Bitcoin vs Tether: A Detailed Comparison

tether-vs-bitcoin

Bitcoin and Tether are among the most widely used cryptocurrencies, so questions like “Which coin is better, USDT or BTC?” are inevitable. The truth is, these systems are fundamentally different, and each excels in what it is meant to do. To get to the bottom of it, here is a detailed comparison of five main aspects of these cryptocurrencies.

The article prepared by TheJingStock.com team.

Purpose: A Libertarian Dream vs the Reliable Cryptocurrency

Bitcoin was initially conceived as a state-of-the-art alternative to money. The goal was to create the payment system that would be decentralized, fully transparent, and accessible to anyone. So the purpose of this cryptocurrency was essentially to give “power to the people” by providing an open, free, and autonomous network based on the available technology.

From this perspective, it becomes clear that bitcoin is essentially built on libertarian values. Over the years, many theorists have pointed to the fact that its ideas of openness, transparency, anonymity, and privacy stem from the 1990’s Cypherpunk movement, which, in turn, is based on the Austro-libertarian school of thought. In this light, Bitcoin is a sociological experiment that just happened to gain traction and legitimacy in the financial world.

Now, the story of Tether is radically different. To understand its purpose, we need to take a few steps back and look at the early days of cryptocurrencies. After the meteoric rise of Bitcoin and the emergence of its numerous successors, lots of people jumped on the bandwagon. While some were drawn by its technological potential, most were interested in it as an investment option.

What they soon discovered, however, was that most cryptocurrencies, including Bitcoin, were notoriously unstable. So, while you could indeed receive a 400% return on investment in a matter of weeks, you could also lose as much by simply buying at the wrong time. This also meant that cryptos were not viable for daily use: imagine ordering a meal for $40, then being handed a check for $52 because your money has lost value while you ate. Obviously, the public wanted something more predictable.

Enter the concept of “stablecoins” — cryptocurrencies that would be resistant to price fluctuations. Simply put, one stablecoin would always be worth the same amount of fiat. Tether was one of the earliest of such coins, designed to be always worth $1 per coin. In other words, it was intended as a predictable, reliable, and trustworthy payment option.

Reputation

The least intuitive comparison point on the list yet perhaps the most important one. As you remember, Bitcoin is not backed by anything, so essentially it is only worth as much as people agree to pay for it. And so far, the people seem to put more trust in it than in traditional financial institutions. Sure, there were many accusations of it being a scam, a bubble, and a Ponzi scheme — but those mostly come from poor understanding and are never backed by meaningful evidence.

Tether, on the other hand, is a commercial product issued by a company that claims that tokens are backed by real money. While so far, the token has lived up to its promises, its journey was not without bumps. Not a big deal, but not something to discard, either.

Usability: Digital Money or Digital Gold?

As was already mentioned, the initial purpose of Bitcoin was to create a digital currency available to everyone and not controlled by anyone. And, to an extent, this goal has now been successfully achieved. Using bitcoin for monetary transactions is free, simple, and fast — at least if you believe the media outlets. Here are just some of the ways you can use it:

  • As a donation to a BTC address
  • As a payment to businesses that accept it
  • As a funds transfer option
  • As a trading asset
  • As a gift via a cold wallet

All you need to do is download an app, generate a wallet (no registration or personal data submission required), and start sending or receiving funds.

In reality, though, it is somewhat more complicated. For starters, even the basic operations like making a transaction require some technical proficiency. While many user-oriented software solutions have made clever UX improvements that increase simplicity and user-friendliness, the underlying elements remain nearly incomprehensible for a non-technical audience. On top of that, the bitcoin blockchain has a scalability problem, which means that as the number of users grows, transaction times become slower. While this has been taken care of by the so-called Level 2 systems, it is still a major barrier to wider adoption.

