Facebook’s Diem cryptocurrency is both a potential point of mass adoption for the still-scaling cryptocurrency ecosystem. It’s also unlike any other cryptocurrency out there. But, what exactly is Diem, and how will it work?
What Is Facebook’s Diem Cryptocurrency?
Diem is a proposed cryptocurrency currently in development by a group of technology and finance companies collectively known as the Diem Association. While you may not have heard about “Diem” before, you may have heard of it by its former name, “Libra.”
The Diem Association rebranded from Libra in early 2020, relatively early in its development. Tech giant Facebook was heavily involved in the project early on, leading many to distrust the project due at least in part to Facebook’s less-than-spotless reputation when it comes to issues of data handling.
On paper, Facebook is only currently involved through their Novi project. Novi is one of the member companies in the Diem Association and will serve as the digital wallet for Diem coins.
Whether it’s called “Diem,” “Libra,” or “Zuck-bucks,” the idea behind Libra is pretty sound. The proposed cryptocurrency includes many international and multinational stablecoins and will be backed by a reserve of cash and cash equivalents. This basket of currencies and reserves is collectively called “The Libra Reserve.”
The goal is for this unique approach to make Diem a low-cost cryptocurrency that anyone can use anywhere, including in transactions made by users operating in different currency zones. It will also protect the price of Diem from the volatility experienced by other cryptocurrencies, potentially including other stablecoins.
How Does Diem Work?
Internal Diem documents tend to avoid calling Diem a “stablecoin” or a “cryptocurrency,” referring to Diem instead as a “payment system.” This is likely partially to the concerns that individuals and lawmakers have regarding cryptocurrencies. However, while Diem is a cryptocurrency in technological terms, it is also fairly unique in terms of its operation.
Diem transactions will be transactions of digitally minted coins, just like any other cryptocurrency. However, Diem focuses less on the exchange of Diem coins as their own currency and more as a means of seamlessly exchanging different currencies.
Further, while Diem transactions will be blockchain-based, the Diem Association focuses on “compliance and the prevention of illicit activity.” Other cryptocurrencies have historically used blockchain to afford anonymity, but blockchain itself is inherently transparent, potentially making it a tool for observation and enforcement.
That Diem is run by a known association isn’t necessarily something out-of-the-ordinary. Bitcoin is famously decentralized to the point that we don’t even know the actual people or person behind it. However, most other cryptocurrencies are run by a known person, company, or group.
That said, the compliance angle, the currency interoperability angle, and the makeup of the Diem Association itself make the group unique in the cryptocurrency ecosystem. This is largely why the project has been so long in production. The Diem Association is working with compliance groups and governments in ways that other cryptocurrency minters have not.
In fact, the Diem Association’s CEO is Stuart Levey, who formerly served as Undersecretary for Terrorism and Financial Intelligence for the United States Department of the Treasury. Chief Legal Officer is Steve Bunnell, formerly General Counsel of the Department of Homeland Security.
Who Benefits from Diem?
All of this begs the question: Who is Diem for?
The Diem Association would say that Diem is for everyone. Diem’s low cost and low hardware requirements have the potential to provide financial tools to millions of unbanked people around the world, as well as expanding options to people who regularly transact in multiple currencies.
Critics would say that the Diem is for the Diem Association and the organizations and governments that it works with. Diem gets un-contested access to a vast international market. Not to mention the governments and organizations that it works with potentially get access to information regarding Diem users and transactions.
Many cryptocurrency enthusiasts believe (and hope!) that the biggest winner will be other cryptocurrencies. This position sees Diem as essentially an onramp for people who are not currently interested in cryptocurrency but will be introduced to the market by Diem and then look elsewhere for less regulated options offering similar solutions.
Would You Use Diem?
While there is reason to be skeptical of Diem, the proposed cryptocurrency is blazing new trails, and it just might be the money of the future.
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