What is Diem and Why You Should Use It

Diem is a stablecoin created by the Diem Association that's backed by the US Dollar. In this article, we’ll break down the basics behind the Diem Dollar and why you should use it.

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What is Diem and Why You Should Use It

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 such as 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 the relative obscurity behind cryptocurrency and blockchain technology, so little is known about the Diem Association’s highly-anticipated Diem stablecoin. So what is the new digital currency all about? 

In this article, we’ll break down the basics behind the Diem Dollar, including what it is and why you should be using it when it launches.

What is the Diem Dollar?

Essentially, the Diem Dollar is just a new cryptocurrency. But if you associate cryptocurrency with Bitcoin, you’ll be surprised to find out the Diem Dollar doesn’t actually have much to do with the traditional cryptocurrency model. 

Here are some key facts about Diem you may not have known:

1. Diem is Directly Pegged to the US Dollar

Diem is a stablecoin. This means it’s backed 1:1 to an underlying fiat currency, which in this case is the US Dollar. 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, as it would always be worth its exact nominal amount in US Dollars. 

2. Diem is a Centralized Payment System

Diems are controlled by the Diem Association, a joint effort of 27 corporates, nonprofits and VCs which make up its founding members. Its most notable members include Facebook, Spotify, Coinbase, PayU, Shopify, Uber, Lyft and Checkout.com. Contrary to popular belief, it’s not just Facebook’s cryptocurrency. Unlike other cryptocurrencies such as Bitcoin, the Diem Dollar won’t be controlled by a network of independent users mining it for value. 

Instead, all Diem transactions are executed over the Diem Network, a closed network with validator nodes operated by its association members. This network makes Diem a lot more stable and secure, as only authorized members are able to access the network and allow users to make transactions.

3. Diem Uses Blockchain Technology

Like a lot of other cryptocurrencies, Diem is built on the blockchain. Blockchain is a technology which allows money transfers to be a lot more secure, preventing fraud and bringing an added level of transparency to financial transactions. 

Blockchain technology also allows you to exchange money without having to go through a mediator, such as a bank, that recognizes, reviews, and approves the transaction. This could save you a lot of time when sending or receiving money — and it will likely save you some money in transfer fees too, especially internationally. 

There are many benefits to blockchain technology, as blockchains have a number of unique properties that have the potential to address some of the current problems surrounding monetary accessibility and reliability. 

“These include distributed governance, which ensures that no single entity controls the network; open access, which allows anybody with an internet connection to participate; and security through cryptography, which protects the integrity of funds.” –– The Diem White Paper

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. 

4. The Diem Dollar Value is Fixed

If you’re wondering about the price of a single Diem Dollar, it doesn’t get much simpler than this: 1 Diem Dollar = 1 USD. That means that international transactions of the Diem Dollar maintain their value, regardless of the country or currency it is being used in. 

That means someone in Kenya can send someone in Belarus one Diem Dollar and its value will remain the same regardless of the exchange value — plus, no added transnational transaction fees. Win-win.

So far, Diem plans to launch the Diem Dollar only as a single-currency stablecoin pegged to the US Dollar. But in the future, the Diem Association might launch other local Diem Coins that are backed by other currencies like the European Euro.  

What is a Diem, or 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 cryptocurrencies. For Diem, Facebook has developed a unique digital wallet called the Novi wallet.

Most people will probably be introduced to the Novi wallet in the future through apps like WhatsApp or Messenger, but anyone will be able to access a Novi wallet even without registering to these apps.

While Diem and Novi are both designed to be open and accessible to all, some security measurements will be put in place to ensure safe usage. To become a Novi customer, you’ll need to show a verified, government-issued ID. This is just one of the requirements that the Diem Association has put into place to safeguard the Diem ecosystem against fraud. Diem has also created a financial crime unit that will address any discrepancies and make sure the network is safe and secure to interact with.

With all the technology at the Diem Association’s disposal, cybersecurity is a top priority. That’s why one of the aims of the Novi wallet is to create a safe and fraud-proof way for consumers to store and manage their Diem. These securities should do a lot to reassure people who are skeptical when it comes to safeguarding their cryptocurrencies.

