Guide to Diem (or Libra 2.0)
By: Gianmarco Guazzo
Tags: Stable Coin, Technology, Crypto, Cryptocurrency, Fintech

Guide to Diem (or Libra 2.0)

The decisive moment seems to have come for the arrival of the cryptocurrency from Facebook and the consortium behind it. After several legal problems and clashes with the American authorities, the project seems ready for release next January.

The news comes from the Financial Times, which reveals how the Association once called Libra has changed its name to find its identity and to try to emphasize its independence from Facebook. Let’s try to understand the meaning, functioning and history of the most controversial cryptocurrency in the market.

Libra 1.0

The Libra project was born in 2019 by the Facebook company to provide financial services and a payment system through “new” technologies such as DLT and Blockchain. The idea behind the project was the creation of a payments network to be used directly within the most famous social networks and services belonging to the Libra Association. Applications such as Instagram, Facebook, WhatsApp, Messenger and many others would have made it possible to involve millions of potentially unbanked people in the global financial system. The potential of the project was obviously enormous and the consortium that was being created behind the service, with partners of international calibre, represented an excellent premise. Sounds perfect, doesn’t it? Well, that’s not quite the case.

The Association

The Libra Association was a non-profit association based in Geneva whose task was to manage the technological infrastructure and related reserves underlying the cryptocurrency released. Among the various Facebook partners in this first version, there were many important names such as Uber, Spotify, Vodafone, Coinbase, PayPal, Visa, Mastercard and many more. To become part of the consortium, each company had to pay an entrance fee and subsequently, would have been entitled to dividends from the Libra Association in a proportional manner. Each of these brands brought their own “community” of people within this project, allowing, at the time of launch, to already have a significant user base.

Stable Coins

As we said earlier, the idea behind the project was the creation of financial infrastructure based on a cryptocurrency, and specifically on a Stable Coin. Stable coins are cryptocurrencies whose value is linked stably to the value of an underlying asset, in this case to the dollar and other fiat currencies, with a 1 to 1 ratio. In this way, the exchange rate between dollar — pound or euro — libra was stable and allowed people to exchange a digital currency not subject to the high volatility that characterizes Bitcoin rather than Ethereum.

Calibra or Novi

While Libra was the Stable coin with which to pay for services and send money between users, Calibra was the division of Facebook and the consortium that took care of the work on cryptocurrency.

The division’s first real product was a digital wallet that made it possible to manage payments through cryptocurrency and integrate with applications such as WhatsApp and Messenger, allowing it to reach the “pockets” of nearly 2 billion people. At first, this wallet was called Calibra but was later renamed Novi.

Problems and conflict

After the presentation of the project and the initial euphoria, there were the first problems at the institutional level. Cryptocurrency and the association have received several criticisms from the heads of state and the G7 finance ministers. The first problems come from Washington in which a large group of representatives of the US congress ask Facebook to suspend development because the scope of the project and the calibre of the signatures in the consortium required validation by the institutions. What worried Congress was the possibility that these instruments constituted a global financial system in competition with the United States and the dollar. Also, the various doubts regarding privacy, security and monetary policy have stalled the work on the cryptocurrency. The idea was simple:

“Since Facebook already has over a quarter of the world’s population in its hands, the group and its partners must cease implementation plans immediately until legislator and Congress have examined these issues and taken action”.

In addition to the US Congress, also from Switzerland there began to be the first doubts about the idea of ​​cryptocurrency and the consortium behind it. In a few months, many of the companies within the Association abandoned it, leaving Facebook and a few others struggling with regulations.

Libra 2.0

After several clashes with authorities and central banks, the Libra Association changed course and started working on different Stable coins, failing to find the right setting. According to the Financial Times, it seems that the association is intent on launching a single stable currency anchored to the value of the dollar. Also, the most important change, at least at the brand level, is the change of name: from Libra to Diem. The Stable coin pegged to the dollar value will be called Diem Dollar and the Association is now called “Diem Association”. Diem proposes to provide a simple platform capable of innovating fintech to allow companies or individuals to exchange money digitally and instantly.

There is still a certain date for the start of the project but the most likely seems to be January 2021. The Diem Association is waiting for the green light and approval from the competent institutions in Switzerland, given that the registered office is in Geneva. Despite the project being launched, the hostilities of the regulators and doubts are not lacking. The fears are essentially aimed at the private entity, Facebook, capable of issuing its own financial service accessible to nearly 2 billion people around the world. The scope of this project is potentially infinite since, while Bitcoin and Ethereum are widespread but always within a niche, Diem has the ability to enter everyone’s homes instantly. Also, giving a company like Facebook the possibility to have the financial data of its users makes this project very difficult to complete. After Cambridge Analytica and the censorship problems experienced by social networks in recent months, the last thing that regulators want is to give the possibility to know the amounts, interests and expenses of users associated with the social network.

In short, Libra, or rather Diem, remains an ambitious and perhaps somewhat utopian project. All that remains is to see what the reactions of the big players in the world of finance and regulation will be. The fears are there but Facebook and the Diem Association seem well-intentioned to complete the project.

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