The global pandemic in 2020 made the world pause for a moment, providing space for people to reconsider their lifestyles and personal decisions. This has led to an increasing number of people striking out to make a permanent change in their life, such as working from home in the long term.
The other big movement was the swell in demand for digital services and online entertainment. Although many places are starting to slowly ease out of lockdown, the appetite for digital content hasn’t abated.
As part of this new tech revolution, interest in cryptocurrencies has grown. More people are including it in their investment portfolios, and it’s increasingly being offered as a method of payment.
Never keen to be caught snoozing, Facebook has latched onto this trend and announced this month that it would be launching its cryptocurrency. But will this add any value to an increasingly crowded crypto market? Or will it just confuse crypto novices further? Here’s a closer look at the evolution of crypto and what Facebook will be offering.
- More Than Just an Investment
- Facebook Launches Cryptocurrency
- How Will Diem Differ From Other Cryptocurrencies?
- Why Has Facebook Launched Its Own Cryptocurrency?
- A New and Accessible Wallet
More Than Just an Investment
The performance of cryptocurrency has been one of the biggest attractions for many, netting them significant returns on their investment. If you’d got into Bitcoin in 2010, a year after it launched and invested $100, you would now have a fortune of more than $48 million. The upward trajectory has been mind-blowing and unlike anything seen before. If you’d been there from the very start, you’d have even more.
However, the goal is for cryptocurrency to be more than just an investment. While many buy crypto because of its potential to grow, there is also a significant number who want to get away from the current monetary system which is controlled by governments they no longer trust.
To achieve this, crypto needs to become a functional currency and accepted by everyday outlets, including retailers.
Take-up has been slow among retailers but the tide is gradually beginning to turn. Walmart is now using cryptocurrency and other big stores will inevitably follow. In 2018 Aldi responded to a Tweet and said they’d consider the option. With the prevalence of crypto and its use gaining more acceptance, we believe you could soon be using crypto on the Aldi ad this week, or hitting the sales to pick up an online bargain.
There are hurdles for retailers to overcome, such as the speed of processing and the lack of familiarity with crypto. But all the indicators point to the growing adoption of the tech, which is supported by big names such as Facebook entering the market.
Facebook Launches Cryptocurrency
Crypto has been increasingly in the news, with celebrities such as Elon Musk publicly commenting and sending prices soaring – and plunging. No longer in the shadows, cryptocurrency and the potential that blockchain technology offers are firmly in the spotlight.
Little surprise then perhaps that Facebook has entered the fray, announcing that it will be launching its crypto venture. Joining forces with a collection of companies known as the Diem Association, the new crypto from Facebook will be known as Diem.
Diem Association had previously filed for a license from the Swiss Financial Markets Authority for a payment system, but since hooking up with Facebook, it has now withdrawn the application. The Diem Association said the licence is no longer needed under the new business model and confirmed it would be moving operations to the US.
Diem will take over from the Libra crypto tech, crypto which has performed poorly since its launch in 2019. Rebranded as Diem, the crypto will be a stablecoin rather than a conventional cryptocurrency. A stablecoin is a type of crypto but it’s one that’s pegged to a traditional asset, typically a governed-backed currency.
How Will Diem Differ From Other Cryptocurrencies?
There will be many similarities between Diem and other cryptos such as Bitcoin and Ethereum; all of them exist entirely in a digital format with no physical notes or coins produced. Every transaction completed with Diem will be recorded on a type of software ledger known as the blockchain. This is what verifies every transfer made.
In the early stages of the Diem project, the blockchain will be entirely managed by the founding members but it’s anticipated that it will migrate to a fully open system at a later date.
However, where Diem is different to many well-known cryptocurrencies is the fact that it will be anchored to real-life assets. Bitcoin and other forms of crypto aren’t pegged to anything, and it’s this which causes them to be so volatile, swinging wildly in value. This volatility is both crypto’s greater strength and its biggest vulnerability. Investors seek out high volatility to capitalize on large gains, but those using crypto in a more functional capacity may find it too unpredictable to be genuinely useful. High volatility can also cause problems for retailers if they’re not able to convert transactions quickly.
