One of the cryptocurrencies, as well as digital assets that you need to know, is USDT or United States Dollar Tether.
USDT is a type of currency or crypto asset in the stablecoin type.
Stablecoins are cryptocurrencies with values tied to real-world assets, such as currencies (such as the United States dollar), gold and other commodities.
So, to find out what USDT is, its history, and how it avoids cryptocurrency price fluctuations, let’s see the full review below.
What is USDT?
You need to know that USDT is a type of stablecoin that is designed to have a fixed value equivalent to the United States dollar (USD) at an exchange rate of 1:1.
Stablecoin itself is a type of crypto asset whose value is associated with other stable assets, such as fiat currency (such as USD, Euro or Yen).
After understanding what USDT is, you can understand more about USDT by looking at its meaning, history, and how it works.
Tether was designed by a company called Tether Limited and issued as a crypto token on a blockchain network such as Ethereum or Bitcoin.
This stablecoin is often used as an alternative to avoid high-value fluctuations in the crypto market, which is usually very volatile.
By using USDT Tether, investors can take advantage of the digital currency’s benefits, such as fast transactions and low fees, while maintaining the stable value of fiat currency.
It should also be noted that USDT (Tether) is a stablecoin issued by the Tether Limited company.
The value of the USDT is related to the United States dollar in the sense that 1 USDT will be equal (equivalent) to 1 USD.
Brock Pierce, Reeve Collins, and Craig Sellars are the names behind the emergence of Tether Limited in 2014.
1. History and Background of the USDT
The history of USDT itself was initially created as an alternative to traditional banks which were considered slower to process cryptocurrency transactions.
In this case, USDT allows users to transfer value between various cryptocurrency exchanges more quickly and efficiently.
In addition, Tether Limited has stated from the start that USDT is fully backed by United States dollars deposited in a bank account.
However, Tether then experienced several controversies related to that claim in 2018.
In addition, there is also a need for more transparency regarding the actual dollar reserves.
Furthermore, there are also doubts among the cryptocurrency community that Tether Limited really has enough dollar reserves to guarantee the value of the USDT issued or not at all.
In response, Tether Limited audited USDT’s reserves and updated its website to state that USDT is backed by a combination of currency and cash reserves, including United States dollars, euros and Japanese yen.
However, the controversy and doubts about USDT are still ongoing.
2. How USDT works in avoiding cryptocurrency price fluctuations
In this regard, it is necessary to recall that USDT was designed to be a stablecoin.
It also means that the value of the USD is closely related to the value of real-world currencies, for example, the US dollar.
Here are some ways USDT works to avoid cryptocurrency price fluctuations that you need to know, including:
- The value of USDT is always related to the United States dollar
- USDT is kept in appropriate reserves
- USDT is used as an alternative to other cryptocurrency
- USDT is used as a means of payment in cryptocurrency trading
Pros of Using USDT to Avoid Cryptocurrency Price Fluctuations
To avoid fluctuations in cryptocurrency prices, there are several advantages that you will experience when using USDT (Tether), which are as follows:
1. The stability of USDT’s value as a stablecoin
USDT has a fixed value tied to the US dollar. This makes USDT stable and reliable as a payment means or substitutes for other cryptocurrencies.
This means that when you exchange your cryptocurrency for USDT, you can maintain the value of your assets previously affected by cryptocurrency price fluctuations.
2. Ease of use of USDT
Another advantage is the easier use of USDT. The reason is, when using USDT for cryptocurrency trading, it will speed up the transaction process.
Meanwhile, when the cryptocurrency value drops, traders can quickly sell their cryptocurrency for USDT in an effort to avoid losses.
Then, he can buy back the cryptocurrency when the price drops.
In addition, using USDT as a means of payment in cryptocurrency trading will also facilitate the payment process and avoid the risk of price fluctuations in Cryptocurrencies.
3. Safe and reliable
Using USDT is also safer and more reliable. The reason is it can help traders to avoid the risk of losing the value that can occur when the value of cryptocurrency drops.
In this situation, traders can sell their cryptocurrencies and exchange them for USDT, which is more stable and related to the US dollar.
How to Use USDT to Avoid Cryptocurrency Price Fluctuations
USDT can be an excellent alternative to avoid cryptocurrency price fluctuations.
Besides that, as a stablecoin, USDT is considered capable of maintaining the value of cryptocurrency assets. Here are some easy steps to buy USDT, namely:
1. Easy steps to buy USDT
- Opening an account on a cryptocurrency exchange
First, you can open an account at a crypto exchange, for example, INDODAX, or a cryptocurrency exchange that provides USDT trading.
- Account Verification
If you have opened an account, then you can verify your account.
The trick is to submit official identity documents and personal information requested by the cryptocurrency exchange earlier.
