What is Diem? How does it differ from Libra?

Libra, Facebook’s original cryptocurrency, scared a lot of people. 

They initially proposed it as a currency, backed with multiple traditional low-risk assets for stability. Its aim was to make the process of transferring digital money quicker and easier.

But questions about privacy started scaring US and European authorities. Last year, Facebook got into privacy issues. Lawmakers pointed out that such irresponsibility should not be allowed near any kind of currency. 

The supposed 2020 launch was delayed. European Central Bank board member Benoit Coeure warned that virtual currencies like libra “could challenge the supremacy of the U.S. dollar.” Many US officials and lawmakers also believe that there is only one currency, that’s the US dollar. 

It appears to be a running theme from a number of regulators and lawmakers, who worry Libra would compete with government currencies. That’s because Facebook is such an influential platform, with more than 2.4 billion monthly active users.

That is the real issue. With Facebook’s global reach and influence, Facebook’s cryptocurrency could antagonize major financial policymakers and national banks. 

So Facebook halted its launch, and then changed its name to Diem. Diem also clarified that Facebook has no influence on the development of the crypto. Diem Association CEO Stuart Levey said they aim to launch Diem as a U.S. dollar stablecoin together with 26 commercial companies and non-profit organizations. The company’s application for a payment system license has recently been transferred to the United States regulator after its initial application with the Swiss financial regulator.

The initial launch in 2021 is aimed at attracting merchants and lucrative partnerships. The Diem Association will initiate an intricate blockchain digital payment system enabling real-time eCommerce transactions with Diem stablecoins.

CEO Mark Zuckerberg mentioned that users will be able to transfer money as easily as sending photos. Diem is designed to enable users to transfer money more cheaply which in turn, is expected to bring more users to Facebook. 

The Diem Association plans to launch two sets of cryptocurrency coins, a stablecoin and a multi-currency coin. The first one will have a specific U.S dollar or Euro face value. The second one has multiple local stable coins, will be used for global payments. These coins will be backed by cash, cash equivalents, and government securities. 

Note this, Diem is the only digital currency to have a user base in the billions globally involving strong companies and other potential hi-tech companies even before it is launched.

We are still months away from the launch but knowing all these facts will help you make a better investment decision. Do you believe in Diem’s technology, purpose, and more importantly, user base? If so, invest. If not, move on. 

Moreover, there has always been a risk that any emerging cryptocurrency may serve to launder money, evade sanctions, and influence political events.

Diem vowed that there is absolute separation between Libra and FacebookIt represents a mixture of stablecoins pegged to different currencies  which would operate on the Libra network. To specify the change, the team noted that stablecoins would be “a complement to, not a replacement for, domestic currencies.” 

Levey said that they plan to issue a stablecoin — a digital currency pegged to an outside asset — that’s tied to the US dollar. Later, Diem may pursue additional fiat-based cryptocurrencies. The organization no longer plans to transition to a permissionless blockchain initially designed to let users participate in verifying transactions.

This could significantly facilitate the integration of Central Bank Digital Currencies (CBDCs) to Facebook’s blockchain and make them be traded instead of single-currency stablecoins.Another significant change is Facebook’s position in the association. According to Levey, Facebook is only one of the 27 members of the new Diem Association, instead of being a major party. 

At the same time, the association supplemented the list of its members by three new institutions. Singapore’s government-owned investment vehicle Temasek, San Francisco-based crypto investment company Paradigm Fund, and private equity firm Slow Ventures joined in.

The separation was further strengthened when Facebook renamed Calibra and restyled its logo. The wallet got a new name Novi, which combined the Latin words “novus” and “via,” meaning “new” and “way,” respectively.Facebook’s rebranded subsidiary Novi Financial strived to enable users to send money to their contacts with no hidden fees. The plans for Novi’s development included creation of both a standalone digital wallet and a version that integrates with its WhatsApp and Messenger services.

The ‘new’ Diem project is far simpler than the originally proposed approach and will likely encounter less resistance. It aims to create a stablecoin that will maintain one-to-one parity with the US dollar. Diem coins will be backed by a reserve of assets made up of cash, or cash equivalents and very short-term government securities.

But let us remember that Facebook is still one of the groups behind it. Diem will still enjoy the sheer size of Facebook’s influence. 

Diem is certainly a coin you should discuss with your financial advisors.