2021 seems to be a great year for the blockchain world, as various projects, such as non-fungible tokens (NFT) and decentralized and centralized financial exchanges (CeDeFis), are occupying the central stage. Also on the front line is Facebook’s Libra.
Not long ago, the news media picked up the news that the world’s largest social network was developing plans for a global digital currency.. Then after a while, it seemed like Facebook had shelved their plans. Disputes with regulators around the world contributed to delaying and reorienting Facebook’s plans somewhat. Rather than back down, Facebook decided to strategize and launch a “different” global digital currency later in 2021, after renaming the project to Diem..
It is different in the sense that had a name and management change. Nevertheless, the Libra Association, which was later renamed the Diem Association in December 2020, will manage the project.
What is Facebook Diem?
Facebook Diem is a shortly launching permissionless payment system based on blockchain technology. The system will have a stablecoin called Diem and will work on its blockchain network.
Although Facebook proposed the project, the Diem Association will supervise the entire operation of the project for the sake of transparency. The Diem Association is an organization made up of companies from different sectors of the economy, such as technology, fintech, telecommunications, venture capital and non-profit organizations.
The initial coin, Libra, it wasn’t decentralized, and neither is Diem. Although the goal is not to have permissions, the current plan is for Diem to work on a permissioned blockchain. Consequently, only members of the Diem Association can carry out transactions in it.
However, this is so because the development team has yet to come up with a robust solution that can handle permissionless transactions for its billions of potential users. Enthusiasts are hopeful that this will change as soon as the project unfolds.
Long-term, Diem’s ultimate goal is to help the world access financial services easier and faster. The US dollar, the euro, the British pound and other major fiat currencies will support the Diem project. If the project gets approval from U.S. regulators, Diem will function as a large-scale central bank powered by blockchain technology. As you probably know, this it is nothing like Bitcoin (BTC) or other cryptos.
Components of Facebook’s new global digital currency
Facebook’s New Global Digital Currency Aims To Revolutionize The Global Payment System. To do this, Facebook’s Diem project has three unique parts that work in sync to create an inclusive and secure financial system. Among them are:
1. A reliable blockchain technology foundation
One of the components of the new Facebook Diem cryptocurrency is a blockchain infrastructure with reliable scalability and security that serves as the technological base of the payment system.
Diem’s source code is open source on Github. The source code, written in Rust, it is accessible to everyone.
It enables scalability and will help the infrastructure to host multiple projects. Diem too is developing a new programming language called Move to build smart contracts and execute custom transactions.
2. Novi digital wallet
While it is quite easy to build a digital wallet after undergoing reputable hands-on classes, Novi is a sophisticated purse that requires all the time and attention you can afford. One of the many Facebook companies, Novi Financial, is developing the digital wallet of Project Diem. The wallet was called Calibra until the end of 2020.
Novi is a standalone app that we hope will support integration into WhatsApp, Messenger, Instagram, and probably several other platforms.. Its ease of use is already mind-boggling.
3. The currency
Diem coin is a crucial component of Facebook’s new global digital currency project. It is strongly backed by Diem’s reserves, which includes assets in cash or cash equivalents.
There are also short-term government securities. As such, Diem is a stablecoin. According to the development team, the currency will not be mineable as it is the case with Bitcoin and many others. In its initial stages, only members of the Diem Association can process transactions. However, Diem plans to go completely proof-of-stake without permission within the first five years of its launch.
Values that drive the design of Facebook Diem
As with other reputable cryptocurrencies, some principles act as a guide for the operation and design of Facebook Diem. So here are some key values that trigger its unique design, as all bets are on its launch in late 2021:
- People must have the right to control their legal work and its results.
- More people should have access to financial services.
- Global payment networks should be open, cheaper to use and faster. All of this translates into better economic opportunities and more efficient global trade.
- Little by little, but over time, people will gain their trust in a variety of distributed forms of government.
