Some of the comments from Legislators in the U.S. House of Representatives showed Libra’s resistance and ultimate death or transition.
“Demonstrated pattern of failing to keep consumer data private on a scale similar to Equifax… Facebook also allowed malicious Russian state actors to purchase and target ads”.
Maxine Waters, chair of the Financial Services Committee
” We’re here to go beyond the headlines… Washington must go beyond the hype to ensure that we are not the place where innovation goes to die.”
Patrick McHenry – US Legislator
“That’s what Libra is about: developing a safe, secure and low-cost way for people to send money around the world.”
David Marcus: Facebook’s Head of Libra
“Why are you doing this in Switzerland and why are you using a basket of currencies? Why not the good old American dollar.”
McHenry – US Legislator
“Neither your white paper nor your subsequent Facebook post offered any concrete details as to how you plan to implement or enforce strong Anti-Money Laundering, how you plan to enforce Know Your Customer protections, and most importantly, to ensure — and that’s what all of us are concerned about — the safety of our financial system.[…] what do you see as the responsibilities of Libra to combat money laundering, to protect our financial system?”
David Scott – US Legistlator
“Who can use a $20 bill? […] This $20 bill doesn’t discriminate on anything you can be a murderer say horrible things, you can say great things. This $20 bill can be used by every single person that possesses it. With regard to your network, can Milos Yianopolous and Louis Farrakhan use Libra?” [both have been banned from F.B.]
Duffy – US Legistlator
Libra isn’t Dead, Or is it?
Libra, Facebook‘s most contentious cryptocurrency, is back in the news as DIEM. When the social media giant announced its entry into the industry, it sent shivers across the crypto world. It was going to be a bold entry with permission blockchain-based payment system.
This move would have changed the digital currency industry and placed Facebook and its partners at the foundation of the cryptocurrency sector.
As it turned out, the shivers affected politicians and lawmakers as they were caught unprepared and couldn’t accept Libra in its original form. Libra suffered serious repulsion for many reasons, some of which were;
- Regulators had concerns about how tech companies set up to make profits will be issuing currencies.
- These tech companies will have too much power and control, thereby making them global economies and geopolitics.
- Tech companies who already have access to our data will now have all our financial information.
In a public hearing in 2019, the U.S. House of Representative Committee on Financial Services had Facebook’s CEO, Mark Zuckerberg. Members of the committee took turns to lash out their grievances against the Social media network about election meddling and foreign interference in American politics.
Legislators further express their lack of trust in Facebook by raising concern about the classification of Libra and what branch of government was going to oversee the operation. The hearing ended with members halting the process of Libra until they get better clarifications.
From Libra to Diem
In a move to get a legislative nod, this project is a stripped-down version of the original. The new name, Diem, is designed to reinforce its “organizational independence.
According to the association, in a press release, the Cryptocurrency body will be called “Moniker Diem.” The name Diem is a Latin word that means “Day.” This reflects the growth, maturity, and independence of the digital currency beyond just changing the name.
According to the statement in Washington, D.C. – The Libra Association announces the adoption of a new name and the recruitment of key executives, reinforcing its organizational independence. Now transitioning to the name “Diem,” which denotes a new day for the project.
The Diem Association will continue to pursue a mission of building a safe, secure, and compliant payment system that empowers people and businesses around the world.
Although an association now runs the cryptocurrency, many believe that Facebook might be shying away from the project. The social media giant has indicated that it will press on with the project, even with the curtailed ambitions.
The association, which launched in mid-2019, has experienced changes in scope and goals. Some founding members have dropped from the project amid legislative criticism of the plan.
Nonetheless, the project is expected to launch in 2021 in a more watered-down version from the original Libra.
Diem is now likely to be backed one-for-one by the U.S. dollar instead of the previously proposed multiple single-currency stablecoins (A stablecoin is a cryptocurrency that links its market value to an external source like the dollar) backed by major currencies.
The Original Libra
The initial Libra plan was essentially a lookalike of cryptocurrencies like Bitcoin. However, it had some notable differences intended to make it more stable and less abstract.
You will recall, it was also at a time when crypto was struggling with identity and acceptance. Libra sought to launch a stablecoin backed by a basket of assets that would be more stable than anyone fiat currency, which would be accepted globally as a means of exchange.
Also, when Libra was birthed and brought to the public’s attention, it attracted big names in the financial sector who were ready to support and work as a team to give it life.
On the team were experienced firms like Paypal, Stripe, Mastercard, and Visa, were prepared to back the Libra coin. Unfortunately, these players and a few others left the project due to legislative condemnation of the project.
Changes From Libra to Diem
Diem has gone beyond just a name change of the blockchain. The developers thought the Libra name was no longer fit because it was tied to the heavily criticize project. The name and other changes are expected to gain legislative favor.
Another notable change the blockchain has being through is the reduction of Facebook’s control. Lawmakers pushed for organizational independence from Facebook for the project to gain trust and approval from the public and approving agencies.
In a recent move, the project has revised its role to reflect the reduction of Facebook’s role, as seen in a government report giving information or proposals on an issue.
