Facebook’s much talked about cryptocurrency launch of libra has been ditched and instead the social media giant is part of a new digital currency named diem.
It will be supported by the Diem Association, which consists of 27 members, of which Facebook is one.
It is set to launch in January 2021 and there have been bold claims it will transform the financial services industry.
What is this digital currency, what does it has to offer and how it can be used?
Carpe diem: Facebook has ditched libra and is instead backing a new digital currency called diem – will it seize the day?
Will the launch go ahead in January 2021?
Most industry commentators believe that diem will be introduced in January in spite of the many delays of the launch of the original libra.
But it may not be available immediately in every country. Graeme Moore, head of tokenisation at Polymath says: ‘Based on what we’re hearing from various regulators around the world, diem may have a limited launch in some countries in January 2021.’
He adds: ‘The German finance minister just recently said regarding diem, “A wolf in sheep’s clothing is still a wolf”.
‘It is clear to me that Germany and Europe cannot and will not accept its entry into the market while the regulatory risks are not adequately addressed.
‘So, can diem pull off a launch in Germany in 45 days? I wouldn’t bet on it. But it could in other countries.’
Is diem a cryptocurrency?
What is the Diem Association?
Facebook established the Libra Association to manage the digital currency libra.
However, the Libra Association has now been rebranded to the Diem Association and has been tasked to oversee the diem digital currency.
The Diem Association, which comprises of 27 members, describes itself as an independent membership organisation. It is headquartered in Geneva, Switzerland.
The organisation’s members consist of a number of companies, venture capitalists and non-profit organisations including PayU, Spotify, Uber, Mercy Corps, Coinbase and Facebook to mention a few.
Libra was meant to be a cryptocurrency and launched as a competitor to the global fiat market.
Fiat currency refers to ‘established money’, regulated by governments such as the pound, US dollar or euro.
However, diem has a softer mandate in that it’s meant to complement domestic currencies and not replace them.
By definition the diem is actually a ‘stablecoin’.
A stablecoin a type of cryptocurrency pegged to a currency or a commodity price, like gold.
At the moment diem’s monetary value will be tied to the US dollar – so one diem will equal one US dollar.
Diem makes use of blockchain technology.
Blockchain is a system of recording information – it’s essentially a digital ledger of transactions that is recorded and distributed across an entire network of computer systems.
Blockchain enables individuals and companies to transact without any interference from ‘middlemen’ such as banks or governments.
The advantage of blockchain technology is that it’s meant to be impossible to change or hack.
Why was the name changed to diem from libra?
European regulators and the US Senate have considered its venture into creating a digital currency as another way for the social media giant to become even more powerful.
Since its official announcement in June 2019, libra saw a number of stumbling blocks such as the departure of members, like Visa and PayPal from the Libra Association and pushback from the Senate.
This is why it’s hardly surprising that it has distanced itself from the digital currency, libra, that it was originally behind.
Diem will be accessible to billions of Facebook users who will be able to use it to make global purchases and currency transfers
Simon Peters, crypto analyst at multi-asset investment platform eToro, explains: ‘Being known as the “Facebook coin” could be seen as restrictive, and a deterrent due to some of the issues Facebook has had over the last 24 months with privacy and data usage.’
To give it a fighting chance to win regulatory approval Libra has been rebranded as “diem” and is now run separately by the Diem Association.
Peters explains: ‘This association with members ranging from Coinbase to Spotify to venture capital firms, should help give the Diem a degree of impartiality.’
How can diem be used?
The potential of diem is huge. On its website the Diem Association says its aim is to ‘build a trusted and innovative network that empowers people and businesses around the world’.
Facebook has billions of users from all over the world and diem would suddenly give them access to a digital currency that they could use to pay for things instantly.
Daniel Polotsky, CEO of bitcoin ATM operator CoinFlip believes the diem will not be competition for bitcoin
Could it really transform the way in which we access financial services and deal with money?
When it comes to managing our money, banks charge fees in various ways and create rules that can restrict our ability to transact.
These consist of transaction fees, minimum spends, minimum balance, etc.
Diem could have the potential to cut transaction costs as well as reduce the time it takes to transact internationally.