Check Also: First and Fireblocks partnership brings diem payment gateway for financial institutions

What Are the Benefits of Using Diem?

Although Diem is similar to the US Dollar in value, there are a couple of differences that give it an edge.

The first is that exchanging Diem will be a lot faster compared to exchanging government-issued currencies. When you make a bank transfer, the banks of both the sender and the receiver have to agree on the transaction and validate it — and this can take up to a week. With Diem, only Diem’s internal systems need to agree, which significantly cuts down transfer times.

Another key difference is that the Novi wallet will have more transparent and lower transfer fees compared to most traditional banks. That means sending Diem to another person won’t cost you anything, making it a worthwhile method of exchanging money. 

Finally, there’s the accessibility aspect of it all. According to the Diem Association, the primary benefit of Diem is its financial inclusivity. Statistics reveal that around 1.7 billion people currently remain unbanked worldwide. That’s 31% of the world population. 

With Diem, people will be able to exchange money almost instantly, using just a smartphone and an internet connection. This is a game-changer for millions without access to traditional banking services that would allow them to pay bills, sell goods and shop online. Diem could also provide many with a much more reliable alternative to their local currency for those living in countries with unstable national currencies. 

You can also read the full article about Diem benefits here.

What’s the Difference Between Diem and Bitcoin?

If you were introduced to cryptocurrencies through Bitcoin like most people, then forget everything you know. The Diem Dollar is very different from Bitcoin, both in the way that it works and the way it’s controlled. 

For starters, the Diem Dollar is a stablecoin built on a permissioned blockchain network. Unlike Bitcoin, it’s not designed as an open network which anyone can participate in. Another difference is that Diem is directly connected to the US Dollar. This distinguishes it from Bitcoin, which isn’t connected to any specific stable asset making its value volatile and unstable. This means that a Bitcoin’s value changes a lot more unpredictably, whereas Diem’s value won’t fluctuate any more or less than the price of a US Dollar.

Another crucial difference between the two is that Diem is a centralized currency. It’s centralized by the Diem Association which oversees its development and the ways in which it can be used. That’s worlds apart from Bitcoin, a decentralized cryptocurrency that isn’t overseen by any one person, group or company. 

Finally, since the Diem Dollar is pegged to a fiat currency, it isn’t connected to any finite resource. The US Dollar is a currency whose value is in direct correlation to the number of Dollars in circulation and is no longer connected to the amount of gold that the US owns. This makes the number of Dollars that can be printed virtually unlimited. By contrast, the number of Bitcoin in circulation is very much finite, with a cap of 21 million in existence.

By introducing Diem, Facebook and the Diem Association are changing the way we imagine cryptocurrencies. Unlike Bitcoin, Diem isn't introducing a new method of digital payment. It’s simply a new way of exchanging money digitally. This should make it a lot easier for non-tech savvy individuals to start using cryptocurrencies to make digital payments for everyday things like groceries and taxi rides.

For more details and an extension on the difference between Check the article: Why Diem is Better Than Bitcoin?

How Can You Start Using Diem?

At first, the Diem Dollar will be used to exchange money between individuals as a peer-to-peer (P2P) exchange, primarily through apps like Messenger and WhatsApp. But in time, you’ll be able to pay for a much wider range of services using Diem. For example, companies like Uber, Spotify and Shopify will most likely enable Diem payments directly on their sites, as they are already part of the founding members of the Diem Association. 

After Diem moves beyond its Beta phase and is introduced to the public, it won’t take long before merchants have access to Diem payment gateways so they can start accepting payments. In time, you can expect to use your Diem and your Novi wallet almost daily whether it’s to pay for lunch or a cab ride. 

Conclusion 

Cryptocurrencies have been around for a long time, but the Diem Association could be the group that makes them available to billions globally. By creating a stablecoin backed by the US Dollar, the Diem Association has created a new type of cryptocurrency –– one that’s accessible, easy to understand, and easy to use in everyday life. Combine that with Uber, PayU, and Shopify’s user base, and Diem is well on its way to becoming the dominant cryptocurrency over the next few years. 

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