Résumé

Diem is a payment system offered by Facebook. This is based on a permissioned (private) blockchain aimed at supplying an ecosystem allowing payments and financial services.

Its crypto, the Diem dollar (formerly Libra) will be backed by a set of stablecoins and should see the light of day in 2021. What else do you need to know about Facebook's cryptocurrency? Let's see it together!

Introduction

Digital payments are a sector with many opportunities. As smartphones become cheaper, more and more people have access to the Internet on them. Economic activity therefore tends to take place online. Companies like Paypal, Visa and Mastercard already meet this need in large part. Additionally, many projects in the crypto ecosystem are also building products for this sector.

Unlike these projects, Facebook already has a large user base. Eh “big” is an understatement. As of the third quarter of 2020, Facebook had approximately 2.7 billion monthly active users! Thus, their payment system can become a real success overnight.

What is Facebook Libra (Diem)?

Diem (formerly Libra) is a blockchain-based payment system, introduced by Facebook in 2019. It aims to provide financial services to people without bank accounts. Morgan Beller, David Marcus, Kevin Well are cited as founding members.

The launch initially planned for 2020 was postponed for various reasons and is expected to take place in 2021.

The Diem will be administered by the Diem Association (formerly Libra Association), an independent organization based in Geneva, Switzerland. Its members come from several companies in the blockchain sector, payments, telecommunications, venture capital and non-profit organizations.

Members of the Diem Association are responsible for project governance, overseeing the operation of Diem's ​​payment service, projects built on the Libra blockchain, and providing grants. Facebook's goal is to have 100 members by the time the project is launched.

Is Facebook Diem a cryptocurrency?

Well, Diem is based on blockchain and uses cryptography. However, the term “cryptocurrency” designates intrinsic properties that Diem does not possess.

If you want to know which properties we are talking about, we invite you to consult this link. In short, calling Diem a digital currency would be more appropriate.

How does Diem work?

The Diem Blockchain (formerly Blockchain Libra) is a permissioned (private) blockchain serving as the basis for Facebook's payment system. How is it different from other blockchains?

We often say that blockchains such as Bitcoin or Ethereum are permissionless. This means that anyone with an Internet connection can freely access them, use them, or build products on them. Nobody controls it.

In the context of a permissioned blockchain, the reality is quite different. To use this, you must have previously obtained authorization from a member controlling the network. More specifically, the applications you use will require specific access.

Diem was a permissioned blockchain, which means that it will not use, unlike other blockchains, mining or staking to validate transactions. Instead, it will depend on a set of authorized validators (members of the Diem Association) who will validate transactions.

According to its creators, Diem will perhaps move to Proof of Stake 5 years after its launch. 5 years which, in our ecosystem, represents decades. Why not use PoS from the start? This choice is explained in the Libra white paper. According to him, there is currently no permissionless system capable of supporting billions of users.

Is Diem centralized or decentralized?

According to many blockchain stakeholders, permissioned blockchains cannot be as decentralized as their permissionless counterparts. Permissioned blockchains are more like a traditional enterprise database.

In this sense, Diem is not censorship resistant like Bitcoin and other cryptocurrencies. Its validators being members of the Diem Association, its network is relatively centralized.

On the other hand, controlling which implications can interact with the distributed ledger has its advantages. For example, it's easier to exclude malicious apps and scams.

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Diem's ​​payment system

The Diem (formerly Libra) payment system supports multiple stablecoins backed by fiat currencies such as the US Dollar, Euro and British Pound. This is similar to how the stablecoins we know work. The difference is that these will be based on the Diem Reserve. This reserve is made up of cash, cash equivalents and short-term government securities.

On top of all this, Diem's ​​payment system supports a multi-currency coin: the Diem Dollar (formerly LBR). This is a sort of mix of these stablecoins. This is therefore backed by several assets. You can think of it as a stablecoin of stablecoins (and possibly other assets, such as securities). The objective is that these different forms of collateral can protect users from volatility: an aspect to take into account for a payment system.

The Diem cryptocurrency will be stored in a wallet called “Novi” (formerly “Calibra” wallet). As you might expect, this wallet can be integrated with products from other social networks such as Messenger or WhatsApp. According to Diem's ​​white paper, users will be able to easily convert their US dollars (or local currency) into Facebook coins.

Diem's ​​source code, the "Diem Core" is open source and written in Rust - you can check it out for yourself on the Diem GitHub. Still according to the white paper, Diem will support the ability to program smart contracts via a language called “Move”.

Will Diem replace Bitcoin?

By now, it is clear that Diem and Bitcoin are fundamentally different and therefore can coexist. Although both of these systems can be considered digital payment systems, they do not serve the same use cases.

Bitcoin is a decentralized cryptocurrency, resistant to censorship and acting as a store of value. Diem, for its part, is based on a permissioned network, therefore making it centralized.

What is the future of Diem (Libra)?

Facebook came under fire following the Libra announcement, notably from central banks, legislators and regulators. It remains to be seen whether the company will be able to bring together all the necessary elements to make Diem a success.

Conclusion

Diem (formerly Libra) is a payment system offered by Facebook and based on a permissioned blockchain. This aims to offer financial services via Facebook applications to people who do not have a bank account.

Do you have more questions about Diem or payments? Check out our Q&A platform, Ask Academy, where the Binance community will be happy to answer your questions.