Diem is set to launch in 2021, and it’s sure to make waves in the global financial world. On top of revolutionizing the way we exchange money, the Diem Dollar will also quickly become one of the world’s most popular cryptocurrencies in just a few short years.
With cryptocurrencies and stablecoins on the rise, we can expect to see more and more consumers turning to digital payment methods as a way to buy and sell goods both on and offline.
Now with the help of technology partners like First, payment service providers like PayPal, PayU, and Stripe will soon be able to provide their own merchants with a quick and easy way to start accepting Diem payments for their customers.
With cryptocurrencies shrouded in the complexity of blockchain technology, everyday people know very little about Facebook’s highly-anticipated Diem launch and what it means to them.
In this article, we’ll take a look at the most frequently asked questions about the new Facebook Diem Dollar to learn more about what it is, what it does, and how it works.
1. What Is the Diem Dollar?
The Diem Dollar is a new digital currency. Unlike Bitcoin though, it’s considered a stablecoin. Stablecoins are digital tokens like many other cryptocurrencies but instead of their volatility in pricing, they’re tied to a physical asset ––– and in this case a fiat currency. The Diem Association's Diem Dollar works similarly and is tied directly to the US Dollar.
That means 1 Diem dollar is equal to 1 US Dollar, and when the value of USD fluctuates, so will that of Diem. As a result, Diem is a lot more stable than some other forms of cryptocurrency. The value of a Diem Dollar won’t fluctuate wildly in value like Bitcoin, it will only fluctuate in value in relation to the dollar.
That means someone in Kenya can send someone in Belarus one Diem Dollar and its value will remain the same regardless of the local exchange value ––– plus, no added transnational transaction fees.
So far, Diem has only launched one coin pegged to the US Dollar. But in the future, the Diem Association is planning on launching other local Diem Dollars that are backed by other currencies like the European Euro or the British Pound.
Read also: Why Diem is Better Than Bitcoin?
2. How Does Diem Work?
Like a lot of other cryptocurrencies, Diem is built on the blockchain. Blockchain technology is a system that encrypts transactions, linking them to one another in a way that prevents fraud and brings an added level of transparency to financial transactions.
Blockchain technology also allows you to exchange money without having to go through a bank that needs to recognize, review, and approve the transaction. This could save you a lot of time when sending or receiving money ––– especially overseas.
There are many benefits to blockchain technology, as blockchains have a few unique properties that have the potential to address some of the many problems we face today regarding financial accessibility and reliability.
Again, one of the revolutionary aspects of blockchain is that it allows everyone with access to the internet to make transactions. In the case of Bitcoin, there’s nobody controlling access to the blockchain. But as it turns out, the Diem blockchain will be a little different since it runs on a permissioned blockchain.
3. Is Diem a Decentralized Payment System?
Again, one of the revolutionary aspects of blockchain is that it allows everyone with access to the internet to make transactions. In the case of Bitcoin, there’s nobody controlling access to the blockchain. But the Diem blockchain will work a little differently since it is a centralized, rather than decentralized, payment system.
While cryptocurrencies like Bitcoin are part of decentralized payment systems with little to no oversight, centralized payment systems usually include regulation from trusted third-parties.
For example, when you pay someone in cash, it is considered decentralized. But when you pay for groceries with your Visa card, it needs to be processed and verified by a number of other financial institutions, including your bank and card issuer.
Unlike other cryptocurrencies, Diem transactions will be controlled and reviewed by a centralized entity called The Diem Association. All Diems are overseen by the Diem Association, a conglomerate of 27 big tech companies who make up its core founding.
This network will make decisions together for the cryptocurrency. The goal is to make Diem a lot more stable than other stablecoins, as well as similar to fiat currencies like the dollar or the euro, which are under the control of traditional financial institutions.
4. What is the Novi Wallet?
To send and receive cryptocurrencies, you’ll need something called a digital wallet. A digital wallet allows you to safely store and manage your cryptocurrencies. For Diem, Facebook has developed their own digital wallet called Novi.
Most people will probably be introduced to the Novi wallet through Facebook apps like Messenger and WhatsApp. But anyone will have access to it as long as they can show a verifiable, government-issued ID. This is just one of the many solutions that the Diem Association has put into place to safeguard the Diem ecosystem against fraud and misuse.
With dwindling public trust towards cryptocurrencies, one of the main aims of the Novi wallet is to create a safe and fraud-proof way for people to store and manage their digital money. Facebook hopes Novi’s added layers of securities will help reassure people who are skeptical when it comes to using digital currencies.
5. How Can I Use Diem?
When Diem launches it will be used primarily for P2P (peer-to-peer) exchanges between individual people through Facebook’s apps like Messenger and WhatsApp. But down the line, you’ll also be able to pay for many other things, including products or services, with Diem.
Companies like eBay, Spotify, and Uber will be accepting Diem as a digital currency directly on their sites in the near future. Paying for things like a new pair of shoes though could still take a bit more time, but after Facebook’s 3 billion users start using Diem, it won’t take long before smaller merchants start accepting the payment method in their stores on and offline.
Hopefully soon, you can expect to use Diem and your Novi wallet almost daily. When Diem launches, you will be able to buy tokens on apps like Facebook Messenger or WhatsApp, but we’re also expecting this to change once the coin is launched and adopted. In all likelihood, most major crypto exchanges will start selling Diem straight away.