Tether (USDT) review. A revolutionary converting tool or genius scam?22.10.18 13:19
Tether cryptocurrency stands out against other digital coins because of the ratio to USD; the chart that displays it looks straight. How does it manage to avoid exchange rate fluctuation, what Tether was created for, and what are its main features? We’ll consider all of these issues in the article.
What is Tether (USDT)?
Tether is a stable cryptocurrency which price is connected to fiat currency, thus preserving rate stability. Due to such technology, users can get digital money that has the same value as fiat money.
Most often, people buy Tether backed up by dollar (USDT), but there are also available tokens related to Euro (EURT) and the company plans to create Japanese Yen Tether (JPYT) soon.
Tether Limited issues USDT corresponding to users’ requests; when a customer sends money to Tether’s account, the company issue equivalent number of tokens. That’s why there is no such a concept as Tether total supply. As for today, the circulating supply is 2 756 421 736 USDT.
The company Tether Limited started issuing tokens in January 2015 as a way to avoid problems that occur because of cryptocurrency cooperation with traditional banking. Bitfinex was the first cryptocurrency exchange, which accepted Tether, and this soon caused suspicions that two companies are somehow connected. The investigations of Paradise Papers justified the assumptions.
In 2015, Poloniex exchange also started trading Tether. The users were offered to use this token as an easy way to transfer fiat money into digital. Many cryptocurrency trading pairs with Tether have appeared there.
On January 30th, 2018, Bloomberg published news that Commodity Futures Trading Commission sued Tether Limited and Bitfinex due to the lack of confirmation of fiat reserves existence that would correspond to the number of issued tokens.
Tether hack attack
November, the 19th, 2017, an unknown attacker moved $30,950,010 worth of Tether tokens from a wallet of the company to unauthorized Bitcoin wallet. The possibility to transfer the funds from this address was excluded by creating a hard fork Omni Core to the algorithm Omni Layer. The updated build prevented crypto money transfers from the hacker’s wallet.
The company appealed all the exchanges, owners of Tether wallets, and other integrators to upgrade the software. In this way, the attacker’s account was frozen.
How Tether is applied
The most common ways to get cryptocurrency are mining and buying; since mining is a hard work that needs investments and time, most people prefer purchasing digital money. However, cryptocurrency is not legal in many countries, so financial institutions would rather stay away from it.
As a rule, people who trade on exchanges use Bitcoin as an intermediary to buy unpopular coins. Still, BTC is not a convenient means for exchanges; you cannot store it only for this purpose because of high volatility that can bring losses.
Tether is a perfect alternative, which is used as an exchange asset that does not involve risks. As well, such a cryptocurrency is the best option for crypto exchanges because it allows them to have a large reserve of exchangeable assets without a bank account.
Some crypto users transfer cryptocurrency into Tether for periods of volatility not to lose money because of exchange rate instability.
Tether is the best option for money transaction between crypto exchanges with different rates; it allows transferring money between trading platforms without wasting time. In this respect, USDT functions like dollar built on the blockchain.
Where to buy Tether (USDT)
Almost every multicurrency trading platform supports Tether, and since USDT is often used as a converting tool, it has trading pairs with many tokens.
Bear in mind that you will have to pass ID verification before using exchanges, and it will take some time before your identity is confirmed. According to CoinMarketCap, people most often exchange Tether for Bitcoin and Ethereum, so these trading pairs are the most prevalent. Leading platforms for Tether trading are BitForex and Binance.
To enter crypto trading through Tether or transfer your fiat funds into digital, you should buy USDT for traditional money; fortunately, many exchanges offer this service with a very low commission fee.
It is one of the most popular crypto exchanges because of convenience, many trading pairs, and no need for verification to make a purchase. The only required data is an e-mail address. However, to prevent fraud and money laundering, buyers of untraceable currencies have to pass the KYC process. The commission fee is 0.5%.
The platform has some limitation depending on a country. (You can find detailed information in Changelly FAQ).
