Cunning Tether, or why Terms of Service Outweigh Whitepapers
Quite often, our understanding of a cryptocurrency is limited by what we found out about it in media or on forums.
Only those advanced users who have enough time, patience, and tech-savviness, may study whitepaper for a cryptocurrency they wish to deal with or sort out. The most advanced users read both the whitepaper and the source code for the project, provided it’s open. It may seem that those are the people who see the project through, however, as we recently found out once again, just reading the code might not be enough.
ForkLog has already warned users that, prior to participating in an ICO, one should go beyond the info posted on the project’s website to read Terms of Service, should the latter are available.
According to the whitepaper, Tether (USDT) is issued after depositing national currency in Tether Limited’s bank account in the amount equal to the amount of the deposited national currency (page 7). The provision goes on to describe how Tether Limited clears USDT with national currency and destroys the cleared USDT tokens (pages 7 and 8). The whitepaper’s authors, as they state, believe that USDT may be of use as a cold storage of USD/fiat value (page 13).
According to the European approach, e-money is a monetary value stored on an electronic device issued after receiving funds in the amount that does not exceed the amount of received monetary assets, and accepted as a payment by parties other than the issuer. The aforementioned characteristics of USDT make it e-money different from regular e-money only because they function on bitcoin’s blockchain using platform Omni.
However, notwithstanding the provisions set forth in the whitepaper titled Tether: Fiat Currencies on the Bitcoin Blockchain, the project’s Terms of Service read as follows:
“Tethers are not money and are not monetary instruments. They are also not stored value or currency. There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers”.
Quite probably, Tether Limited just tries to be on the safe side when it comes to possible claims from regulators, which may occur if a company acts as an e-money provider without relevant licenses.
In order to send and receive USDT, one doesn’t have to reveal their identity. Still, if you wish to transfer money from a bank account to bitcoin blockchain, i.e. buy USDT for fiat immediately in Tether’s wallet, or withdraw fiat to your bank account, you will have to undergo KYC procedures.
Undergoing KYC procedures means in this case that you’ll have to (1) undergo visual identification by providing two ID’s, or, if the second one is unavailable, have a video interview with a member of the company’s Compliance Department; (2) provide your Proof of Residency and a bank statement that should read the same name as the Tether wallet holder; and (3) Compliance Department is entitled to request additional data should it deems it necessary. This is how Tether Limited makes sure no AML/CTF regulatory claims may arise.
As a result, Tether Limited is quite insured against such claims, while users are not insured against losing their money.
Using any cryptocurrency always involves some risks: after all, there’s nobody undertaking to clear bitcoin with national currencies, though bitcoin has never been promoted as a national currency on a blockchain.
For that reason, you are advised to be observant and careful while dealing with cryptoassets, and to rationally estimate your risks, while ForkLog would do its best to help you in your efforts.
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