The era of cryptocurrency is here and the newest development in this field is the creation of Tether, a token based digital currency where each tether is pegged to a real US dollar that exists in the accounts of the company. This technique provides Tether with an intrinsic value and gives it substance.
What is Tether?
As mentioned above, Tether is a dollar-pegged digital currency where each Tether token is issued based on a dollar present in the bank account of the Tether company. The first version of Tether was issued on the top of Bitcoin blockchain through the Omni protocol. Currently, there exists more than $430 million worth of Tether in the market. By using Omni, the users can issue digital assets in a manner similar to the popular ERC-20 compliant token standard, as seen on Ethereum.
The Problem
The recent report, released by Friedman LLP, may have quelled the rumors of the insolvency of Tether, however the issue of Tether being used for illicit activities is still a big concern. Any proof regarding the use of tether to carry out illicit and illegal activities will encourage governments all over the world to put sanctions on Tether.
The chances of government-imposed regulations on digital currencies, such as Tether, are high, owing to the recent reports of North Korea using Bitcoins to get around the transactions placed on them by the United States government. US Senator, Ed Markey, recently called for Bitcoin to be “shut off”. It is unclear whether Markey meant that the entire currency should be shut off, or just the transactions pertaining to the North Korean region.
The whole point of Bitcoin is to avoid censorship by governments, therefore, any regulations being imposed on the currency will render its idea useless. The same cannot be stated regarding Tether, which has a central point of failure as it is backed by actual dollars existing in the bank accounts of the supporting company. Therefore, if the government was to impose sanctions on Tether and block their accounts, then tethers will lose their value.
Without the backing of US dollars, tethers have no actual value. Therefore, pegging a cryptocurrency to the US dollar does not remove the central point of failure and only makes it more susceptible to sanctions.
US dollar-pegged token, Tether, is a ticking time bomb
The recent report, released by Friedman LLP, may have quelled the rumors of the insolvency of Tether, however the issue of Tether being used for illicit activities is still a big concern.
Published on Oct 03, 2017 15:09 By Danish Yasin