Kraken is a reputable exchange, famous with exemplary adherence to laws. Your opportunities on the platform are limited by how much ID information you have provided. The commission fee varies depending on the volume of trades; the highest threshold is 0,26%.
Bittrex is a perfect choice for everybody who worries about his or her funds since the platform stores money on the servers which are disconnected from the Internet. The commission for all transactions is 0,25%.
Where to store Tether
Since Tether is mostly demanded on global crypto exchanges, as a rule, users store USDT in online wallets provided by such platforms. The primary function of Tether is to simplify trading, so keeping it on an exchange is convenient and easily available. Still, such way of storing is considered to be not reliable, and large investors prefer to keep most of Tether tokens out of trading platforms.
The choice of a wallet to store Tether depends on the protocol of your coins. From the very beginning, Tether was built on Omni Layer, a protocol that had been created on Bitcoin blockchain basis, but after a while, the company issued coins with ERC20 standard (Electroneum blockchain). Different types of USDT are supported by different wallets, so before choosing where to keep the coins, figure out which type you own.
The easiest way to find out is to check the withdrawal address. Omni Layer USDT address begins with 0x symbols, and ERC20 starts with random letters and numbers, often with 1, 3, or bc1.
Also, you may connect customer support of the exchange you use to buy USDT and ask whether the coins you have bought are based on Omni Layer or ERC20.
The most popular Tether wallets
This web wallet supports all coins built on Ethereum standard ERC20, so you can use it for USDT with this characteristic. Since MEW is an online wallet, you cannot install it on your laptop. MyEtherWallet is also integrated to TREZOR and Ledger; however, users complain about some glitches when trying to transfer USDT to hardware devices. Anyway, Tether developers work on USDT and TREZOR compatibility. Until this innovation is announced, you can use MEW function of creating a paper wallet for cold storage.
OmniWallet is also a web wallet. Unlike, MEW, OmniWallet does not have any cold storage option. The safety and convenience of the use are average, but still the wallet is quite popular because it supports many currencies, including Bitcoin. It is suitable for storing USDT built on Omni Layer protocol.
A highly functional multi-currency mobile wallet supports both Omni Layer and ERC20 USDT. Coinomi has integrated ShapeShift and Changelly services, thus allowing exchanging the supported currencies within the wallet. Coinomi has established itself as a safe and reliable depository with low fees and high speed of assets exchange.
The company created a depository for users where it would be convenient to store USDT. Unfortunately, after the cyber-attack in 2017, the company has banned the registration of new accounts for a while. The official wallet was declared to be available again after the software upgrades are finished, but the exact date remains unknown.
Flexibility and stability
This is the main advantage of Tether tokens. It combines the best characteristics of national and digital money. Cryptocurrency is too volatile to make people trust it, and traditional financial system provide inconvenient and resource-consuming services. Tether Limited has found a way to create a perfect financial means without typical drawbacks.
You can always buy USDT for fiat money
The lack of possibility to buy any altcoin for fiat money is the main disadvantage of cryptocurrencies. Customers have to purchase the most popular coins which have trading pairs with USD or other currencies, and then change it for the required altcoin. Tether has been created to simplify the process of buying cryptocurrencies for fiat money, so you are always able to buy USDT instantly with your credit card.
High level of security
Even though the system was hacked once, the company responded quickly, froze hacker’s account, and improved the security system through creating a hard fork of Omni Layer algorithm.
Connection to national currencies
Cryptocurrency is often considered as fake or scam because people has to buy it for real money, but still, digital assets does not have any factual basis. USDT erases this disadvantage having a strong connection to the national currency. Besides, people can exchange Tether for USD anytime, not looking for profitable trading terms on the platforms. It gives users the feeling that they still own their fiat money.
Comfortable to use
Tether is one of the most convenient cryptocurrencies because of exact correlation with USD, EUR, or JPYT. A lot of crypto users find it very uncomfortable to convert USD to Bitcoin and count decimal numbers. Besides, high volatility makes us always check how much our digital assets cost now. There is no such trouble with USDT. Being always equal to the chosen currency, it allows avoiding many random errors.
