Libra is now Diem! Read more about it here

How Diem Works

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Diem is a digital currency developed by the Diem Association that can be used to pay for goods and services online, or to exchange money with friends and family. Although it’s a cryptocurrency, it really doesn’t have much to do with big name cryptocurrencies like Bitcoin or Ethereum. For example, Diem doesn’t change in value as fast as other cryptocurrencies making it unsuitable for investment. 

Key Takeaways

  • Diems can be used to easily send and receive money.
  • The Diem Association oversees the Diem network.
  • Diem’s value is directly pegged to the US Dollar 1:1.
  • The Diem Dollar is backed by cash equivalents in the Diem Reserve.
  • Diems are exchanged using a permissioned blockchain. 
  • Diem can be transferred between accounts using a digital wallet like Novi.

 

How Diem Works

To understand how Diem works, we first have to understand the idea behind a stablecoin. A stablecoin is a type of digital currency whose value is directly linked to a stable physical asset. For example stablecoins can be pegged to a commodity like gold, or in the case of Diem to the value of the US Dollar. This is what makes it stable: it only changes in value when the connected asset does.

Since the Diem Dollar is a stablecoin backed 1:1 by USD, you can buy one Diem Dollar at the value of one USD. This is why Diem is not something people can invest in: there’s little point in buying Diem Dollars when they won’t increase or decrease exponentially in value. The point of Diem Dollars is for easy transfer and exchange.

If you want to send $5 USD to a friend for the drink they bought you yesterday, sending them five Diem Dollars will definitely be faster than going through your bank. Diem transactions are instant and don’t involve any kind of hidden fees. This makes exchanging Diem Dollars different from making a bank transfer or using services like PayPal and Venmo which are still connected to a user’s bank account.

See also: FAQ About the Diem Dollar

 

What is the Diem Blockchain?

All Diem transactions are made on the Diem Association’s very own permissioned blockchain. In general, blockchain technology allows users to make financial transactions which are far more quick and affordable than traditional banking. Since the blockchain makes it easy to keep track of every transaction, it also protects the network from hackers looking to make a quick buck and protects users against fraud. 

So how does the Diem blockchain work? Well whenever you send Diem Dollars to someone, a new block is created which contains information on both the sender and receiver. This block is then added to a secure off-chain, making Diem payments far more transparent and secure than going through a bank account. But unlike a public blockchain, not everyone will have access to the Diem blockchain. Only Diem users can take part in using the service, and in the case of Diem you’ll need to become a registered Diem user by first verifying your identity. 

All Diem transactions are overseen by the Diem Association which is in charge of ensuring the safety of the Diem network. The association guarantees the value of Diem with its Diem Reserve, where every Diem Dollar in circulation has an equivalent in cash. Overall, the Diem blockchain enhances its users financial security by creating a clear consensus between every party involved, making it fast, easy and secure to send and receive money.

 

How Diem Dollars Are Exchanged

As mentioned, Diems are designed primarily for financial payment and exchange. Although you can buy Diem Dollars on a number of crypto platforms, the easiest way to do it is through the Novi wallet –– Facebook’s own digital wallet. Using the Novi app, users can buy, send and transfer Diem Dollars. Here is a detailed guide on Facebook’s Novi wallet

After putting Diem Dollars into a digital wallet, you can send them to friends and family both globally and locally. Diem transactions are instant, and any transfer fee or exchange rate is shown to you before the transaction is approved. You can also pay with Diem Dollars on any online shop that accepts Diem as a payment method. If you recently received Diem Dollars through Novi, you can decide to keep them in your wallet for later use or withdraw them into your bank account in the form of a local currency.

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