What you need to know about Facebook’s Diem cryptocurrency
- On May 12, the Diem Association announced plans to launch a stablecoin backed by the US dollar.
- Contrary to popular belief, Diem isn’t the first time Facebook has launched digital currencies.
- Mark Zuckerberg acknowledged that it would also make the company’s ad network more lucrative and expensive.
Stablecoins are cryptocurrencies that are backed by stable assets, in this case -- the US Dollar, which keeps their prices from changing erratically. This is a major shift from the company’s earlier plan for Diem in which it was supposed to be a global cryptocurrency. This faced pushback from many regulators, experts and countries, who were worried about the amount of power it would give Facebook over a global currency. Diem is partnering with leading American crypto bank, Silvergate Bank, to launch the US stablecoin.
Might launch in 2021
According to a December 2020 report by The Financial Times (FT), the Diem project could have launched as early as January this year. While we know now that the same didn’t happen, it could mean that the Diem Association will start its currency sometime this year.
Interest in CBDCs have been growing over the past year, driven primarily by the overall interest in cryptocurrencies that the pandemic brought about. Indian central bank, the Reserve Bank of India (RBI), also discussed plans to issue a CBDC recently, as have other central banks. Experts expect that the first CBDCs will start popping up by the end of 2021, partly to deter companies like Facebook from trying to take over the global currency system. The FT report cited above had also said that Diem would have a one to one relationship with the dollar.
This isn’t Facebook’s first digital currency
Contrary to popular belief, Diem isn’t the first time Facebook has launched digital currencies. The company used to have something called “Credits”, which were used to make payments for games inside Facebook. While credits were obviously not the same as crypto, it gives us an idea of the interest Facebook could draw out of Diem. In theory, a cryptocurrency like this could allow Facebook to build a worldwide financial system within itself. Facebook co-founder Mark Zuckerberg himself had acknowledged that it would also make the company’s ad network more lucrative and expensive.
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