No legal mess with transactions and trading
Since cryptocurrency is still in legal gray zone of almost every country, users may face some troubles when it comes to involving banks in deals connected with digital money.
Tether is considered to be a crypto dollar, which is not issued or controlled by a central bank, and due to this, users can avoid common legislative complications, like KYC identity verification and AML policy. Besides, now it is possible no to overpay for sending money (high fees are typical for SWIFT money transfer).
As well, the most common problem with the traditional financial system is a long waiting time until a transaction is completed. Blockchain does not have this disadvantage, and since USDT can be easily exchanged for fiat money, it can be used as an excellent alternative for long remittances.
Tether simplifies payments, trading, and money transfers, and this involves more people into the crypto business.
Is Tether a scam project?
Academics at University of Texas claim that Tether was used to artificially boost Bitcoin rate when the latter reached the mark of $20,000, and these accusations have a good reason.
It was noticed that the time when Tether Limited issue a large number of tokens coincides with the time of Bitcoin price correction. Apparently, USDT is issued for buying cheap BTC; and large purchase boosts the Bitcoin exchange rate.
Fiat reserves of stable cryptocurrencies should be regularly audited by an audit firm. Tether followed this rule from the very beginning, but in January 2018, the company broke contracts with auditors Friedman LLP., and just then an additional emission of tokens was made. This not only raises questions about the finances of the company, but also causes doubts that Tether coins are matched with the corresponding fiat reserves.
As well, there has to be parity between USDT and USD; it is the central principle of Tether work, so the logical question arises, why the USDT rate can go up or down against dollar.
Since Tether has such a great capitalization and there were issued billions of tokens, which are backed up with real fiat money, Tether limited must have a pretty big bank account. However, we know very little about banking institution of the company, same as about official location.
Tether claims to be a completely transparent company. At the official page, you can find information that all the tokens are 100% backed by fiat assets, but as it was previously mentioned, nobody can be sure about this fact; furthermore, there are strong suspicions that the company does not have such assets.
You can also find a statement, that regular audits approve Tether’s transparency. However, it’s been a while since public have seen the last trustworthy audit report of assets of the company. Although the last financial report was provided by Freeh Sporkin & Sullivan, LLP on 1 July 2018, the firm is not audit, so it cannot prepare a genuine audit report.
The users are supposed to have 24/7 access to Tether financial balance, which is available on the official website. However, the authenticity of the balance is not confirmed in any way, so we have to take all the data on trust.
Tether future prediction
Tether is too controversial cryptocurrency to make an unambiguous forecast concerning its future. We cannot argue neither that Tether is a trustworthy project, nor that it is a scam.
Tether is a fairly influential cryptocurrency, which can affect the crypto market in general, so the worst scenario can be the loss of the reputation. When it turns out that such a big player as Tether is a scam, confidence in cryptomarket will drop, people can start exchanging crypto assets into fiat and withdraw them from trading platforms. Such a situation may lead to a collapse when platforms would not be able to pay the money. Cryptocurrency market will lose capitalization. However, the worst scenario is unlikely to come true.
Avid adherents of basic cryptocurrency principles question Tether, since it is centralized; users cannot control the currency by themselves (affect the price through demand and supply), and it is completely unlike decentralized mineable cryptocurrency we are used to. Even though Tether’s centralization is quite justified and has to be accepted as a fact, crypto enthusiasts treat it like a reason not to trust to the company. That’s why many people believe the suspicions about Tether’s dishonest activity.
Although there are some causes for concern, they are clearly overblown. Anyway, no serious suspicion has yet become a fact.
Tether Limited is not a good or at least justified company for investments, and it has not been created for this. Still, as a tool for trading and money transfers, it is essential. With the right policies, Tether can further increase its influence not only on the cryptocurrency market, but on the financial system in general and compete with Ripple.