a stablecoin cryptocurrency backed by fiat currency
Tether is a type of stablecoin. The rationale behind this subset of cryptocurrency is that for one coin in circulation, one dollar is held in reserve. Stablecoins are designed to eliminate the volatility and wild price swings often seen with other dominant cryptocurrencies such as Bitcoin and Ethereum. However, Tether has not been immune from controversy over its short time in existence.
The purpose of Tether
Although cryptocurrencies have exploded in popularity over recent years, critics have warned that they are practically unusable for daily life. Having your salary paid in the likes of Bitcoin runs the risk of its value dropping by 20% in a matter of hours, and big purchases becoming considerably more expensive in the time it takes to take an item off the shelf and walk to the checkout. By being paired to fiat currency, stablecoins like Tether are designed to serve as a medium of exchange.
Tether has fallen victim to hacks in the past, with coins worth tens of millions of dollars stolen back in November 2017. Questions have also been raised about whether the stablecoin has actually been collateralized on a 1:1 basis with the US dollar as promised. Although the organization behind Tether assured investors that its reserves were in order, there have been delays in performing independent audits that could verify this.
The stablecoin operator has also been embroiled in a legal case with New York prosecutors over allegations that its funds were used to plug an $850 million loss at Bitfinex, the crypto exchange it is affiliated with.
Some critics also argue that Tether works against what cryptocurrencies have been striving to achieve for years — a disassociation from centralized authorities. By aligning its value with old-fashioned currencies such as the dollar, some investors grumble that they are unlikely to realize the gains seen in other coins. Supporters argue this isn’t the point, as Tether can be used as a safe haven when Bitcoin or Ether prices are in decline.