Cryptocurrencies have promised a lot. As people start accepting digital coins, you’ll be able to transfer funds, make transactions, and buy and sell around the world without ever having to worry about borders, currency rates or expensive transfer rates.
At least, that’s been the idea. So far, it hasn’t worked out that way. Bitcoin’s volatility has meant that sellers are too worried about sudden price drops to accept it while buyers are holding onto their coins in the hope that the price will rise.
But there is an alternative. Tether uses the same blockchain technology as Bitcoin to protect against fraud. But it’s pegged at 1:1 with the US dollar. Each tether is backed by reserves that include fiat currencies. Accept 5 USDT and you should always be able to exchange it for 5 USD.
That should solve the volatility problem that has plagued Bitcoin, and allow business owners to accept a cryptocurrency that they can trust.
That hasn’t happened yet, largely because many of the people who currently buy and sell cryptocurrencies are attracted by its decentralization and transparency. Neither of those things are true of tether.
Tethering a cryptocurrency to a fiat currency means that the value of the coin is always linked to the actions of a central bank. If the Federal Reserve lowers interest rates, tether’s value will fall along with the dollar. Tether is also run by the same people who run Bitfinex, a leading cryptocurrency exchange. The relationship between the two companies isn’t as clear as it should be and the company has been reluctant to publish an audit.
Worse, the coin has also been accused of being a tool for scams. Tether has also been slow to prove that it holds assets equal to the value of its currency even as it generates more and more coins. The latest proof of funds dates only to June 2018. Since the beginning of 2018, tether has generated more than 850 million coins. Those coins appear to have been used to buy large amounts of bitcoin, supporting the price of the cryptocurrency but it’s not clear that they’re backed by traditional money.
If tether has too little real support and is itself supporting bitcoin then both coins could collapse in value. But that’s not happening either. Bitcoin has been showing its usual volatility but has more than doubled in value since the start of the year. And while tether might not be pegged exactly to the dollar, it hasn’t strayed very far. At one point in April 2017 the value of a tether was just 91.4 cents. Since then the lowest it’s dropped is to 94.4 cents and the highest has been $1.06. In practice, the coin ranges from the dollar by about a cent.
For businesses then, tether should look risky but attractive. One the one hand, it’s not clear who is controlling the currency or what they’re doing with it. It’s also not completely pegged to the dollar. If you’re moving large sums, you can expect to lose—or win—small amounts when you convert the currency. But if you’re prepared to accept that currency risk then tether can make for a useful and predictable international currency. Agree to accept it for your international purchases, use it for the transactions, but keep the results of your transactions in fiat.
Joel Comm is New York Times best-selling author, blockchain enthusiast, professional keynote speaker, social media marketing strategist, live video expert, technologist, brand influencer, futurist and eternal 12-year old. His latest project is as co-host of The Bad Crypto Podcast, a top cryptocurrency show making the future of digital payments easy to understand.
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