What are the differences between USDT and USD? There is a lot of difference between USD and USDT, in spite of a few similarities, which most people are not aware of.
This article will let you know about these differences so that both your confidence and knowledge are enhanced about crypto coins and the crypto world. Reading this article will also let you know which among USD and USDT is better.
There is no denying that the popularity and importance of cryptocurrencies are growing at quite a fast pace in the mass market. The primary reasons for its growing popularity include:
- Low transaction fees
- No need for an intermediary and
- Faster and secure transaction.
No doubt, crypto coins are now integrated into daily life.
In comparison, using the banks and other centralized institutions for making cross border fund transfer is quite complicated, costly, and the process takes a lot of time to get completed.
That is why people consider crypto coins to be a more favorable and dependable medium of exchange.
4 Differences Between USDT and USD
The most significant difference between the USD and USDT is in the concept of decentralization of the market. Typically, the US Dollar needs no further explanation being one of the leading fiat currencies in the world.
On the other hand, the USDT is a stablecoin based on blockchain and can be used for trading to the worth of $1 USD for each coin, but the converse is not true.
Therefore, stable coins such as USDT and others act as a bridge between the world of fiat currencies and the crypto market. Check out Gold Pegged Crypto vs USD Pegged Crypto.
In order to make transactions more secure, several companies use a few centralized authorities to peg every coin of a specific cryptocurrency with an equal amount of USD.
However, this does not mean both these currencies are the same. In fact, there are lots of differences between the two, out of which a few major ones are included in the list below.
1. Stability and Acceptability
As far as the stability aspect of the two currencies is concerned, it can be said the USD is far less stable in comparison to the USDT. It is for this reason that there is a marked reluctance in the acceptability of the two coins by the banks.
This is because the USDT crypto tokens are pegged with USD in the ratio 1:1. This means that the USDT crypto coins are quite stable and their value stays around $1 and therefore if you want to get out of it the best temporary way is to transfer funds between the exchanges.
However, this does not mean that it helps the banks to do any good due to this feature and therefore, they do not guarantee acceptance of it in terms of their service. This resulted in the most significant concern of USDT: the absence of usable banking partners.
As far as the US Dollars are concerned, it needs no specific mention that this is the flagship currency of the financial markets all over the world and it is also a currency that has the power to move the economic direction of the world even though it is less stable than USDT.
Therefore, there is no question of its acceptability by the banks across the world. It is for this reason that the financial policies of the globe are based on the USD. However, in spite of its higher stability, the USDT cannot create such an impact on the world economy.
When it comes to trading, users look for flexibility. Typically, USD is backed by the US government and people have full faith in it whereas USDT is supported by nothing though it is tied to the USD in a unit ratio.
The USD is more familiar to the traders and is also more reliable to trade with due to its higher flexibility. As said earlier, USD is the only fiat currency that dominates the economy of the world and therefore you will see that millions of dollars are being traded and exchanged on a daily basis in the forex markets and there are a plethora of banks and financial institutions making these transactions.
On the other hand, the USDT tokens always have a minimum worth of $1 which may sometimes go up by a couple of cents. This makes it the safest bet and the smartest coin to trade with. There are several pairs traded in massive amounts on an open ledger.
There are lots of instances where BIT-USD is bought or sold on the open ledger quite frequently and successfully because it is backed by $1 of Bit Shares at the minimum.
This means that the traders can always purchase a minimum of $1 worth of BTS with BIT-USD. However, USDT is not as flexible as USD because it can move only a small portion of the crypto world that is typically dominated by Bitcoin and not the entire economy of the world as the USD can do.
3. Involvement of Banks
US Dollars are typically held in a bank account directly. Every transaction made with USD essentially needs to have a well defined, organized, and a regulated banking system.
This is why you can buy USD in a bank or even in an exchange house easily. This is also the reason why buying USD is much easier than buying USDT tokens.
In comparison, the USDT coins are issued by Tether and operate without any regulation of the financial institutions. These coins are accepted by a few exchanges and not by all of them because it is not considered as real cash.
In order to buy these coins you will need to use a Tether wallet or any virtual wallet. The money used to buy these tokens typically does not go into the bank account or to the exchanges that prefer USDT. Trading USDT typically means sending it from point A to point B in accordance with the money transmission rules.
4. Some Other Differences
USD is real cash issued and is controlled by the government. On the other hand, USDT is a crypto coin issued by Tether Limited and is typically unregulated.
USDT can be used by the traders on the cryptocurrency exchanges only while the US Dollars can be used anywhere and anytime.
USDT tokens can be withdrawn by the traders from the account of the crypto exchange to a virtual wallet only. In comparison, in order to withdraw the US Dollars from a crypto exchange, the traders need to have a bank account.
USD is a universal currency and is accepted all over the world by every merchant outlet, all online stores, and other platforms since its value is supported by the government of the United States. However, USDT is not and therefore it needs a dedicated USDT wallet to trade with.
Also, there is a high chance of a USDT project to be a scam but there are no such possibilities in the case of the USD.
When it comes to the sovereignty of the funds, US Dollars need a lot of verification for the withdrawal but it is not so strict in the case of crypto coins such as USDT. However, the process sometimes seems to be a bit slower in the case of cryptocurrencies such as USDT.
As for the differences in value, one USD can always be divided into 100 cents. However, as for the USDT, one unit of it may have a fluctuating value depending on the value of the fiat currency as well as the conditions of the market in which it is traded against.
When it comes to identification, you can easily identify the US Dollars as it is denoted by a unique symbol which is “$.” On the other hand, USDT does not have any unique symbol of its own. It is simply denoted as USDT.
