If you have some experience with trading cryptocurrencies, you must have noticed that cryptocurrencies go in pair with USDT. You surely realized it is some kind of dollar substitute and in fact, you could say that. It is an alternative of three fiat currencies with the highest capitalization in digital form. So, what exactly it is? How does it work? And why this alternative is used instead of the real currencies? This article is going to answer all this..
What is Tether?
Tether is a digital currency, that using blockchain technology enables to store and send digital assets with exchange rates tied to Dollar, Euro and Yen. The transaction takes place instantly person-to-person. All assets are 100 % covered by fiat currencies.
How it works?
Tether is used by a blockchain protocol called Omni, which enables publishing and recovering of digital tokens representing Dollars, Euros and Yens. Integration into wallets and exchanges is as easy as when bitcoin is concerned. Considering the fact, that the tokens are 100 % covered by fiat currency, the exchange goes 1:1. Tether is used so users in the crypto-world have an opportunity to escape from the frequently high volatility without the need to exchange to fiat currencies. In order to preserve liquidity of this currency, the reserve balance in fiat currencies is always the same or higher, than the number of units in circulation.
● Trading platforms do not need to undergo a difficult process to enable deposits and withdrawals in fiat currencies, when the legislative is concerned
● Users can exchange their “tethers” for fiat currency directly at the operator of this digital currency.
● Users do no need to exchange digital currencies to fiat and the other way around.
● Users can avoid the frequently high volatility of cryptocurrencies.
● Bank, holding reserves, could go bankrupt or get into insolvency.
● Bank, holding reserves, could freeze accounts containing those reserves.
● Reserves covering the value could be stolen
● Other risks linked to centralized site.