Understanding Facebook Diem

Photo by Glen Carrie on Unsplash

Facebook “Libra” Rebranded to “Diem”

Libra is a payment system proposed by Facebook Libra, later rebranded to Diem, and is built on an approved blockchain for digital payments and other financial services that is supposed to power an ecosystem.

The Diem dollar is expected to be released in 2021 and will be backed by a basket of stable coins. But what else do you have to know about the digital currency of Facebook?

A Digital Payment Platform

Digital payments present aplenty of opportunities with easy access to the internet these days. Payment giants like Paypal, Visa, and Mastercard have already started venturing into the crypto space with an increasing number of crypto projects developing new products for the industry.

However, Facebook is joining the radar with an exponential number of 2.7 billion ACTIVE users as recorded this third quarter of 2020. Theoretically, Facebook could very well reach crypto success far quicker than most.

Built on Blockchain

First proposed in 2019, Diem will be a payment system built on the blockchain and aim to add value to society by providing people without bank accounts access to financial services. Morgan Beller, David Marcus, and Kevin Weil are identified as some of its founding members. Initially set to launch this year, the platform is set to go live in 2021.

Similar to cryptocurrency, Diem is based on blockchain and uses cryptographic technology. However, Diem termed as a Cryptocurrency remains debatable as we are not sure of its full features. Just for now, let’s call it a digital currency.

But a Permissioned One

A permissionless blockchain is often discussed in cryptocurrency. A permissionless blockchain means as long as you have an internet connection, you can freely access, transact, or build something on top of it. Conversely, a permissioned blockchain is regulated by a central authority. Specifically, to access something on a permission blockchain, you need to obtain permission.

Facebook Diem being on a permissioned blockchain suggests that it will not be mining or staking to validate transactions, instead relying on permissioned validators — the Diem (Libra) Association members.

The Diem is Centralized

Permissioned blockchains can’t be as decentralized as their permissionless equivalents, according to those in the blockchain space, as they resemble more of a conventional corporate database.

Diem is not censorship-resistant in this context, like Bitcoin and other cryptocurrencies. The network could be relatively centralized because these validators need to be members of the Diem Association.

Being centralized is not inherently bad. The management will have total control over the type of applications interacting with the distributed ledger, preventing malicious applications and scams.

Managed by Diversed Members

An independent membership organization based in Geneva, Switzerland, the Diem Association comprises diversified industries across blockchain, technology, payment, telecommunication, venture capitalists, and non-profit firms.

The Diem Association members are responsible for governance decisions, overseeing the payment system’s operation for Diem, constructing projects on top of the blockchain of Diem, and offering grants. In this association, Facebook aims to have 100 members by its launch.

Pegged to a Basket of Fiat

The Diem payment system will support a range of stable coins pegged to fiat currencies like USD, EUR, and GBP. Like these stable coins, the Diem will have a reserve, called the Diem (Libra) reserve, and it makes up of cash, cash equivalents, and short-term government securities.

Also, a multi-currency coin called Diem will be supported by the Diem payment system. The Diem Dollar is a composite of its pegged stable coins and backed by a basket of assets to ensure its value — Protecting it from volatility, a crucial aspect in rendering it a payment method.

The Diem is to be held in a wallet called Novi. As you would imagine, this digital wallet could be incorporated into other Facebook products such as Facebook Messenger and WhatsApp. This way, users should easily convert between US dollars (or other fiat currencies) and the D​iem dollar.

The source code of Diem is called the Diem Core, according to the Diem GitHub. Further, Diem will also support smart contract capabilities through Move, a programming language.


Despite potential challenges with central banks, lawmakers and regulators, there is still a chance for success as the Facebook Diem aims to counter real-life issues like providing a payment intermediary for people without a bank account. The debate between centralized and decentralized platforms remains ongoing, and we are excited to see how both can coexist and provide the best of both worlds’ holistic financing solutions.

For related articles, read DigiFinex Academy.




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