What is Tether? The cryptocurrency causing problems for Bitcoin

Bitcoin has seen its value skyrocket in the space of a few hours
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Georgia Chambers16 October 2018

Bitcoin has seen its value skyrocket in the space of a few hours, a spike thought to be the result of the fall in value of another cryptocurrency.

Cryptocurrency trading platform Bitfinex reports that Bitcoin soared from $6,294 (£4,769) at midnight on October 15 to $7,788 (£5,901).

Meanwhile, the value of cryptocurrency Tether fell from $0.99 to $0.92, according to industry data resource CoinMarketCap.com.

Experts believe investors are selling out of Tether and buying Bitcoin instead, amid fears over the stability of Tether.

Some critics believe that Tether is even helping to manipulate cryptocurrency prices, which Tether has denied.

So what is Tether, how is it different from Bitcoin and why is it causing so many problems for crypto traders?

Here's everything you need to know:

What is Tether?

Tether has been marketed as the "stable" cryptocurrency, because its value is meant to mirror the value of the US dollar.

This means that Tether trades at $1 on all exchanges and can be used in place of a dollar, however this doesn't always work in practice.

Tether operates by converting cash into digital currency, to "tether," as it were, the value of the coin to the price of national currencies like the US dollar, the Euro and the Yen.

Also called the USDT, it was created in 2015 by the same people behind Bitfinex, with whom Tether shares CEO Jan Ludovicus van der Velde and CFO Philip Potter.

There are currently $2billion worth of Tether coins in circulation, according to CoinMarketGap.com

What is Bitcoin? Everything you need to know about the cryptocurrency

Why do people use it?

Tether's popularity has been well documented. As of October 15, it was the second-most traded among all digital currencies after Bitcoin.

People like using Tether because it doesn't have to travel through the banking system. Coins are easily transferable between cryptocurrency exchanges and other online platforms.

Tether's website says it allows you to "store, send and receive digital tokens person-to-person, globally, instantly and securely for a fraction of the cost of alternatives."

How does it compare to Bitcoin?

Consumers are increasingly falling victim to scammers claiming to offer cryptocurrency investments like Bitcoin
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Like Bitcoin, Tether uses blockchain, a kind of technology that allows digital information to be distributed rather than copied.

However, unlike Bitcoin, which value fluctuates a great deal from day to day, Tether's coins are designed for stability.

Why are people worried?

There are fears that Tether does not have the currency reserve to back all it has in circulation.

But Tether has denied this, stating that the cryptocurrency is back by USD reserves.

In a statement, Mr Ludovicus van der Velde said: "Despite speculation, we have consistently stated that tether is backed by USD reserves at or exceeding the tethers in circulation at a given moment, and we're glad to have independent verification of this so answer some of the questions posed by the public."

There are also concerns over the nature of Bitfinex and Bitcoin's relationship.

A research paper published by academics at The University of Texas also claims that Bitfinex used Tether to buy bitcoin at times of low demand and hike up the price.

The paper concludes that Tether's price patterns are "most consistent with the supply-based hypothesis where Tether is used to provide support and manipulate cryptocurrency prices."

Addressing the paper, Mr Ludovicus van der Velde said: "Bitfinex nor Tether is, or has ever, engaged in any sort of market price manipulation. Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex."