A tale of two concepts: security versus market access… For now.
The concept of a “cryptodollar,” or a cryptocurrency whose value is pegged to the US dollar is beneficial to traders. Tethers (USDT) have this at their core function. The way this is achieved, supposedly, is by creating one USDT for every US dollar deposited. This leads to some controversy over whether or not the issuers of USDT are solvent.
Despite the controversy there is still strong demand for USDT. The question for holders is how to securely store the USDT. This is complex.
Learn more about USDT https://www.finder.com.au/tether
Best wallets for USDT
MyEtherWallet
OmniWallet
Tether Limited wallet (Official)
Exchange wallet (partnered)
What to know about USDT to store it safely
Since its creation USDT has worked using the Omni protocol. That network is built on top of, and interfaces with, bitcoin’s Mainnet. USDT still has that function.
! Glossary tip - Omni protocol is an application that allows USDT trade. That trade is conducted on top of the bitcoin blockchain. What this means is that the wallet addresses have a slightly different makeup to original bitcoin addresses. But because they are similar types of transactions they are transacted across bitcoin’s Mainnet.
As of late 2018 Tether Limited released USDT for use on the Ethereum blockchain. This is important to bear in mind because this affects how USDT can be stored in wallets.
In 2014, when USDT was first created on the Omni protocol, the Ethereum blockchain was only at its initial stages. The USDT white paper reflects this by suggesting several wallets to use when storing USDT, which only use the Omni protocol.
This needs to be clearly understood. The Ethereum blockchain and the bitcoin blockchain are two different products. For that reason USDT on the Ethereum blockchain and USDT on the Omni protocol have different storage methods.
- MyEtherWallet
Good for: Security, Interface, Compatibility and allows cold storage
Weaknesses: USDT needs to be transferred to hard wallet for secure storage. Poor market liquidity for ERC20-based USDT
To be clear, MyEtherWallet is selected as the best wallet to obtain USDT because this gives you the power to cold store USDT on the hard wallet of your choice. As an ERC20 token on the Ethereum blockchain, USDT can be cold stored on an external wallet like a Trezor or Ledger wallet.
! Glossary tip - ERC20-compliant tokens are an Ethereum blockchain-based token protocol. The protocol helps standardise token issuance across the Ethereum blockchain.
By using the Ethereum-based ERC20 USDT, anyone has the power to store their USDT tokens privately and securely. From this point of security, storage on MyEtherWallet with the view to transferring to a hard wallet is best practice.
MyEtherWallet allows you to access exchanges and USDT which can then be transferred to a hard wallet. That is an advantage that the OmniWallet does not have. Liquidity is the main drawback of the ERC20 USDT. Because there are not a lot of traders and small volumes of Ethereum-based USDT trade, buying and selling at critical times can be made more difficult.
https://www.finder.com.au/trezor-bitcoin-wallet-review
https://www.finder.com.au/myetherwallet-review
- OmniWallet
Good for: Security, market access
Weaknesses: Difficult user interface, complex transactions, no cold storage
OmniWallet is the original wallet for storing USDT. It is a browser-based wallet that allows you to withdraw from an exchange to the OmniWallet. Being a browser based wallet it has a lower security rating compared to cold storage. Having said that only you are in control of your private keys, meaning that access to your wallet is still very difficult for hackers.
The prime advantage of using the OmniWallet is market access. Because USDT trade on the Omni protocol is established buying and selling at critical times is easier than on the Ethereum blockchain.
A drawback of the OmniWallet is its difficulty to begin using. The user interface is minimalist making it somewhat difficult to navigate at first. So much so that it appears unclear whether USDT can even be utilised on it. To add to the complexity, because the Omni protocol is built to operate on top of the bitcoin Mainnet the transaction process can be confusing at first.
- Tether Wallet (official)
Good for: Market access, Withdrawing US dollars
Weaknesses: Security, presently unavailable (upgrades)
When considering using the official Tether wallet you need to bear in mind USDT is a very controversial product. Tether Limited have thus far been unable to provide the market with a complete audit of their funds. This means that while Tether claim they have one US dollar for every USDT created, there is no concrete proof.
A memorandum of understanding was signed by a reputable accounting firm based in the US which showed more US dollars than USDT. But for various reasons the accounting firm were unable to complete the audit and could not provide certification. For this reason there is still some doubt about the solvency of USDT.
To add to that, USDT was hacked in late 2018 and some funds were stolen form the main Tether wallet. Since then, new registrations have been suspended meaning that no new USDT are being created while software upgrades are underway.
What this means, as at the time of writing, is that you are unable to access the advantages of having USDT stored with Tether itself until Tether has finished its software upgrades. No announcement has been made or any time frames indicated as to when that will be.
- Storing USDT in an exchange Wallet
Good for: Market access, rapid trade
Weaknesses: Security
USDT is primarily a trader’s token. More accurately USDT functions well to reduce the risk of the wild cryptocurrency price swings. That means that USDT acts as a hedge against market volatility. An advantage that is most often capitalised on by highly experienced cryptocurrency traders.
For that purpose liquidity is a must. The capacity to buy and sell at critical moments is necessary for successful trade using USDT. For market access only, storing USDT on exchange servers is more efficient than other storage methods. But at the cost of security.
Storing your USDT on an exchange’s server carries the risk of losing all the USDT deposited on there (and all other digital assets). So this storage method can be viewed as the least secure strategy, but the most effective for rapid trade. Partnered exchanges can be found on the USDT website.
Tips for securely storing your USDT
The storage methods that have been listed here need to be looked at as though on a spectrum ranging from most secure to least secure and limited market access to best market access. That is to say that there is a trade-off between market access and security. But only at present.
At the opposite end of the spectrum with the highest security but lowest market access, the ERC20-compliant USDT allows cold storage. It needs to be remembered that market access is limited because the amount of traders and the volume of ERC20 USDT is very small. As those trade figures increase, that market access will also grow.
In the middle of the spectrum we have the official Tether wallet. It has good market access allowing you to buy and sell when necessary. But as can be seen from the software vulnerabilities, security is definitely a risk.
For greatest market access but the least security, storing your USDT on an exchange server is an option at that end of the spectrum. Rapid trade is an advantage but carries with it the risk of falling victim to something like the Mt. Gox hack.
Two very important factors must be kept in mind. First, at some point in the near future, atomic swaps will be commonplace. Second, as time goes on trade growth with ERC20-compliant USDT is possible.
These two factors are important because atomic swaps will provide much greater market access for holders of the Ethereum-based USDT. What is more important is that that greater market access can then be coupled with the ability to store USDT in one of the most secure ways possible.
*Keep your private keys exactly that… Private!
*Cold storage of digital assets provides high security
*Transactions are irreversible - get the addresses right
*Do your own research
*Make well informed decisions based on evidence
*Seek appropriate and expert advice where necessary
*Only trade with what you are prepared to lose