We tell what Tether is and why many ideological fans of bitcoin compare USDT to the currency of the currency.

Perhaps you noticed that some crypto currency exchangers like Bitfinex do not accept US dollars, but offer deals denominated in that currency?

In addition, on some exchange sites (for example, Poloniex and Bittrex)  bitcoin is  sold for dollars. At the same time, these “dollar” prices are usually several dollars lower than prices on exchanges that actually accept the American currency (for example, Coinbase or Kraken).

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How does it work? How can the exchange, trading only crypto-currencies, conduct transactions in dollars?

The answer is Tether (symbol Tether – ₮,  ticker  – USDT).

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What is Tether?

Tether is a crypto-phiatic hybrid, the value of which is tied to the value of one of the currencies.

Most often, Tether uses the USDT currency, tied to the dollar, the world reserve currency, that is, 1 USDT is always equal to 1 US dollar.

Also, Tether uses the  euro  (EURT), and it is reported that in the future the Japanese yen (JPYT) will appear.

It should be borne in mind that Tether users, being protected from the   crypto currency volatility , are still subject to fluctuations in the base currency price.

For example, if you have some amount of USDT, and at some point the US dollar will fall in value, your savings will lose exactly the same amount.

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How Tether works

Tether is implemented on the Omni platform, which is used for various digital assets and is based on blokcheyn  Bitcoin (Bitcoin).

The assertion that the Tether token is worth one dollar can not be unfounded – that the USDT really has some value, it should be supported by real dollar reserves.

So it is: for 1 USDT you can at any time get a dollar – today such direct conversion is possible only through one service, the Kraken exchanger  .

Similarly, any dollar sent to a Kraken-servicing bank should be exchanged for USDT one to one, and this mechanism works by linking the USDT rate to the dollar. Further, the dollars are converted into USDT through crypto-currency intermediaries, mainly through bitcoin.

Thus, 1 USDT is worth 1 dollar, because the exchange has a reserve of dollars in the amount of all existing USDT. Nevertheless, some statements on  the Tether website  raise questions.

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The mechanism described above means a complete and unavoidable centralization of Tether, since it depends entirely on the willingness of Tether to maintain the binding of the course.

For example, if Kraken ends with dollars for those wishing to sell their USDT, Tether must promise and within a reasonable time to place Kraken the necessary amount of dollars, otherwise the course will be tied up.

It turns out that the work of Tether depends on good financial relations with banks and on the authorizations of the authorities, and on the other hand, it includes interaction with crypto-currencies not associated with fiat money. In other words, Tether (to some extent) can dispense with permissions and is not subject to censorship, but Tether users must check their customers.

Why is this necessary?

Since interest in crypto-currencies is largely related to their price fluctuations, the question arises: why do we need a crypto-currency, the main characteristic of which is a fixed value? No ups, downs and bubbles – a very strange crypto currency.

As you know, the  purchasing power of the  dollar (like any other fiat currency) is gradually decreasing due to inflation. Thus, investing in Tether is pointless – it’s like a deposit, and risky, at 0% per annum.

So, if Tether carries more risks than conventional crypto currency, and does not generate revenue, then why use it?

The fact is that Tether is extremely useful for traders and investors as an alternative to fiat money – for several reasons.

Transaction processing speed

The withdrawal of dollars from foreign exchanges and their deposit on the account of the exchange service often takes several days, and if you need something after the closure of banks or during the holidays, this period may grow further.

The Tether transaction takes a few minutes. Sometimes this is important, because for crypto-currency traders, to use the opportunities for  arbitrage , you need to transfer money very quickly.

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Transaction costs

Transfers through the international SWIFT system are very expensive – at least $ 20 for the transfer, and on average closer to $ 30. At the same time, if you transfer money in a currency that the exchange does not directly support, the bank will take an additional  commission  for conversion and interest for the transfer.

Transfers between Tether wallets are completely free.

Stability of the price

Crypto currency is known for its volatility, which is why a stable currency is very useful for traders, especially those who do not have access to highly liquid markets. The purchase of one high-volatility currency for another carries many  difficulties  and risks.

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Let’s look at an example, the purchase of air (ETH / USD) for bitcoin:

  • The trader  buys the air for bitcoin, after which the value of the first currency grows by 10%.
  • The trader wants to make a profit, so he sells his ethers for bitcoins.
  • That’s just during the processing of the transaction bitcoin falls by 15%.

It turns out that, despite the growth of ETH, the trader bears losses due to the fall of BTC.

When using the same USDT trader you need to worry only about the price of the air.

Of course, there is an American dollar – a relatively stable base currency. The trouble is that many altcoys can only be bought on stock exchanges that do not work with any kind of fiat money, but they accept USDT.

