Tether is in the headlines again as the founder of the centralized stablecoin Broke Pierce tweeted on 17 June that he was proud to lead a group of Bitcoin ambassadors to El Salvador. The crypto community prides itself on having no central leader, as such comment was not in good faith.
The tiny nation in Latin America recently gained fame after the president Mr. Nayib Bukele announced his plan to make Bitcoin – the legal tender in the country. It means greater legitimacy and usage/adoption for the cryptocurrency industry. But it’s not without its problems. Enter the Tether connection.
El Salvador and Cryptos
Besides using the USD as their currency for decades, the Latin American country now plans to make Bitcoin’s acceptability mandatory too, by the clauses in the approved “Bitcoin Bill”. The problem? El Salvadoran people don’t have access to the internet. Also, not all places have enough infrastructure to enable/process Bitcoin payments. Add to it, the volatility and some people would prefer dollars, instead of BTCs or sats. Also, the scalability issues limit Bitcoin’s ability to scale and function for micro-payments – required for day-to-day transactions.
The solution? Lightning Network integration – the Layer 2 solution that provides for near-instantaneous transactions at extremely low fees. However, the Lightning Network or LN is far too complicated to be handled easily by people, but fortunately, there’s the LN Strike service, which is likely to become the solution of choice for the country’s people.
Jack Maller’s brainchild LN Strike runs a closed private Lightning Network network, which no external node can freely connect to, but requires permission. Also, Know Your Customer (KYC) is required before using LN Strike, so it’s essentially a permissioned centralized network. And the way it works?
Tether (USDT) controversy
LN Strike takes the dollars in your bank accounts, converts them to BTCs over Lightning, moves them across, before converting them to Tether USDT. It then credits the user account on the destination side. Tether doesn’t have a good reputation, however.
In utopia, one Tether USDT in circulation should be backed by 1 USD in the company’s reserves. But that’s not the case, far from it. The centralized stablecoin’s composition was revealed in a previous report, as part of its ongoing investigation with the New York Attorney General’s office on May 13, 2021.
Commercial papers primarily back Tether. What’s commercial paper? According to Investopedia, “it’s a common type of unsecured, short-term debt instrument that corporations issue. It typically helps in the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities”.
Now commercial papers aren’t equal in the creation sense.They’re also debt which at times, can’t be paid. What does it mean? Tether is a weaker form of the dollar and it’s problematic because it boosts the price of all cryptocurrencies, primarily Bitcoin. It appears that El Salvadorans might be replacing the dollar with a weaker version of it, presenting a systemic risk. More details will come although the plan is still obscure.
- Shiba Inu Price Prediction: How High can SHIB Price reach by 2030?
- Arbitrum Overtakes The Lightning Network By 23X Crossing $2.6B TVL In 3 Weeks
- Lightning Network Can Support ~35 Million Users At 3 Tx / Yr Average: LN Whitepaper
- PEPE Coin Price to Reach $5 in the Next Seven Days?
- Tether Plans to Invest $500M in Bitcoin Mining
- El Salvador Likely The First Country To Declare Bitcoin As Legal Tender
- This COUNTRY is running on Bitcoin – Bitcoin El Salvador Success Story
- Chivo Wallet – An Overview Of El Salvador’s $30 Bitcoin Airdrop Plan
- Ethereum WBTC Overtakes Lightning Network In TVL By 60.26%
- Bitcoin Mining: A Surge in Activity and Investment
- 3 Reasons why the Crypto Market CRASHED! Here’s what happened
- Tether stablecoin crash to follow Terra’s disaster? This is what we know.
- Bitfinex to Launch Tether on the EOS Blockchain, Lightning Network
- Bitcoin Price Prediction – Bitcoin breaches 40K, but will it Drop Back?
- Lightning Labs Secures 10M Funding, Launches Lightning Loop Beta
- Bitcoin prices reach a roadblock of USD 19,000 – What does this mean for Altcoins?
- DeFi Boom: Over $223 Million in Bitcoin Tokenized on Ethereum Chain!
- 5 Crypto Experts thoughts after the Bitcoin Crash and Solana’s Escape
- This Billionaire with a Net Worth of $13.2 Billion Reveals 10% of His Liquid Assets are in Bitcoin!
You might also like
More from Altcoin
Allocating a small portion of an investment portfolio to cheap cryptocurrency prices? Here are 3 cryptocurrency prices under $1 to …