From Ethereum to Litecoin, cryptocurrencies have been around for over a decade, and they’re only becoming more ubiquitous. Cryptocurrencies have the potential to re-shape the global digital economy for millions everywhere through benefits like lower transaction fees and greater protection against identity theft.
Both Visa and Mastercard are now working on their own blockchain solutions. Even PayPal recently announced it would start allowing customers to accept Bitcoin as a payment method. If big banks weren’t paying attention before — they are now. With over 5,000 cryptocurrencies in existence to date and dozens of countries in a race to develop their own form of digital currencies, also known as CBDCs — the future of money may not be as far away as we think.
Now, Diem, the Facebook led stablecoin, is taking its long-awaited place in the blockchain game. According to the Diem Association, the coin’s mission is to bring the first digital currency to the 1.7 billion people that remained unbanked globally.
With it’s highly-anticipated rumored launch in 2021, Diem is poised to become one of the most popular cryptocurrencies in the world within just a few short years. You may be wondering how, but simply take a look at the sheer size of Facebook’s user base to understand. That includes WhatsApp, Messenger, Instagram — and many more popular social platforms.
But if you’re confused by the difference between a coin like Diem and a currency like Bitcoin, you’re not alone. In this piece, we’ll break down the differences for you, including what sets Diem and Bitcoin apart and how they’re different in their day-to-day use.
What is Diem?
Diem is a stablecoin that was initially started by Facebook. Formerly known as Libra, it’s a new cryptocurrency controlled by the Diem Association. The Diem Association is an independent organization made up of 27 members, including big tech companies like Facebook, Uber, Shopify, Coinbase, and Spotify to name a few.
The Association is governed by the Association Council, which is made up of one representative per Association Member. Each Council representative is entitled to one vote on each matter, working together to make policy decisions which govern the Diem Network and Reserve.
The primary objective of Diem is to make it easier for everyday people to trade and exchange money. It offers transparent transfer charges, so you always know how much a transaction will cost you. And since it’s processed digitally on the blockchain, it offers far lower transaction fees than traditional banks.
As a stablecoin, the value of Diem is tied to the US Dollar. That means that 1 Diem Dollar is equal to one US Dollar, and that the Diem Dollar will change in value whenever the dollar fluctuates.
Each Diem transaction is processed through a digital wallet, with Facebook launching it’s very own kind called the Novi wallet. Like Bitcoin wallets, the Novi wallet is a digital wallet built on blockchain technology that can keep your Diem Dollars and transactions safe and secure.
Novi can be used through platforms like Facebook, WhatsApp, Messenger, both to send and receive money, as well as make purchases through merchants that accept Diem on their offline and online stores.
According to sources Diem will be available for purchase through Novi, and later through its connected apps in 2021, as well as Diem exchange sites. As to where it can be spent, the possibilities are endless. Like Bitcoin, it’s most likely that not long after its launch both online and offline merchants will eventually be able to process Diem payments.
The Key Differences Between Bitcoin and Diem
Although Diem and Bitcoin are both cryptocurrencies, they work very differently from one another. Not only do they function differently, but they also both have different goals and uses. To get a better idea of the core differences between these two coins, here are the four most important ones you need to know.
Diem Is a Stablecoin
To begin with, unlike Bitcoin, Diem is a stablecoin. In other words, Diem is directly connected to a single stable asset — which in this case is the US Dollar. In the future, Diem may also be connected to other currencies like the European Euro or the British Pound — although the association has yet to publicly declare its intention.
Another example of a stablecoin is USDC, which claims to have as many US Dollars stored away as there are USDC Coins in circulation. By nature, stablecoins are designed to be non-volatile in price which means that they can be used to buy or exchange goods in fiat currencies.
By contrast, Bitcoin doesn’t have a stable asset it’s connected to or with any other physical currency. That means it can change in value independent of other currencies and is far more volatile in value. Its steep increases and decreases in price make it an attractive investment to many investors looking to make a profit off of its fluctuating value.
Diem is in the Hands of the Diem Association
One of the most revolutionary aspects of Bitcoin is that it’s decentralized. Which just means that Bitcoin doesn’t belong to a single person, association or company.
There are several benefits to decentralized currencies, including the fact that they protect customer anonymity. Also, payments in decentralized currencies like Bitcoin are by default borderless, allowing for seamless international payments by users regardless of limits on transnational fiat payments.
On the other hand, Diem is a centralized currency. It’s in the hands of the Diem Association, a conglomerate of tech companies that each invested at least USD 10 million to buy into the association. Being centralized means that its ‘owners’ have a greater degree of control over the development and distribution of the currency. You can read more about the Association and how it works on the Diem White Paper here.
Diems Are (Potentially) Unlimited
Diem is backed by the US Dollar, which is considered a fiat currency. A fiat currency isn’t directly linked to any specific finite resource, as was once the case with gold. This means that the number of Diem Dollars in circulation are unlimited, just like the number of dollars.
This is completely different from Bitcoins, which are finite in both quantity and value. The maximum number of Bitcoins in existence is 21 million, and this number is unlikely to change soon. This means investing in Bitcoin is the digital equivalent of investing in gold. It’s a finite resource that will in all likelihood continue to remain valuable — at least for the foreseeable future.
Diem is More Accessible
For those of us who don’t come from the world of big tech, Bitcoin can be a difficult concept to wrap your head around. Since it doesn’t function like traditional currencies do, there’s a lot of unlearning to do regarding how it works and how it can be used.
On the other hand, the concept of Diem is a lot more simple for many to follow. In its most simple form, Diem is a stablecoin that’s equivalent to one US Dollar, and allows for easy transfer of money around the world.
With the launch of Diem In the coming months, the Diem Association will make it a priority to educate its user base on how Diem works as a secure and inexpensive way of transferring money. Because Diem’s concept is easier to understand and because Facebook and the Diem Association combined have such a large user base, the currency will likely rise in popularity and adoption a lot faster than Bitcoin.
Conclusion: Diem and Bitcoin Are Very Different
In almost every aspect, Diem and Bitcoin are very different. While Diem is a centralized stablecoin that can be used as a reliable fiat currency, in its current form Bitcoin acts more as a decentralized speculative investment vehicle and not as a reliable digital payment method.
For many, Bitcoin has changed the way we think about money and introduced us to the idea of paying for goods digitally. The concept of Diem is not nearly as radical, but it’s still revolutionary. In the near future, Diem will be far more common than Bitcoin, and with its mass public adoption will soon become one of the most well-known and popular cryptocurrencies in the world.
Read also: 3 Benefits of Using the Diem Dollar