Additionally, there has been a change in the overall objective of the project. Libra was set up as an alternative to the current global economic system. That is, Libra was intended to compete with the world fiat market.
In its current form, the Diem association has removed that competition with the world’s fiat market. It’s now more of a complementing fiat and no longer a replacement for currencies like the U.S. Dollar.
Part of the Libra’s transition is the support for government-backed currencies like the U.S. dollar and Euro. Diem is expected to launch as a single-dollar pegged coin. After regulatory screening and approval, Diem is scheduled to launch this year, 2021.
The Diem association plan to issue a single currency stablecoin and later follows with a multi-currency stablecoin if approved by the necessary approving bodies.
For clarity, Facebook will not have control over the Diem. The social media giant is merely one member of the Diem Association. This not-for-profit organization will serve as the monetary authority for the digital currency.
Facebook is represented through Novi. Each member of the association enjoys the same right and vote and the H.Q. in Geneva, Switzerland.
Facebook has no more rights than the single vote it’s entitled to, like every other association member. The association is currently made of 27 members with plans to grow to 100 members who will contribute $10 Million each to get the project running.
Diem’s Data Safety
Cases like the Cambridge Analytica scandal was why the legislators had reservation about Facebook controlling a cryptocurrency where more information from members of the public will be made available to the social media network.
Diem has consistently promised and prioritized information security as one of its core values. They have built a system that will comply with relevant laws and regulations. The integration protection measures ensure safety and integrity that will make individuals and businesses trust the payment system.
Data privacy regulations differ in every country; hence, there’s an impending challenge about guaranteeing information security and compliance of all countries where Diem will be used. Been a cryptocurrency originally initiated by Facebook will continue to put the spotlight on the Diem.
Diem will have access to valuable information like the type of payments executed, the fund recipient, frequency of transaction, social profiles, consumer habits, behaviors, economic activities, etc. These are some of the information in the blockchain, and it is possible to misuse such data for commercial and political benefits.
When the Diem becomes a functional currency for e-commerce, the volume of data stored with each transaction will create “big data,” that will be attractive to financial companies, retailers, and other interested parties. These data can also be tailored for marketing purposes.
Under legislative scrutiny, Facebook’s CEO, Mark Zuckerberg, explained that one of the objectives of Libra, now Diem, was to create a solution for more than one billion people globally who do not have access to a bank account.
We have to consider that the cryptocurrency has to be subject to data privacy regulations, like “know your customer” guidelines and financial crimes compliance regulations. Also, if the recipient’s identity would be hidden, which could weaken the objective and purpose of Diem.
The fact that Diem is a blockchain should be able to guarantee more privacy to users than what is available with the other payments systems. This advantage has the potential to push Diem to the top of the digital currency chart soon.
Is Diem a Cryptocurrency?
Some of the questions about the Diem since the name change include if the Diem is still going to be a cryptocurrency or another payment system. Let’s see how Diem is similar to other cryptocurrencies like Bitcoin and ether.
Like other cryptos, Diem is only available in digital form. You will not be able to get a physical coin or note. Also, like Bitcoin, Diem transactions are recorded on a software ledger known as a blockchain, which is used to confirm each transaction. The Diem blockchain will be monitored by the Diem Association at the initial stages and later evolve into an open system.
Diem will be pegged to tangible fiat assets using a format known as stablecoin. This is different from what we have in typical cryptos like ether and Bitcoin. They are not backed by anything; hence they swing “wildly” to market speculations.
The original plan was to back the Diem’s value with a number of assets. However, the Diem Association didn’t say what those assets would be but indicated they would be dominated in major global currencies like the dollar and Euro. These currencies don’t fluctuate daily like regular cryptos. The association intends to buy more of the underlying assets to create or mint Diem (not physically) when there’s a demand for the cryptocurrency. When there’s a cashing out, the association will sell those assets and “burn” Diem.
For those who find it strange that the Diem is backed by fiat like the dollar, well, it’s not that strange. Backing a currency with an asset is not particularly new; it was a common practice. The United States dollar was backed by Gold for a long time until 1971. The Hong Kong Dollar is pegged to the U.S. dollar by a currency board that can issue new notes only if it has enough reserve.
How Diem Works
Like what we have with other cryptocurrencies, Diem is built on the blockchain. A technology system that encrypts transactions and links them to prevent fraud and increases transparency in financial transactions.
Additionally, blockchain allows you to exchange money without going through the usual hassle of banks trying to recognize, review and approve your transactions. It saves your time in sending and receiving money locally and internationally.
In the case of Bitcoin, there is no control over access to the blockchain. However, for Diem, it’s a little different because it works with a permissioned blockchain.
Diem will be combining the transparency and security of blockchain with the global reach of Facebook’s network of platforms. If you are on this network, you will have the ability to carry out safe local and international transactions.
Introducing the Novi Wallet
To send and receive Diem safely across Facebook’s network and others, you will need a digital wallet. A digital wallet is a virtual purse where you store and manage your cryptocurrencies. Facebook has developed its digital wallet call Novi.
You will likely gain access to Novi wallet through Facebook apps like Messanger, Whatsapp, or Instagram. The noticeable difference from others is, to access the wallet, you need a verifiable government-issued identity.
