Bitcoin tends to dominate cryptocurrency headlines, but it’s worth paying attention to competitors like Tether (USDT). The blockchain-enabled stablecoin launched in 2014 and unlike other cryptocurrencies, is backed by an incredibly powerful external reference asset – the United States Dollar.
The relationship between USDT and the US Dollar
USDT is ‘tethered’ to the US Dollar and designed to offer a stable exchange rate of 1 USDT = 1 USD. For every USDT token in circulation, the company holds the equivalent of 1 US Dollar in cash or other stable assets. This protects Tether from the volatility and price fluctuations faced by other digital currencies like Bitcoin.
So, can Tether replace Bitcoin as the most popular cryptocurrency? To unpack this question, it’s important to understand the goals of both Tether and Bitcoin.
Bitcoin vs Tether
As explained above, Tether is a blockchain-enabled currency backed by the value of the US Dollar. The goal is to offer stakeholders a fast and easy way to use fiat currencies like the US Dollar, Euro or British Pound, without the volatility associated with digital currencies like Bitcoin.
Bitcoin is designed to eliminate the need for central authorities like banks and government-run financial platforms. It puts power back into the hands of everyday people and offers peer-to-peer transactions that are fast, secure and decentralised.
The role of centralisation
One of the main differences between Bitcoin and Tether is the level of centralisation. Bitcoin is completely decentralised and independent of fiat currencies. In comparison, Tether is intrinsically linked to the US Dollar. There are pros and cons to each. Lack of centralisation makes Bitcoin highly volatile and prone to dramatic price swings. This can translate to big profits or losses for stakeholders. USDT is backed by the US Dollar, which stabilises the price but reduces the scope for extreme price swings.
Market capitalisation for Bitcoin and Tether
In terms of market capitalisation, Bitcoin and Tether are right up there. Bitcoin remains the biggest and most powerful cryptocurrency in the world, with a total market cap of US$529 billion. It’s widely used around the world and can be used for both online and real-world transactions. For example, if you’re heading to London, Bitcoin can be a great way to pay for everything from tea, coffee and Pret a Manger sandwiches to hotels, cab rides and pub meals.
Next in line is Ethereum (ETH) with a market cap of almost US$223 billion. Tether is third in line with a market cap of US$83 billion.
Ultimately, Bitcoin and Tether are two very different cryptocurrencies. Tether is unlikely to replace Bitcoin as the most popular cryptocurrency, but it does offer an alternative for investors looking for something less volatile. Here’s a quick summary of both cryptocurrencies and what types of investors they work for:
Bitcoin BTC. Better for risk tolerant investors looking to make big profits. Most BTC investors have a ‘high risk, high reward’ mindset.
Tether USDT. Better for risk averse investors looking for safety and stability. Tether can be a great way to store value in the cryptocurrency realm, without the volatility associated with digital assets like Bitcoin.
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