One of the most heavily traded cryptos in the market right now, Tether is on everyone’s lips. What’s new about Tether is that it is a stablecoin. In other words, it is a cryptocurrency with its value pegged to the dollar. There are several stablecoins in the market right now, all of these have their value pegged to a fiat currency such as the dollar or the euro.
How a stablecoin like Tether differs from other coins in the market is that the value of most to all cryptocurrencies in the market is dependent on speculation rather than the actual usefulness of the technology that underpins them. Speculation drives price movement, which ultimately leads to volatility. While volatility works in the favour of the traders, however the wild swings in prices make such currencies incompatible with the concept of ‘store of value’ which is closely associated with fiat money. This is where a stable currency like Tether comes in. Stablecoins resolve the wild volatility associated with cryptocurrencies by pegging the value of the coin to dollar or equivalent.
You may also read: Tether Destroys 500 Million Tokens
The use cases of stablecoins such as Tether are plenty. First of all, they offer high transaction speeds and provide more convenience without the wild volatility that is associated with most altcoins as well as Bitcoin. They also limit costs and risks associated with payment systems, along with eliminating the potential of money laundering or fraud. In fact, the ease of accessibility of stablecoins also has the potential to eliminate poverty by bringing a large number of people under financial inclusion.
On the other hand, Bitcoin, which is the world’s first cryptocurrency was invented with the aim of being trustless by eliminating the requirement of a third party or centralized authority. Tether is the other extreme of the idea of a trustless currency because it is pegged to fiat money, the very currency from which Bitcoin wanted to escape from. In other words, stablecoins again arise the dependency on a centralized authority like the government because one needs to have confidence in fiat currency to have trust in Tether. Not only that, as a trader or user of Tether you are also dependent on a private company. Hence with Tether, one has to put their trust in the fate of the government along with the company that issues it.
You may also read: A Beginner’s Guide to Tether