Facebook Libra (renamed Diem) is a payment system proposed by Facebook.
It is built on a licensed blockchain expected to power an ecosystem for digital payments and other financial services.
Its currency, called Diem dollars (formerly Libra), will be backed by a basket of stablecoins and will launch in 2021.
What is Facebook Libra?
Libra (renamed Diem) is a blockchain-based payment system proposed by Facebook in 2019.
- Its goal is to provide access to financial services to people without a bank account.
- Some of its founding members include Morgan Beller, David Marcus, and Kevin Weil.
- The launch was initially planning for 2020 but was delaying for various reasons and is likely to occur in 2021.
- Libra will be governing by the Libra Association (renaming the Diem Association).
- An independent membership organization based in Geneva, Switzerland.
- Members comprise various companies from the blockchain, technology, payments.
- Telecommunications, venture capitalists, and non-profit sectors.
- Members of the Libra Association are responsible for governance decisions.
- Oversee the Libra payment system’s operation, projects built on the Libra blockchain, and award grants.
- Facebook aims to have 100 members in this association before its launch.
Is Diem a Cryptocurrency?
- Well, Libra is based on blockchain and uses crypto technology.
- However, the term cryptocurrency generally implies specific properties that Libra does not have.
- If you want to read about these properties in more detail, we have discussed them in our detailed cryptocurrency tutorial.
In short, as far as Libra is concerned, it would be more accurate to call it a digital currency.
How Will Diem Work?
Libra Blockchain (renamed Diem Blockchain) is an authorized blockchain that forms this payment system’s backbone. So how is it different from other blockchains?
- We often talk about how blockchains like Bitcoin or Ethereum are permissionless.
- It means that anyone with an internet connection can freely access them, transact with them, or build on them.
- There is no one (or anything) controlling access. However, this is not the case for a licensed blockchain.
- To use it, you will need the permission of whoever owns the network.
- Or, more specifically, the applications you use will require special access.
- Libra is a permissioned blockchain also means that it won’t use mining or staking to validate transactions like many other blockchains.
- Instead, it will rely on a set of authorized validators (members of the Libra Association) to validate the transactions.
- According to its creators, Libra can transition to a proof-of-stake (PoS) system after the first five years.
- However, this is a long time in such a fledgling space.
- They explain their choice in the Libra white paper. There is currently no permissionless system that can support billions of people transacting on it from his perspective.
Is Diem Decentralized or Centralized?
According to many in the blockchain space, authorized blockchains cannot be.
As decentralized as their permissionless counterparts, as they are more like a traditional corporate database.
In this sense, Libra is not resistant to censorship like Bitcoin and other cryptocurrencies.
Since these validators must be members of the Libra Association, the network could be relatively centralizing.
On the other hand, controlling and examining which applications can interact with the distributed ledger can be advantageous.
For example, it may be easier to exclude malicious apps and scams.
The Libra Payment System
- Libra payment system (renamed payment system Diem) supports multiple stable currencies to a single currency linked to fiat currencies such as USD, EUR, GBP.
- These work similarly to stablecoins you may already know, as their value is deriving from the Libra Reserve reserve.
- This reserve is making up of cash, cash equivalents, and short-term government securities.
- The Libra payment system will also support a multi-currency currency called Diem Dollar (formerly LBR).
- It combines all these other stable coins and is backing by a basket of assets that ensure its value.
- You could think of it as a stablecoin of stablecoins (and possibly other assets, like securities).
- The idea is that these various forms of collateral could protect you from volatility.
- An essential aspect of something that purports to act as a form of payment.