According to the Diem Association it costs 7 per cent to send money internationally and it takes three to five working days to complete such transactions.
Cash is an expensive way to transact but for the unbanked cash is often the only solution.
It is estimated that around 1.7billion people are unbanked – that’s 31 per cent of the global population, according to the Diem Association.
When someone is unbanked they don’t have access to the services of a bank or similar financial organisation.
Being known as the ‘Facebook coin’ could be seen as restrictive, and a deterrent due to some of the issues Facebook has had over the last 24 months with privacy and data usage
Simon Peters, crypto analyst at multi-asset investment platform, eToro
Diem believes it could provide a viable alternative for the unbanked and help them to save money. According to the Harvard Business Review, the unbanked pay $4 – around £2.94 – more a month on average than those who go cashless and use formal financial services.
The new digital currency can be used to purchase goods, transfer money abroad cheaply and access financial services.
The payment system will be accessible to anyone with an entry level smartphone and data connectivity.
Users of diem are also likely to be able to make use of Facebook’s entire ecosystem.
Peters says: ‘Diem will allow them to perform transactions and pay for goods and services instantly across a whole host of platforms owned by Facebook, whether that be the Facebook app itself, or further down the line WhatsApp or Instagram.’
How can diem be stored?
The associated digital wallet for diem is called Novi. Through Novi, users will be able to use their local currency to buy diem and convert it back to their local currency when they want to withdraw.
Users don’t have to have a Facebook, WhatsApp or Messenger account to access Novi.
What is a digital wallet?
When you carry cash, you would typically hold it in a wallet or money clip so that you don’t lose it.
A digital wallet or e-wallet offers a similar type of security – but digitally. It is an online service or software program that allows people to make electronic transactions with another third party.
They can be accessed via smartphones or computers and can help users to track their assets and view them as needed.
Cryptocurrency wallets allow users to store their digital currencies in them, such as bitcoin and ethereum.
There are two types of digital wallets: hot and cold. Hot wallets are connected to the internet while cold ones aren’t.
Hot wallets are therefore more vulnerable to cyber-attacks from hackers.
Novi is still being built and it’s not yet clear what fees will apply.
But Novi says on its website: ‘What you send is what you get. You can add, send, receive and withdraw money from your wallet without worrying about hidden charges. Novi is cutting fees to help people keep more of their money.’
What are the risks?
While blockchain technology can’t be hacked or altered, social media platforms and digital wallets are vulnerable to cyber-attacks.
Peters says: ‘Like with any asset or business that uses digital technology, you run the risk of cyberattacks and hacks. If Facebook encountered any attacks on its systems, then potentially people’s Diem’s could be at risk.
‘But the same can be said for people who use online banking for their pounds or dollars.
‘If a bank’s security system gets hacked, people run the risk of having their bank accounts being emptied.’
With regulators apprehensive about Facebook’s libra there’s a good chance that they will remain sceptical over diem as well.
Graeme Moore, author of B is for Bitcoin, says: ‘Facebook has incredible reach and a massive number of users, giving it a leg up on any competition in the stablecoin space.
‘However, they’ll have to convince regulators that they can be trusted which looks to be an uphill battle.’
Will it pose a threat to cryptocurrencies like bitcoin?
While diem could pose a threat to fiat currency and offer a competitive alternative to currency transfer services, industry commentators believe it’s unlikely to be a threat to established cryptocurrencies like bitcoin.
Daniel Polotsky, chief executive of bitcoin ATM operator CoinFlip, says: ‘We welcome the Diem 100 per cent.
There are over one billion people using Facebook and if they have that on their platform it will teach people about digital money and how they can make payments faster.
‘It could provide a segue to cryptocurrency and help people to learn more about bitcoin.
‘Bitcoin is a true king as it’s truly decentralised – it’s more decentralised than a currency tied to a corporation.’
Daniel points out that bitcoin’s other advantage is its investment potential. ‘There is only 21million of bitcoin and it appreciates in value. It combines the best of currency and store value.
‘The Diem is still pegged to the dollar and still has all the shortfalls of the dollar and people will catch on to that and make the switch.’
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