By Aahan Tulshan
Diem, which means ‘day’ in Latin, is a cryptocurrency which has been proposed by Facebook. It operates using a permission-based blockchain network, which means users require access (permission) to be a part of the network. The proposal was initially known as ‘Libra’, and was rebranded as Diem in December 2020. The proposal will be managed by the Diem corporation, which is an independent membership organisation of companies coming from various fields such as payments, telecommunications, and venture capital. The rebranding was done in a bid to appease regulators, who were previously unhappy with the structure of Libra.
Source: Earngurus
Facebook’s work on a new cryptocurrency and blockchain network started in 2017. At the time, there was only one person, Morgan Beller, who was working on the initiative. By February 2019, there were over 50 engineers working on the crypto project. It was in May 2019 that there was concrete proof that Facebook intended to seriously launch a cryptocurrency. At the time, the cryptocurrency was known as Globalcoin or Facebook Coin. The formal announcement of project Libra was in June that same year and it was going to be released in 2020. Facebook made it clear that it wouldn’t launch the cryptocurrency until the project had complied with all the financial regulations. At the time of writing, the currency is expected to be launched in January 2021.
The purpose of the cryptocurrency was to act as an alternative to the US dollar and other currencies. It was originally meant to be backed by a basket of securities and government debt, which includes US Treasury Bills, in order to protect against volatility in the markets and prevent drastic fluctuations in its value. The Diem project is now going to be a single coin backed by the dollar.
The Bitcoin bubble and journey. Source: Money and Markets
Facebook rebranded in order to present to regulators a simpler and more revamped structure. However, the German finance minister stated that the new cryptocurrency was a ‘wolf in sheep’s clothing’ and that the rebrand did nothing to address the regulatory concerns in the market. The concerns included possible financial instability and the threatening of user privacy. Initial supporters of the movement such as Paypal holdings and Visa left the project which was aiming to attract 100 members to its organisation before launch. The Diem organisation has 27 members currently and has scaled down its operations. Diem also faces competition from existing US based stablecoins such as Tether and USD coin.
Cryptocurrencies typically need to be regulated because they do not represent a traditional asset class like stocks and bonds. In 2017, the value of Bitcoin reached unsustainable highs and crashed just as dramatically. Uncertainty and herd mentality contributed to the extreme volatility of value. Regulation can help protect investors from the wild fluctuations in value. Regulation can also help protect user privacy and guard against thefts. Blockchain technology is a very safe network and makes it extremely hard for people to break into it. Incidences of theft and privacy breaches are the exception rather than the norm. However, risks still exist where digital currency is concerned and regulation and spreading awareness can help investors and users have safer experiences.
Source: Avatrade