The Essential Guide to Facebook's New Cryptocurrency - Diem

Last year’s announcement by Facebook that it would be launching a cryptocurrency was met with a lot of hype and the reason for that is not far-fetched. It marked an embrace of cryptocurrency by one of the biggest internet companies, signifying a level of confidence in crypto at the highest levels of Silicon Valley. Also, being the advertising powerhouse that it is, the perception was that Facebook would be able to drive massive adoption of its cryptocurrency simply by leveraging the two billion-plus members of its platforms. As a full launch has now been announced for early 2021, here is what you need to know to get in on the ground floor of the cryptocurrency.

Establishment and control

One of the attractions of cryptocurrencies is evident in their name – crypto. Security and privacy are high priorities for crypto users. Given Facebook’s checkered privacy history, some people were understandably cautious about using the Facebook Libra coin. In reality, however, Facebook does not own the Libra coin and is only a partner among other major organizations that decided to partner for the project. Facebook will be able to exercise some influence as a member of the governing association, but not any more than other founding members such as Visa, Uber, and Andreessen Horowitz, who have also invested at least $10 million each into the project.

Also, for its role in the project, Facebook has launched a separate company named Calibra that will be responsible for all its activities concerning the Libra coin, such that there would be a clear distinction between the management of both companies and data will never be intermingled. That would help ensure that people are not targeted for advertising purposes based on their use of Libra and also that their identities will never be revealed based on what is in their Facebook profiles.

Recently, the organization announced that the project (and the cryptocurrency) will now be known as Diem, which is Latin for “day”. The changes are likely as a result of increased regulatory scrutiny and a desire to shift from the strong association of the Libra name with Facebook.

Use cases: Spending your money

When the project launches and becomes available for use, what will you be able to use it to do – buy a coffee, make a down payment for a house, or just make online payments? The answer to that is it’s not certain yet. There’s an unlimited spectrum of potential use cases, but it will all depend on how well the coin is received and how much confidence people have in it. There are a few factors that make this coin look very promising though.

The first one is that unlike a large number of cryptocurrencies which have very arbitrary price mechanisms and whose volatility makes them very unreliable, the Libra coin is likely to utilize a stablecoin structure. A stablecoin is one that has its value linked to that of another item, which is typically a fiat (traditional currencies like the Dollar, Pound Sterling or Euro) currency. Diem is going to be linked to the United States Dollar, which makes it perfect for making transactions of any sort within the country and also outside it, given that it’s the currency with the widest acceptability worldwide.

Also, although other cryptocurrencies currently utilize the stablecoin structure, they simply do not have the kind of institutional backing that Libra (now “Diem”) will have upon launch. Although some of the founding members of the association have dropped out, the presence of organizations like Facebook, Andreessen Horwitz, Vodafone Group, Uber, eBay, Spotify, and many other internet giants should give the currency a certain degree of security from its operational and also reputational perspective. As part of the organization’s plans, Libra will be integrated into these services first, and since they represent a large number of what most people use day-to-day, it’s safe to say there’ll be many places to spend your money.

Investment

As with any other kind of currency, whether crypto or fiat, Diem presents an opportunity for being used as an investment vehicle rather than only a currency for transactions. This possibility is not as extensive because the Stablecoin structure means it will be tied to the value of the US dollar. From an investment perspective, the primary way one would make money from holding Diem is if the US Dollar appreciates in value.

Nonetheless, because the US government is currently without a clear policy on cryptocurrency generally and on Libra specifically, it might be possible to turn a profit based on the perceived value of the coin, by selling to people who want to use it in places where it is not readily available. Many people might want it for the privacy benefits, for instance, as opposed to transacting in the US Dollar itself. The specifics of this will only be clear after launch, and when various countries have enacted regulatory policies regarding usage of the coin.

Conclusion

Libra represents an evolution of cryptocurrency from the fringes of corporate society to mainstream acceptance and use, especially as the founders take steps to resolve the privacy issues. Although it is using a structure that already exists, the sheer weight of its backers is likely to make it much more successful. Hence, buying it and using it as a way to make transactions and invest is likely to be very convenient and secure, without the risks of volatility that exists with most other cryptocurrencies. As the project is still in development, the exact specifics of all aspects of its operations remain to be seen, but it’s a very promising cryptocurrency and one whose potential is very exciting.

Originally published by Ademola Alex Adekunbi on Augusta Free Press.