Why Facebook’s Diem Is Not a Threat to Bitcoin
By: Sylvain Saurel
Tags: Bitcoin, Blockchain, Cryptocurrency, Facebook, Tech

Why Facebook’s Diem Is Not a Threat to Bitcoin

But it is another way to conduct secure online transactions.

Announced with great fanfare in June 2019, Facebook’s Libra digital currency project quickly triggered the wrath of the world’s major economic powers. Facebook’s Libra was initially intended to be a stablecoin backed by a basket of the world’s major currencies (U.S. dollar, euro, yen, pound sterling, …).

With the Libra Association, Facebook wanted to show that this digital currency was not its own, but a currency managed by an independent entity in which we found big names like Visa, PayPal, Mastercard, Coinbase, eBay, Spotify, Lyft, Uber, …

However, everyone had understood that this digital currency was indeed the property of Facebook.

Facebook’s initial project with Libra has been scaled down

Under these conditions, the governments of the world’s major powers immediately saw the danger that Facebook represented for their prerogatives as States: monetary creation. American regulators were particularly severe with Facebook, demanding countless guarantees that the Libra Association was slow to present.

These guarantees were linked in particular to the control of the source of funds or the respect of privacy since Facebook had planned to develop the Calibra wallet and to integrate it into all of its existing services, from WhatsApp to Facebook Messenger.

The American authorities then put pressure on several big names associated with the project. Visa, PayPal, and Mastercard quickly understood that if they persisted in staying with Facebook’s Libra project, their core business would be threatened by the U.S. authorities.

At the end of 2019, Visa, PayPal, Mastercard, and eBay had therefore announced that they were leaving the Libra project.

While the official launch was scheduled for mid-2020, Facebook was forced to revise its plans. The ambitions of the initial project were constantly revised downwards as the months went by.

Libra becomes Diem, but Facebook doesn’t fool anyone

At the end of the year 2020, Facebook came back to the charge by announcing the renaming of the project. Now, Libra must be called Diem. The goal is obvious: to make this project less linked to Facebook. The Libra name was immediately associated with Facebook, which increased the fear that Facebook would be the only real decision-making entity within the association.

Exit the Libra Association, from now on we will have to talk about the Diem Association. However, the Libra logo remains the same for Diem. They try to make something new out of the old, but they keep the visual elements all the same.

Facebook’s Calibra wallet is also changing its name as it will now be called Novi. Basically, it doesn’t change anything, since Novi’s goal will be to allow users to send money via applications such as WhatsApp or Facebook Messenger.

The ambitious goal of having 100 world-renowned participants in the project is abandoned. The Diem Association remains out of 27 members.

The Diem Association will only issue the Diem dollar initially

Based in Switzerland, the association plans initially to issue a stablecoin that will be pegged only to the U.S. dollar. This first stablecoin of the Diem project will be called Diem dollar.

No more single stablecoin based on a basket of the world’s major currencies as Facebook originally intended.

In the future, the association could then consider issuing other versions of the Diem: Diem euro, Diem yen, … Everything will depend on the success of the Diem dollar and the reception that will be reserved by Western regulators.

The group’s chief executive officer, Stuart Levey, hopes that the changes made by the Diem Association will be well received by the regulators of the world’s major economic powers:

“All of these design features we think make for a project we think that regulators will welcome.”

Stuart Levey even went so far as to hope that central banks might find it advantageous to use the infrastructure of the Diem project in the future for their own digital currencies.

The utopia of some has no limits.

Some media want you to believe that Diem is a threat to Bitcoin

Whether the name is Libra or Diem, governments all over the world see this corporate digital currency that Facebook wants to create as a threat. With its 2 billion users and the privacy scandals in which the group is involved, Facebook is disturbing.

I have read articles in the general media by journalists explaining that the Diem is going to be a threat to Bitcoin.

To read such nonsense is appalling. But with time, you get used to it. How can you expect anything else from people who don’t understand what Bitcoin is all about? Attitudes about Bitcoin are changing, but some people still lag in terms of understanding what is at stake for the world of the future.

With Bitcoin, Diem will have only one thing in common: it will be a currency.

Diem does not play in the same category as Bitcoin

Diem can therefore be exchanged, like Bitcoin, against the U.S. dollar. Diem can be used as a medium of exchange or as a means of payment. It will not be limited to transactions on the Facebook network.

Blockchain technology will be used to manage Diem transactions. However, make no mistake about it. The Blockchain of the Diem project will be centralized since it will be controlled by Facebook and the other members of the Diem Association.

In a world where everything is becoming digital little by little, the Bitcoin network will always differentiate itself by the fact that it is decentralized. Anyone can become a node of the Bitcoin network. We talk about a permissionless and trustless blockchain for Bitcoin. This is the strength of Bitcoin.

So the Diem project is clearly not in the same category. Without this decentralized side, Diem is nothing more than another centralized system with leaders who can dictate their law to users.

Bitcoin has no leader. Each user has potentially the same weight as another. Decisions are made by consensus by the majority of the users in the network. Bitcoin is a true democracy, which Diem will never be.

Diem is just another stablecoin that will try to compete with PayPal

If you absolutely want to compare the Diem dollar to something from the cryptocurrency world, you should look at stablecoins like Tether or the USD Coin instead. These are very popular stablecoins backed by the U.S. dollar.

At the time of writing, Tether represents a market cap of $19.4 billion, while the USD Coin represents a market cap of $2.9 billion.

Another interesting example is the Celo Dollar. Its market cap is currently insignificant compared to Tether or the USD Coin since it is only 16 million dollars. But Celo Dollar is governed by an association in which we find most of the members of the Diem Association.

Like any stablecoin, the Diem dollar will help to hedge against volatility. De facto, Diem dollar will not be able to protect you from the ravages of monetary inflation. Yet another difference with Bitcoin that the general media don’t understand.

Developed by Facebook, the Novi wallet will allow users to use the Diem dollar as a means of payment and exchange on Facebook Messenger or WhatsApp as explained previously. In this sense, the Diem can be seen as a real competitor to PayPal.

PayPal currently has 346 million users if we take into account the 25 million users of its mobile payment solution Venmo. With its more than 2 billion users, Facebook would be a serious competitor for the years to come.

Final thoughts

Diem should therefore be seen primarily as another way to conduct online transactions quickly and securely. But with the risk of letting Facebook obtain valuable information about your financial transactions that can be cross-referenced with your other personal data in the possession of Mark Zuckerberg’s firm.

Halfway between a competitor of PayPal and a stablecoin, the Diem project will not be a revolution in my opinion. It will try to compete with the CBDC, and remind you that Bitcoin is your only real alternative if you want to protect your future regarding money.

If you don’t opt for Bitcoin, you’ll end up stuck between digital currencies from central banks and digital currencies from companies like Facebook’s Diem. It’s up to you to make the right decisions to protect your future.