The much-talked about Facebook library launch has been scrapped and the social media giant is instead part of a new digital currency called diem.
It will be supported by the 27-member Diem Society, of which Facebook is one.
It is expected to launch in January 2021 and there have been bold claims that it will transform the financial services industry.
What is this digital currency, what does it have to offer and how can it be used?
Carpe diem: Facebook has ditched a library and instead is supporting a new digital currency called diem – who will grab the day?
Will the launch go ahead in January 2021?
Most industry commentators believe that diem will be introduced in January despite the many delays in launching the original library.
But it may not be immediately available in all countries. Graeme Moore, head of symbolization at Polymath, says: ‘Based on what we hear from various regulators around the world, diem may have a limited launch in some countries in January 2021.’
He added: ‘The German finance minister recently said of 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 market entry 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 Society?
Facebook established the Libra Society to manage the digital currency library.
However, the Libra Society has now been rebranded to the Diem Society and has been tasked with overseeing the diem digital currency.
The Diem Society, consisting of 27 members, describes itself as an independent membership organization. Its headquarters are in Geneva, Switzerland.
Members of the organization include numerous companies, venture capitalists and not-for-profit organizations including PayU, Spotify, Uber, Mercy Corps, Coinbase and Facebook to mention a few.
Libra was supposed to be a cryptocurrency and launched as a competitor to the global fiat market.
Fiat currency refers to ‘established currencies’, which are regulated by governments such as the pound, US dollar or euro.
However, diem has a softer mandate in the sense that it is supposed to supplement domestic currency and not replace them.
By definition the diem is actually ‘stablecoin’.
Stablecoin is a type of cryptocurrency pegged to a currency or commodity price, like gold.
The monetary value of a diem is currently tied to the US dollar – so one diem is equal to one US dollar.
Diem uses blockchain technology.
Blockchain is a system of recording information – essentially a digital ledger of transactions that is recorded and distributed across a whole network of computer systems.
Blockchain enables individuals and companies to negotiate without any interference from ‘middle men’ such as banks or governments.
The advantage of blockchain technology is that it is supposed to be impossible to change or hack.
Why was the name changed to diem from a library?
European regulators and the US Parliament have considered their initiative to create a digital currency as another way for the social media giant to become even more powerful.
Since its official announcement in June 2019, the library has seen many obstacles such as the departure of members, such as Visa and PayPal from the Libra Society and pushing back from Parliament.
This is why it is not surprising that it has distanced itself from the digital, library, money that it was originally behind.
Diem will be accessible to billions of Facebook users who will be able to use it for global purchases and currency transfers
Simon Peters, crypto analyst on multi-asset investment platform eToro, explains: ‘Being called a “Facebook coin” could be seen as restrictive, and a deterrent because of some of the issues Facebook has last month 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 connection with members ranging from Coinbase to Spotify to venture capital firms should help give Diem some impartiality.’
How can diem be used?
The potential of diem is huge. On its website the Diem Society states that its aim is ‘to build an innovative and trusted 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 digital currency that they could use to pay for things right away.
Daniel Polotsky, CEO of bitcoin ATM operator CoinFlip believes the diem will not be a competition for bitcoin
Could it transform the way we access financial services and deal with money?
When it comes to managing our money, banks charge fees in many ways and create rules that can limit our ability to negotiate.
These include transaction fees, minimum expenditure, minimum balance, etc.
Diem could have the potential to cut transaction costs as well as reduce the time it takes to negotiate internationally.
According to the Diem Society it costs 7 percent to send money internationally and it takes three to five working days to complete such transactions.
Cash is an expensive way to negotiate but for the unbanked cash is often the only solution.
An estimated 1.7 billion people are unbanked – that’s 31 percent of the global population, according to the Diem Association.
When someone is without a bank, they do not have access to the services of a bank or similar financial institution.
Being called a ‘Facebook coin’ could be considered restrictive, and a deterrent because of some of the issues Facebook has had over the past 24 months with privacy and data usage
Simon Peters, crypto analyst on multi-asset investment platform, eToro
Diem believes it could provide a viable alternative for those without banks and help them save money. According to the Harvard Business Review, the non-bank pays on average $ 4 – about £ 2.94 – more per month than those who go cashless and use formal financial services.
The new digital currency can be used to buy 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.
Diem users are also likely to be able to use Facebook’s entire ecosystem.
Peters says: ‘Diem will allow them to instantly perform transactions and pay for goods and services across multiple Facebook-owned platforms, whether that’s the Facebook app itself, or further down the WhatsApp line or Instagram. ‘
How can diem be stored?
The linked digital wallet for diem is called Novi. Through Novi, consumers will be able to use their local currency to buy a diem and convert it back to their local currency when they want to withdraw.
Users do not have to have a Facebook, WhatsApp or Messenger account to access Novi.
What is a Digital Wallet?
When you carry cash, you would usually hold it in a wallet or cash clip so you don’t lose it.
A digital wallet or e-wallet offers a similar type of security – but digital. It is an online service or software program that allows people to enter into electronic transactions with another third party.
They can be accessed via smartphones or computers and can help users track and view their assets as needed.
Cryptocurrency wallets allow users to store their digital currencies in them, like bitcoin and ethereum.
There are two types of digital wallets: hot and cold. Hot wallets are connected to the internet while cold ones are not.
Hot wallets are therefore more vulnerable to cyber-attacks by hackers.
Novi is still under construction and it is not yet clear what fees will apply.
But Novi says on his 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 cannot be hacked or changed, social media platforms and digital wallets are vulnerable to cyber-attacks.
Peters says: ‘As with any asset or business that uses digital technology, you run the risk of cyberattacks and hacks. If Facebook came across any attacks on its systems, then Diem’s people 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 is hacked, people risk having their bank accounts emptied.’
With regulators worried about the Facebook library there is a good chance they will remain suspicious of diem as well.
Graeme Moore, author of B for Bitcoin, says: ‘Facebook has an incredible reach and huge number of users, giving it a leg up on any competition in the fixedcoin space.
‘However, they will have to convince trusted regulators who look 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 is unlikely to pose a threat to established cryptocurrencies like bitcoin.
Daniel Polotsky, chief executive of bitcoin ATM operator CoinFlip, says: ‘We welcome the Diem 100 percent.
Over one billion people use 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 scapegoat for cryptocurrency and help people learn more about bitcoin.
‘Bitcoin is a real king as it is truly decentralized – it is more decentralized than a corporation-bound currency.’
Daniel points out that the other advantage of bitcoin is its investment potential. ‘There is only 21 million bitcoin and it is worth its value. It combines the best of currency and store value.
‘The Diem is still pegged to the dollar and still has all the dollar defaults and people will hold on to that and change.’
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