In addition, as mentioned above, USDT wins by the cost and time of transaction processing. But as for taxes, this is still a gray zone.

Staying aside

Often the best position in the market is not to have a position at all. Let’s say a trader feels that the price of an asset is overstated, but does not want to take the risk of a downgrade. In this case, the best move is to go into cash and wait for the recession, during which to purchase.

In the situation described, it may be convenient for a trader to convert a crypto-currency into USDT, then withdraw funds into his own reliable  purse , and when a convenient opportunity for purchase appears, quickly transfer them back to the exchange instead of waiting for a few days for a bank transfer.

How to get Tether Wallet

Initially, the user received the Tether purse after registration on the site of the system, but at the time of writing this article (January 18, 2018) the registration on the site is closed – you can subscribe to the notification of renewal of registration, leaving an email. Mobile Tether purses are under both iOS and Android, but they also require a Tether account.

In other words, now you can use them only for storing and transfering USDT to currency-supporting exchanges.

How to buy Tether

Most often, USDT is bought, changing for another currency. A full list of Tether exchange service providers can be found on the CoinMarketCap website   (for convenience it is sorted by currency pairs).Here are some examples of such sites: for USDT dollars you can buy on Kraken,  Bitfinex ,  Coinut , Exmo  and  C-CEX . For rubles – for Exmo.

Bitfinex Connection Exchange

The Tether system and the Bitfinex exchange are managed by the same people, Philip Porter and Jancirlo Devasini – this was confirmed during the recent leakage of documents, but for the knowledgeable people it was not a secret before.

The new Tether accounts are now appearing mostly on Bitfinex, and after the episode in April 2017, when the banks of the US Bank and Wells Fargo refused to cooperate, the work of both the stock exchange and Tether was paralyzed, and now Bitfinex refuses to work with American customers and does not nominates deals in dollars – only in USDT.

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Problems with Tether

Today Tether and Bitfinex are under the fire of the press: in recent years, critical articles have been published by the  New York Times ,  Bloomberg  and  Fortune  – they reflect doubts and fears that have been troubling the crypto-currency community for several months.

Much of the criticism of Tether comes from the opponents of bitcoin – they are interested in the failure of both the Bitfinex exchange and the entire bitcoin-ecosystem.

For example, the New York  Times article  cites Arthur Hayes, the founder of the rival Bitmex exchange, and Emin Gun Sierer, who promotes the Bcash system.

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However, the most rigid, hot and consistent criticism comes from the mouth of a man hiding under the pseudonym Bitfinex’ed.

All of them accuse Bitfinex and Tether of using a partial reservation scheme, that is, that USDT is released more than there are those providing them with fiat dollars. It is also alleged that unsecured Tether accounts are used to inflate the bitcoin rate for market manipulation.

The system itself reports on full and even redundant reservations. In September, the company passed an audit that did not reveal any violations, but critics consider the report unsatisfactory. However, it is likely that the stock exchange Bitfinex has 1 billion dollars, which is necessary for the full provision of all USDT.

In this story, it is difficult to divide truth and fiction, but there are several facts: Tether does not guarantee convertibility of its tokens into a dollar, moreover, they reserve the right to refuse servicing to customers that do not meet their conditions.

The graph with  CoinMarketCap  shows how the offer of tokens has grown from a few million to about a billion dollars (blue line):

Addresses marked as quarantined are 30 million in recently hacked wallets, frozen by Tether (remember the lack of decentralization).

Today Tether conducts daily transactions for large sums. On January 1, 2017, the trading volume in the system was $ 15,000. Today it exceeds 5 billion, and most transactions take place between USDT and bitcoin.

Conclusion

For many ideological fans of Bitcoin Tether is unpleasantly similar to the currency of the currency – and not because of the peg to the dollar. Tether is also centralized, requires permission to use and depends on the users’ trust in an organization – which is the opposite of the principles on which bitcoin is based.

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It’s no wonder that this confuses many enthusiasts with crypto currency and creates an audience ready to believe rumors about unfair play. Nevertheless, we must admit that, as long as there are no facts, the allegations against Tether and Bitfinex are nothing more than a campaign launched to blacken this system, “a conspiracy to expose the conspiracy.”

Although there is cause for concern, the cries that Tether is threatening the whole system with crypto currency is a clear alarmism, possibly malicious.

Perhaps the campaign against Tether will bring some benefit – criticism can push the system to raise professional standards and save it from weaknesses.

If you want to use Tether, do it with caution. Conduct only short transactions and transfers with USDT. If you need to convert a large amount, divide it into several parts in order to reduce the risks.

Do not rely on the opportunity to exchange a significant amount in USDT for dollars 1: 1. Remember that the main advantage, that is, the linking of the exchange rate to the fiat currency, turns out for the user the risks inherent in both financial systems.

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