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In December 2020, Libra suddenly announced that it was renamed Diem and confirmed that it would be launched in early 2021. At the same time, the original Libra Association was renamed Diem Association. As we all know, the social network giant Facebook has designed the cryptocurrency Libra before, so what is the purpose of this change of name Diem?
Facebook’s ambitions to enter the cryptocurrency market
In fact, as early as 2018, Facebook had a plan to develop a payment platform based on cryptocurrency. At that time, David Marcus, vice president of instant messaging application business, was appointed the head of the blockchain department. He had previously served as president of PayPal and was also a board member of the cryptocurrency exchange Coinbase. Then, Facebook began to hire more and more cryptocurrency developers. Gradually, the social media giant’s digital currency plan began to surface, and other details related to Facebook’s digital currency began to flow out. At that time, Facebook planned to turn the instant messaging app WhatsApp into a cryptocurrency remittance tool and was preparing to launch a pilot program in the Indian market, but ultimately failed.
In 2019, Facebook officially announced the launch of the digital currency Libra, and also disclosed in detail the specific structure of the project. At first, both Libra and its blockchain were supported by the Libra Association, a consortium of 27 large companies independent of Facebook. According to Facebook’s plan, they will build a digital currency wallet called “Calibra” for Libra (now renamed Novi), and will support independent governance voting, but this way allows Facebook to gain from the digital currency Libra Profit.
However, when the launch was announced, the Libra project still faced many regulatory obstacles, including the US Senate and some European regulatory agencies that did not support Facebook’s issuance of digital currency. Since then, the Libra digital currency plan has not developed as scheduled. By the end of 2019, some initial members of the Libra Association began to choose to leave, including PayPal, eBay, Visa, Mastercard, Stripe, Mercado Pago and Booking Holdings. In the end, Facebook had to rebuild the Libra Association, which also attracted some new members to join.
The time came to 2020. The whole year was not smooth for Libra, and it was not released as planned. They basically chose to remain silent throughout the year.
“Renovated” Libra-Diem comes out
As a “retrofited version” of Libra, it can be said that Diem is more similar to Tether (USDT) or other cryptocurrencies linked to fiat currencies. Diem will run on the autonomous Diem blockchain, and all tokens will be stored in a digital currency wallet called “Novi”. The renamed Diem project is cooperating with the Swiss Financial Market Supervisory Authority (FINMA) to obtain a payment service license, which will allow it to operate in certain areas if all goes well.
Different from other stable currency blockchains, in addition to being used for transaction payments, the Diem blockchain is programmable like Ethereum, which means that developers can create custom apps on Diem based on one A smart contract development language called Move, users can ensure network security in accordance with the logical constraints of “static typing”. In addition, there is another point similar to Ethereum, that is, the Diem blockchain is supported by validator nodes. The validator nodes are currently approved by members of the Diem Association. These nodes need to confirm transactions and verify blocks.
At present, Diem has been confirmed to be a stable currency. Like Tether and other stable currencies, it will be supported by traditional assets. If according to the early planning, Diem will be linked to government securities and legal tenders of different countries. According to the latest reports, Diem tokens will be fully backed by the U.S. dollar and anchored to the U.S. dollar. If it is pegged to the U.S. dollar, it means that the market value and circulation of Diem may not be fixed. The Diem Association can mint tokens when the Diem reserve increases, and it can also destroy the tokens when the reserve decreases. So far, there is no accurate data on the circulation of tokens issued when Diem goes online.
It is worth noting that although Diem has always promised to achieve global financial inclusion, they have to abide by regulatory regulations. The Diem blockchain is still controlled by a small group of validators who conduct transactions in accordance with Diem’s LibraBFT consensus protocol. Confirm that this ensures that no participants (including Facebook and Novi) have too much power over Diem. This means that the Diem Association is likely to be able to blacklist some addresses, while also preventing token transactions that violate relevant regulations. If this is the case, the Diem design method may be contrary to the original intention of blockchain technology, because “Satoshi Nakamoto” originally designed Bitcoin for the purpose of providing people with absolute financial freedom and unstoppable transactions.
The Diem blockchain is actually very concerned about efficiency issues. The actual transaction processing speed is very fast, and it is expected to process 1,000 transactions per second when it goes online. This is very different from previous media reports that the testnet can only process 6-24 transactions per second, which is far lower than that of non-blockchain payment networks such as Visa or MasterCard.
More importantly, Diem promises that transaction fees are “close to zero”. On the Diem blockchain, the interest income of reserve assets will be paid to validators, which means that they do not need to pay from each transaction like other payment companies. Deduct 1-3% of the cost.
The Diem Association recruited troops to meet regulatory challenges,
It is worth mentioning that Facebook learned the lessons of the previous Libra project and knew the importance of obtaining regulatory approval. Therefore, the Diem Association recruited a number of key figures to lead the project, such as former Microsoft and VMware veteran Dahlia Malkhi. Chief Technology Officer; Christy Clark, a former HSBC executive, served as staff advisor; former US lawyer Steve Bunnell served as Chief Legal Officer. In addition, Kiran Raj was appointed as Executive Vice President and Deputy General Counsel for Growth and Innovation, James Emmett as Managing Director, Sterling Daines as Chief Compliance Officer, Ian Jenkins as Chief Financial and Risk Officer, and Saumya Bhavsar as General Law consultant. Judging from the work experience and industry background of these new members, they are likely to help the Diem project enter a new stage and meet regulatory challenges while ensuring organizational independence.
At this stage, the organizational structure of the Diem Association has not changed. In addition to a group of members who left in 2019, the current members as of December 2020 also include Coinbase, Uber, PayU, Rabbit Capital, kiva, iliad, Spotify, Temasek, Farfetch and so on.
Will cryptocurrency exchanges support Diem?
According to the information disclosed in the Diem white paper, the project is cooperating with “a number of fiercely competing cryptocurrency exchanges” in order to allow more users to freely buy and sell Diem tokens. But so far, we don’t know which cryptocurrency exchanges will support Diem. As of December 2020, no cryptocurrency exchange has clearly stated that it supports Diem, but as members of the Diem Association, Coinbase and Xapo may provide some support. In addition, it is not clear what practical applications of Diem will be, and no major company has announced support for the Diem transaction. But it should be noted that some companies in the Diem Association may accept the token, including well-known global companies such as Shopify, Spotify, and Uber, and they all have the possibility of accepting Diem token payments.
If more cryptocurrency exchanges support Diem trading in the future, more users will buy the token, which may further increase its market value. On the other hand, if Diem tokens can only be used through the Diem app, it is unlikely to attract the attention of the crypto community.
How do you see the future of Dime?
If all goes well, Diem will become the world’s first cryptocurrency issued by a large technology company. If you make a conservative estimate: assuming that 5% of Facebook’s 2.7 billion global users have purchased $50 worth of Diem tokens, then the total market value of Diem will reach $6.7 billion, which is enough to make Diem the top five in the world Bit cryptocurrency.
In addition, Facebook, a powerful brand, must be a plus to Diem’s success. Not only that, there are some strong global companies among the members of the Diem Association, so it can bring great help to Diem in terms of exchange listing and commercial adoption.
However, the Diem project has also received a lot of criticism in the market. Although the project seems practical and efficient, it is not the same as other blockchain projects. In addition, Diem’s centralization issue may also cause some internal divisions in the crypto community. Moreover, Facebook has not announced until now whether it will use Diem on its website, mobile application, and other affiliate products.
So is Diem still as ambitious as Libra before, or is it just a compromise by Facebook? Let’s wait and see!
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