Facebook has not yet confirmed which assets Diem will be attached to, but it’s expected that it may be a basket of currencies such as the Euro and the US dollar. These are relatively steady currencies that don’t have such high levels of variance. It’s believed that there will eventually be different sets of stablecoin, some pegged to a specific currency with others pegged to multiple currencies for international use. Diem’s founders will purchase more of the underlying asset every time someone buys Diem; this is how the new stablecoin is “minted”. Conversely, when people want to get rid of their Diem, the association will simply sell the asset and effectively “burn” Diem.
Although crypto is a new tech that’s only been around since 2009, the idea of using an asset to back a currency isn’t unique. Until 1971, the US dollar was backed by gold and the Hong Kong dollar is still pegged to the US dollar today.
Why Has Facebook Launched Its Own Cryptocurrency?
Although Diem is being described by everyone as “Facebook’s” cryptocurrency, that’s not strictly true. The project originally belonged to the Diem Association, which was co-founded by Facebook under the name of the Libra Association.
This association will act as the monetary authority for Diem and says its aim is to be able to equip 1.7 billion adults without a bank account with the means to access an alternate form of payment.
Facebook is just one of the members of the Diem Association, but there are many other members too. Every member in the association holds the same voting power so Facebook won’t be able to influence decisions any more than any other organisation. It’s hoped that over time, the Association will grow to have at least 100 members.
28 founding members agreed to form the Association but before the first meeting in Geneva could be held, seven of them dropped out. The ones who left were big household names including PayPal, Stripe, eBay and Visa/Mastercard. Their departure will have been a significant blow due to the expertise they could have offered in electronic transfers and payments. There are currently 26 members including Uber, Spotify, Shopify and Lyft.
However, there is a reason for Facebook’s persistence with this project; it has a historical interest in digital cash. Before Diem, Facebook had a virtual currency known as Credits which they offered for around four years. Credits enabled Facebook users to play games within the app.
The CEO of Facebook, Mark Zuckerberg, has made no secret of the fact that he believes digital cash is the future, and that transactions should be easy. He once described the ideal scenario as sending digital money being no different than sending someone a photo.
Diem has therefore been specifically designed to be cheap and easy for people to use, and operandi that Facebook hope might attract more users to their platform.
A New and Accessible Wallet
Facebook’s venture into Diem is being channelled through one of their new subsidiaries known as Novi. Offering customers an accessible digital wallet, Novi is aimed at helping individuals to connect with financial services more easily.
Novi is still subject to money laundering and fraud checks so you’ll need to be able to produce a government-approved ID to be able to open an account. It’s not yet up and running but users can sign up so they’ll be among the first on the platform when it launches.
As it’s part of Facebook, Novi will be very versatile; in addition to downloading it from the App Store or Google Play, you can also access it via Messenger and WhatsApp. This will allow users to send their family and friends digital money just as easily as they send any other message.
Once registered you can use Novi to hold Diem to either send to family and friends or to hold in your wallet to pay for everyday expenses. Although it won’t be available at the launch, Novi hopes to extend its services to merchants within a short space of time.
The other reason for the creation of Novi rather than using the Facebook brand was to offer some reassurance in the wake of the Cambridge Analytica scandal. With lots of concerns about the way Facebook handled data, Novi was created as a separate legal entity to remove any doubts about integrity. Novi will be subject to regulation and will be monitored in the same way as any other financial firm. It has confirmed all data will be held separately from the social data held by Facebook.
As Novi – and Diem – have been created with accessibility in mind: the digital currency is cheap to use. The amount of money you send is the same as what your recipient will receive, with no fees deducted to use the service. This is part of Facebook’s pledge to bring payment options to those who have few existing alternatives and contrasts to other international payment transfer services.
Diem can be used by anyone with an entry-level smartphone, you don’t need expensive tech. It will be launched all around the world so wherever you are, you can send and receive digital cash. All you need is a data connection. The Diem Association says that its goals are to ensure affordability and safety so that even if you’re not a wealthy client, you can still access the same cutting edge technology, and reap the rewards.