Since USD refers to fiat cash or real money, it therefore signifies its liquidity. In comparison, the liquidity of USDT is quite difficult to predict at some point in time. This is because it typically depends on the company itself being an independent identity as well as the condition of the banks holding the security.
There is no assurance that Tether has adequate backing in US Dollars for all the USDT in circulation. This is the primary reason that there were a few scandals regarding its liquidity in late 2018. It could not deliver as promised. In the case of the US Dollars, there are no such issues that the traders need to be concerned about.
The USDT tokens can be easily used to influence the price of Bitcoin as well as any other type of crypto coins for that matter. However, in comparison, the US Dollars cannot be put to such use.
Which is Better – USDT or USD?
With the features and functionality of the US Dollars, it is not unnatural for people to think that USD is far better than USDT.
The US Dollar, as you must know, is one of the leading fiat currencies in the world. This specific fiat currency dominates almost every other currency, asset and even a few cryptocurrencies.
This position of the USD is not going to change anytime soon because the importance of a crypto coin that is pegged with USD such as USDT will always be lower irrespective of the price of the USD.
However, the crypto users and enthusiasts tend to think about it in a different way. They believe that this money, though it is issued by the government or a central bank, has no actual value.
The consumers on the other hand have a sort of mixed opinion regarding the US Dollars. They believe that the US Dollars do have actual value but it is not backed by anything tangible.
It is due to this belief of the consumers that more and more people have now started to show their interest in virtual currencies such as USDT instead of using US Dollars while making payment for some goods or services purchased.
These specific types of crypto coins take it upon themselves to link their value to the US Dollar. This makes it much easier to make any transaction in crypto coins, especially for the amateur users.
Ideally, the USDT tokens are stable coins based on blockchain and people can use them to trade one USD. It is like one of those numerous stable coins available nowadays in the crypto market that attempts to have a stable value.
Though each of these coins has a distinctively separate operating mechanism, the working process of all of them is however generally the same.
USDT, like other USD pegged coins, offers some sort of guarantee to trade the coins for $1, no more or less. Accordingly, it manages the supply of the tokens as well.
An actual and equal amount of dollars are held in reserve which is paid as and when the coins are redeemed. Therefore, these coins are considered to be more stable cryptocurrencies in terms of their prices.
The issuance of USDT and the supply maintained in its circulation in the market typically is responsible to keep the US Dollar value equal for USDT tokens at all times.
If this was not done, then it would have been impossible for the company to guarantee the value of one coin equal to one USD.
However, this concept seems to be quite good and feasible, but only on paper. So far, things have not been very easy for USDT.
This is because the company ideally uses a Taiwanese bank for making transactions of the USDT. Sadly, the company has failed to convert USDT to USD and vice versa quite a number of times since the bank raised a few issues.
It is for this specific reason that the users started to look for and depend on a third party exchange that will help them in the conversion process and go on trading with these coins. However, this has worked in favor of USDT in some ways.
The value of USDT, as a result, has been more than $1, actually $1.02 on Kraken to be precise, which allows the users to get a bit more USDT for the USD deposits made by them.
This renders the ‘pegging of value’ wherein the people who purchased these particular coins at US $0.93 can exchange them now at a higher rate and make good money.
However, in spite of the features that are slightly inclined towards USD, there is one thing that you should keep in mind while considering which to buy.
It is the fact that the USDT is just a piece of the exchange machinery rather than an investment. It is also important to take note of the fact that the USDT tokens are not presented in brokers via the underlying markets since these have the same value as the US Dollar.
The need for USDT tokens, on the other hand, is felt when it is difficult for companies as well as exchanges to hold independent fiat currency on behalf of the users.
In order to do that, the companies and exchanges must have a valid license. This need is even further aggravated by the need of the traders who want to move crypto and fiat easily.
In such situations, the traders as well as the companies and exchanges need to use USDT as an alternative for dollars.
This allows easy transfer of funds between exchanges and people without needing a traditional bank to act as an intermediary.
Whether you want to buy or sell, you will get to do it at the place where you can use cryptocurrencies. You can also use it to hold money on exchanges when the market is exceedingly volatile.
Another interesting use of these coins outside the crypto world is that it allows cross-border payments for purchases of goods and services. These include online shopping, gaming, and even dating.
With such a functionality and benefits offered, it can be safely said that the USDT has changed the way people look at cryptocurrencies, banking, making payments, eCommerce, and even sovereign fiat currencies.
However, if you look at the other side of it, there are lots of people who are still skeptical about USDT.
Among several different criticisms faced by these coins, one of the most significant ones is that there is no specific assurance that the USDT issued are fully backed by the US Dollars.
This brings to the irony of the state of affairs of the two types of currencies. The US Dollars are something reliable, well accepted all over the world, and valuable even though it is not supported by anything that is tangible.
This fiat currency gains all its trust among the users all over the world and is considered to be precious simply due to the promise made by the banks. And, it has continued to keep up its position since time immemorial.
USDT, on the other hand, is however pegged with USD itself and therefore has something tangible to its support and even then it is not considered to be as valuable as the US Dollars itself.
Therefore, in the end, it can only be said, whether or not you should invest in USDT and instead go with the traditional US Dollars is entirely your own decision.
There is nothing that can label one to be better than the other and that is why you should be extremely cautious and do some extensive research to make a well informed and well thought out decision.
Apparently, the USDT may be a bit more favored by users in comparison to USD but following what other people do blindly will be unwise. Hope this article has educated you about their differences so that you can make the right decision.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.