what your private keys could be. Investors with more significant amounts of USDT store their tokens here.
It is not also uncommon to use both software and hardware to store Tether tokens.
However, not every wallet will support all types of USDT.
Alternatively, you can store your Tether tokens on an exchange platform. Binance and Coinbase are famous examples of places where you can purchase and hold USDT.
Inadequate storage is not the only way to lose your crypto in the crypto sphere. It is also essential to ensure you are sending the tokens to the correct wallet address before confirming your transaction.
How does Tether make money? That is a good question.
Tether can maintain the 1:1 value it promises users through lending and borrowing mechanisms. The authorized but not issued protocol also favors the Tether network.
Until you create a demand for your Tether tokens, the network will be able to lend your money to institutions and businesses. The interests attached will go a long way in maintaining the Tether network without affecting profits.
Additionally, you are required to pay small fees for each transaction. It adds up when thousands of other users are also making similar trades.
Without a token like Tether USD, transactions on the blockchain would be challenging. This network helps you bypass the time factor and high fees.