- Make a deposit
If your account has been verified, you need to deposit to your account using another fiat/cryptocurrency currency.
Here, you must follow the deposit instructions provided by the cryptocurrency exchange.
- Buying USDT
After you have a balance in the account, you can buy USDT by exchanging fiat/other cryptocurrencies available on the cryptocurrency exchange.
On cryptocurrency exchanges, there is usually a feature to buy USDT directly or exchange fiat/other cryptocurrencies.
- Withdraw USDT
If you want to withdraw USDT, you can choose the withdrawal options on the cryptocurrency exchange.
Ensure you have followed the withdrawal instructions and entered the correct USDT wallet address so that USDT can be received successfully.
2. The use of USDT as a substitute for cryptocurrency on exchanges
It should also be noted that USDT can be a substitute for cryptocurrency on exchanges because USDT is a stablecoin with a stable value of around 1 USD.
Of course, this allows users to avoid fluctuations in cryptocurrency prices which are often unstable and challenging to predict.
On the crypto exchange, users can exchange their cryptocurrencies for USDT to keep their value stable throughout market volatility.
Once the market stabilizes, users can exchange their USDT back into their original cryptocurrency at its retained value.
Besides that, USDT can also be used as a means of payment in cryptocurrency trading.
This allows users to buy and sell cryptocurrencies without worrying about price fluctuations.
3. Safe storage of USDT
Meanwhile, it is important to securely store USDT to avoid the risk of losing funds due to theft and hacking.
Below are some tips for storing USDT safely, namely:
- Use an official wallet
First, to ensure the security of USDT storage, make sure that you use an official USDT wallet that is trusted and recognized by the USDT issuer.
The official wallet can help you store USDT safely and reduce the risk of theft/loss of funds.
- Use hardware wallets
To store USDT safely, you can also use a hardware wallet such as Ledger or Trezor.
The hardware wallet stores your private keys offline and is protected from hackers and malware attacks.
- Avoid disclosing the private key
Third, don’t reveal your private key to anyone, even including the exchange/wallet used.
The reason is the private key is the key to accessing and controlling your funds, which means that if it falls into the wrong hands, then your funds can be taken by irresponsible people.
- Use strong passwords
You should also use a strong and complex password in your wallet.
Here, you can use a combination of uppercase, lowercase, numbers, and symbols to create a password that’s not easy to guess.
- Protect yourself from phishing attacks
The next tip is to protect yourself from phishing attacks by not entering personal information, such as private keys or passwords, on suspicious or unknown sites.
- Keep backups safe
Lastly, you can safely store backups/backup private keys in a separate place from your wallet.
The goal is that you can restore access to your funds in case of loss/damage to the wallet.
USDT Comparison with Other Digital Currencies
Like the previous review, USDT is a type of stablecoin currency that has a 1: 1 ratio with the US Dollar.
This causes some significant differences between USDT and other cryptocurrencies. Includes unique differences and comparisons with Bitcoin and Ethereum.
1. Comparison of USDT with cryptocurrencies like Bitcoin and Ethereum
So, how does USDT compare to other cryptocurrencies, such as Bitcoin and Ethereum? Here are some comparisons, namely:
- Stable value vs fluctuating value
The first comparison lies in stable values and fluctuating values. In this case, USDT is a stablecoin with a value that is always kept stable around 1 USD.
Meanwhile, the value of Bitcoin and Ethereum is very volatile and depends on market demand.
- The intended use
Judging from the purpose of use, USDT will be a means of payment as well as hedging against price fluctuations of other cryptocurrencies.
On the other hand, Bitcoin and Ethereum will be used as investment and payment tools on the blockchain platform.
From a transaction standpoint, using USDT for transactions will be relatively faster and cheaper than Bitcoin and Ethereum.
This is because the transaction fees on Bitcoin and Ethereum are higher, and the transaction confirmation time is longer.
- Transaction capacity
Referring to the transaction capacity, because it is not a stand-alone cryptocurrency but depends on other blockchain networks, USDT has a higher transaction capacity.
Meanwhile, the Bitcoin and Ethereum networks have limited transaction capacity, so transaction delays or higher transaction fees can occur when the network capacity is full.
As for security, basically, USDT, Bitcoin, and Ethereum depend on the quality and security of their respective blockchain networks.
However, because USDT is maintained at a stable value of around 1 USD, the risk of loss due to price fluctuations is lower than Bitcoin and Ethereum.
2. Pros and cons of using USDT as a substitute for cryptocurrency
On the other hand, using USDT as a substitute for cryptocurrency certainly has advantages and disadvantages that must be considered, including:
- Value stability
With the stability of its value, USD has a lower risk of loss due to price fluctuations than cryptocurrencies, whose value fluctuates.