Finally, there’s the question of availability. Currently, Bitcoin is recognized as a legitimate payment option by many regulatory institutions, allowing financial organizations to buy and sell it to customers. Unfortunately, businesses are not in a hurry to follow suit, so your chances of buying something for BTC directly are still slim. Because of all of the above, people and organizations tend to view it as an investment option or as a tech demo of a promising technology rather than a viable alternative to money.

Now, because Tether is backed by real currencies, one may think that it is just as easy or accessible. In reality, though, it is subject to the same limitations and shortcomings as the father of all cryptocurrencies. To begin with, Tether runs on Bitcoin- and Ethereum-based networks, which means that it poses the same challenges to users. In fact, making a transaction in Tether often requires the same wallets that are used for ETH and BTC.

However, while the technical stuff is virtually the same, the main difference in usability comes from Tether’s stability. No matter how many hoops you need to jump to use your coins, with Tether, you always know they will be worth the same money you paid for them in the first place. This makes it much more viable as a daily payment option. In addition, Tether tokens are a popular alternative to fiat on exchanges since they are subject to fewer regulatory restrictions. All in all, both cryptocurrencies are in their early stage of development and, while each has its niche in the financial domain, neither is usable as a payment system in the true sense of the word.

Market Capitalization: Not the Same for BTC and USDT

This is perhaps the most significant difference between the two. By design, Bitcoin is a deflationary currency, which means that theoretically, it will only increase in value over time. Incidentally, this is exactly what it has been doing this far. In fact, it has remained an absolute leader in market capitalization percentage, keeping steadily above 50% throughout its entire lifespan.

For Tether, things are different. As a stablecoin, it is not supposed to appreciate it at all. The only way its total market cap can go up is if more tokens are added to the system, which isn’t really something you’d want to happen. In other words, the market capitalization metric doesn’t really apply to it.

Technical Stuff: Different Price, Same Engine

Bitcoin is based on the technology known as the blockchain. While the concept itself existed far before the launch of the Bitcoin network, it is fair to say that it is responsible for putting it on the map in the public consciousness. Blockchain has many practical advantages as a payment system:

  • Reliability
  • Transparency
  • Speed
  • Autonomy
  • Efficient resource use
  • Low cost
  • Trustworthiness

Here is how it works: everyone willing to participate downloads the software package and installs it on their PC. Once launched, the software starts recording the transactions on the network into a shared public ledger. These records are signed with a digital signature generated via a sophisticated algorithm so that their authenticity could be verified whenever necessary. Because it happens simultaneously on thousands of machines throughout the world, the network is highly resistant to forgery of any kind.

In other words, the blockchain is run by everyone ready to lend their computer’s processing power to the cause. Now, because this is a rather resource-heavy operation, and in order to attract participants in the first place, each set of records, known as a block, comes with a reward attached to it. In a sense, it is a collective operation that allows everyone to join and profit, no restrictions applied — a truly decentralized technology.

From a technical standpoint, Tether is not too different from Bitcoin (as are most cryptocurrencies). That is, it is powered by the blockchain technology where its transactions are recorded into the distributed ledger. The key difference is this blockchain is not public — at least, not in the true sense.

The currencies in Tether are represented by tokens — digital assets that correspond to popular fiat currencies like US dollars, Euros, and Japanese Yen. A number of networks support tokens, including the Bitcoin-powered Omni Layer and Ethereum’s ERC-20 token, both of which are used by Tether. In other words, Tether uses other cryptocurrency networks as an engine for running its operations. From the user standpoint, a major difference is that of control: new tokens can only be added by Tether’s governing body, which means that it is decentralized mechanically but not financially.

Bitcoin vs Tether: Apples and Oranges?

Comparing Bitcoin with Tether is difficult. The first is a surprisingly successful sociological experiment that is not particularly good at what it was going to achieve yet trusted by millions of people and able to withstand the scrutiny of regulators. The second is a much needed commercial product that has been able to deliver on its promises so far. It is safe to say that both cryptocurrencies occupy their niche in the market and have the potential to become the default payment systems in the near future.