The Diem association believes that measures like this will safeguard the Diem system from fraud and abuse.
Due to the shaky public trust for cryptocurrencies generally, one objective of the Novi wallet is to create a safe and fraud-proof way for you to store and manage your digital currency.
The concept of the Novi wallet was initially to store and manage Libra digital coins, and it had the name Calibra. The new Novi edition will do much more. With your Novi wallet, you can store much more than just Diem. It can store multiple cryptocurrencies. The wallet is expected to support fiat and digital currencies.
This move convinced regulators that Diem is more about promoting digitization than just being another plot by Facebook to harvest more data from us.
Benefits of Diem
Soon when the Diem is released, it should receive wide acceptance. You will be able to use it to pay for your coffee at Starbucks or pay for your favorite video games on your digital devices. Here are reasons why you should start using the Diem when it launches.
Faster Transfer and Exchanges
The most apparent challenge the Diem will solve is the speed of exchange. Diem will be faster compared to exchanging non-digital fiat currencies. In some instances, when you go to transfer funds, you as the sender and the recipient need to provide some details, then it can takes days if it’s an international transfer.
As a way of cutting down this long process, only Diem’s internal system needs to process your transaction. This cuts down transfer time to “instant.” You will be saving time and transacting fast business with your clients efficiently.
Since we are all on the Facebook network, there will also be no need to link to a card payment system before payment is processed. Diem makes digital payment transfers quick, easy, and painless.
Anyone Can Use Diem
Diem’s original objective is to make financial transfers available to everyone. According to a 2017 Worldbank Report, 1.7 billion of the world’s population are unbanked.; which is 31%. According to the Diem association, it plans to reduce bridge this gap with the introduction of the digital currency.
With the Diem, anyone can carry out financial transactions without entering a bank.
All anyone needs is a smartphone with an internet connection. Diem might be the game-changer we have been waiting for because it will give more people access to traditional banking services, allow you to pay more bills with ease, and sell your goods and service.
Transfer Is Cheaper
The Diem via the Novi wallet will have more transparent and low transaction fees than the standard banks. Sending Diem to another person will not attract any fees, and it will be instant.
Especially if you are continents apart and use the same Novi wallet, the transaction will be immediate, as long as you both use a smartphone that has an internet connection.
Boost Acceptability for Facebook and Cryptocurrency
The original plan of the Libra was to alter the cryptocurrency landscape more than ever seen before. The change of name to Diem has not changed that objective.
Facebook has a network of billions of users; I don’t know of anyone around me or far away that doesn’t have a Facebook, Instagram, or Whatsapp account. Providing this global community with instant access to blockchain service is a bold move in itself.
For starters, it will change the way money is exchanged globally within the Facebook network. Users will no longer rely on third-party fund transfer services to send money locally and internationally.
New Heights for Facebook Users and the Unbanked
We will also see the Facebook marketplace reaching a new height once the integration is complete. Currently, the marketplace has been growing gradually; the introduction of Diem will take activities to new levels.
Users will be able to search, sell, and buy from other users within the community. Facebook will compete with local platforms like Craigslist, but Amazon and others might need to watch their backs.
Stability
Unlike other digital assets, this coin is backed by government currency, making Diem a stablecoin. This also means that this system will have digital equivalents of the U.S. dollar, Euro, and other currencies.
Drawbacks of the Diem
Decentralization
Diem is not going to be as decentralized as we have in a typical cryptocurrency like Bitcoin. There will be a central authority. All Diems are transactions are overseen by the Diem Association, a conglomerate of 27 big tech companies who make up its founding.
Pegged to Fiat
Whether this is an advantage or disadvantage depends on which side of the divide you are on. Some argue that the Diem being pegged to fiat will not provide the user with the anonymity they want as we have in Bitcoin.
How You Can Use the Diem
When Diem finally launches, it will be peer-to-peer (P2P) exchanges between the Facebook network users like Whatsapp and Messanger. However, shortly, you will be able to pay for many goods and services with the Diem.
Companies like eBay, Spotify, Uber, Lyft, and other partners in the Diem association will be accepting the digital currency directly on their sites soon. It will not be long before smaller merchants start to accept the Diem in their offline stores. With Facebooks 3 users, it’s only a matter of time before Diem becomes the digital currency of choice.
When Diem finally launches, I expect most crypto exchanges will start selling and buying the crypto. This will give it more acceptability outside the Facebook network.
Also, you should be able to buy Diem coins and store them in your wallet for your Facebook ads and other virtual transactions without going through your card payment provider.
Conclusion
My biggest concern about cryptocurrencies is the level of volatility create by speculation. It gets incredibly wild in some cases that I have seen people lose their money within a few days. I also know others who have become more prosperous within a short time. That is why I have been an onlooker and not a participant.
However, the Diem has the feature of a cryptocurrency and the stability of the regular currency, which makes me want to look forward to it. Onlookers like me and a significant proportion of the world’s unbanked people will be willing to embrace this digital currency.
What about you? What’s your opinion or concern about Diem and Facebook as a whole? Is this something you will be willing to try out? Let’s talk!