- Facilitate transactions
Unlike cryptocurrencies, whose value varies depending on market conditions, using USDT makes transactions and payments easier because the value always remains the same.
- Avoid high transaction fees
Using USDT can also avoid the high transaction fees that exist in cryptocurrencies such as Bitcoin and Ethereum.
- Available on many platforms
Apart from that, USDT is also available on many platforms and can be traded with other cryptocurrencies.
On the other hand, the disadvantages of using USDT as a substitute for cryptocurrencies that need to be known are as follows:
- Not fully decentralized
Basically, USDT still depends on third parties who manage it, so this cryptocurrency is not fully decentralized like other cryptocurrencies.
- Security risk
There is still a security risk even though USDT is kept stable in value. Like most cryptocurrencies, USDT is also vulnerable to hacker attacks and theft.
- Does not support smart contracts
USDT does not support smart contracts, an important feature on blockchain platforms like Ethereum.
- It depends on Tether Limited
Full control of the USDT coin belongs to the company that manages USDT, Tether Limited.
Thus, there is a risk of dependence on third parties in managing USDT.
Risks to Watch Out For When Using USDT
It should be understood that all forms of financial activity contain some risks. The use of USDT as a digital asset to convert to conventional currency is no exception.
However, you don’t need to worry too much. Just consider the pros and cons so you can calculate wisely. The risks and impacts when using USDT include:
1. Potential risks in converting USDT back to conventional currency
The first risk that must be considered when using USDT is the potential risk of converting USDT back to the conventional currency.
The following are some of the risks that may arise, including:
- Market volatility
Given that the exchange rate of USDT against conventional currencies depends on market conditions, price fluctuations can result in unexpected losses/gains.
- Liquidity risk
In addition, the market liquidity of USDT and conventional currencies used for conversion may vary depending on the platform and time of day.
Therefore, users may need clarification litan in selling USDT or exchanging it back to the conventional currency.
- Security risk
This risk related to handling USDT coins also applies when users convert them back to the conventional currency.
For example, the risk of losing USDT coins due to theft and fraud.
- Transaction fees
Transaction fees can also affect the user’s profit/loss when converting USDT back to the conventional currency.
The transaction fee depends on the platform and the method used for conversion.
- Regulatory risk
In addition, there is also the risk that cryptocurrency and USDT regulations can change and are only sometimes clear in some countries.
Therefore, users must also consider the regulatory risks of converting USDT back to the conventional currency.
2. Potential risk on the exchange platform used
The second risk is the potential risk on the exchange platform used, and the resulting impact is as follows:
- Security risk
On exchange platforms, the security risk is one of the main risks.
In this case, USDT coins stored on exchange platforms will be vulnerable to hacker attacks and theft.
- Liquidity risk
Liquidity can vary on each exchange platform. If a user wants to buy or sell USDT quickly, this liquidity risk can affect the price and trading volume.
- Risk of technical failure
Technical failures that result in users being unable to access their funds or trade at the right time also lurk on exchange platforms, so choosing an exchange with guaranteed capabilities is important.
- Regulatory risk
As mentioned earlier, regulations regarding USDT can vary from country to country and change occasionally.
In this case, exchange platforms must comply with these regulations, and users must understand the regulatory risks associated with using USDT on exchange platforms.
- Transaction fees
Meanwhile, transaction fees on exchange platforms can also vary and affect user profits/losses.
Therefore, before trading or storing USDT, users must understand the fees charged by the exchange platform.
In conclusion, you need to know that USDT Tether is a type of stablecoin designed to have a fixed value equivalent to the United States dollar (USD) at an exchange rate of 1:1.
Some of the advantages of using USDT to avoid cryptocurrency price fluctuations are:
- The stability of USDT’s value as a stablecoin
- Ease of use of USDT
- Safe and reliable
Meanwhile, the comparison of USDT with other digital currencies such as Bitcoin and Ethereum can be reviewed from various aspects, including:
- Stable value vs. fluctuating value
- The intended use
- Transaction capacity
Furthermore, several risks need to be considered when using USDT, namely:
Potential risks in converting USDT back into conventional currencies include market volatility, liquidity, security, transaction costs, and regulatory risks.
Potential risks on the exchange platform used and the impact it has, including security risk, liquidity risk, technical failure risk, regulatory risk, and transaction costs.
Want to Invest in Crypto?
For those interested in investing in crypto safely, you can do it at INDODAX.
The reason is that INDODAX is an official crypto exchange registered and supervised by Bappebti and Kominfo, so security is guaranteed.
Meanwhile, if you want to buy USDT assets, the method is very easy; you have to visit the INDODAX market page, select USDT on the IDR market, and continue by buying USDT to IDR.
Come on, invest in crypto right now!