- In addition to supporting ethical agents and consistently upholding the integrity of payments, people and institutions are responsible for driving the growth of financial inclusion.
- A much broader and open payments network, with unmatched levels of interoperability, coupled with high compliance standards, should follow governance and design practices..
How is Facebook going to use it?
There are many opportunities that a cryptocurrency backed by a company with the power and reach of Facebook can offer users around the world.. Furthermore, the unique opportunities it offers make Facebook Diem a great creation in this crypto era. Here are some ways Facebook will use Diem soon:
Users should expect that remittances and money transfers are easier and stress-free. In addition to the ease, the project ensures fast transaction speed and less expensive fees than financial intermediaries.
The long processes of sending money, especially cross-border, through traditional financial intermediaries could be a thing of the past.
2. Electronic commerce
One of Facebook’s focuses is creating better economic opportunities and effective global e-commerce.. It becomes an even easier use case to achieve when you consider that the Diem Association has billions of users and Facebook has at least three billion global users.
Being one of the members of the Diem Association, Shopify will ensure that ecommerce site owners can easily integrate the currency. Every member company running B2C services will implement the Diem system on their platform, that is an unmatched facility in every sense of the word.
3. Cross-border payments
Diem can help reduce the cost of sending cross-border funds, which is already quite high, with 6.5%. Being a cryptocurrency with adequate payment systems, Facebook Diem is almost totally digital.
The transactions will be pre-programmed in your database. Operating costs are expected to be significantly lower than traditional shipping channels. The result will be a lower cost of use and a greater market share on the part of cryptocurrency users.
Governance is one of the crucial use cases of Diem cryptocurrency, and is derived from Diem’s governance structure. It is impossible to compromise on the functionalities and features of Diem. At the same time, This ensures that the project can help serve as the model monetary alternative for the financial flow step into governance..
And what else? Government agency transactions for various public welfare tasks, in addition to a detailed overview of grants and expenditures in the public domain, they will ensure benefits to the public.
What’s more, as Facebook does not have exclusive control of Diem, it is not possible to misrepresent the use of Diem against the public interest.
Here’s how Facebook Diem differs from Facebook Connect. Facebook launched Facebook Connect in May 2008 as the next iteration of the Facebook platform. It allows users to connect their Facebook friends, their identity and their privacy with Internet sites. Secondly, Facebook Diem is a permissioned, blockchain-based payment system that includes a private cryptocurrency.
Facebook’s Libra comes with risk
The announcement of Facebook’s Libra launch sparked several discussions. Some believed it would rival sovereign currencies, while others noted the technology and data privacy issues it posed.. To be more specific, those who believed it would replace sovereign currencies may have been wrong for several obvious reasons, while those who considered the project in light of Facebook’s data breach history and its monopolistic nature could be right.
First, The Libra currency is said to be backed 1: 1 with traditional currencies such as the US dollar, the euro, the yen, etc.. To say that Libra, the supposed secondary currency, will be an alternative to its base currency is incorrect. It raises the question of how a secondary currency that depends on a primary currency for its value will substitute for it. Having said that, the possible threat is that it may manipulate user data.
For example, Hyun Song Shin, economic advisor and head of research at the BIS, acknowledged that involvement of big tech companies in digital currencies carries some potential benefits, although it could reduce competition and create data privacy concerns. Shin insisted again: “The objective must be to respond to the entry of big technologies in financial services to benefit from the profits and at the same time limit the risks.” And he added:
“Public policies must be based on a broader approach that relies on financial regulation, competition policy and data privacy regulation.”
Today, anyone can build a cryptocurrency payment system from home. Nevertheless, the defining factor is that reputable organizations with a verifiable track record endorse the Facebook Diem.
The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Michael J. Garbade is co-founder and CEO of Education Ecosystem. He is a serial technology entrepreneur who previously worked at Amazon, General Electric, Rebate Networks, Photobucket, and Unicredit Group. Garbade has work experience in the United States, Europe, Asia and South America.