Diem (digital currency)
Diem (formerly known as Libra) was a permissioned blockchain-based stablecoin payment system proposed by the American social media company Facebook. The plan also included a private currency implemented as a cryptocurrency.
Denominations
The launch was originally planned to be in 2020,[3][4] but only rudimentary experimental code was released.[5]
The project, currency and transactions would have been managed and cryptographically entrusted to the Diem Association, a membership organization of companies from payment, technology, telecommunication, online marketplace and venture capital, and nonprofits.
Before December 2020, the project was called "Libra", although this was changed to Diem following legal challenges regarding its name and logo.[6][4]
The project generated backlash from government regulators in the European Union, the USA, other countries, and among the general public over monetary sovereignty, financial stability, privacy, and antitrust concerns which ultimately helped kill the project.[7]
The Diem Association (originally the Libra Association) shut down in January 2022 and sold the project to Silvergate Bank. Silvergate wrote off their Diem investment in January 2023.
History[edit]
Morgan Beller started working on cryptocurrency and blockchain at Facebook in 2017, and was initially the only person working on Facebook's blockchain initiative.[8]
Facebook vice president David A. Marcus moved from Facebook Messenger to a new blockchain division in May 2018.[9] First reports of Facebook planning a cryptocurrency, with Marcus in charge, emerged a few days later.[10] By February 2019, there were more than 50 engineers working on the project.[11] Confirmation that Facebook intended a cryptocurrency first emerged in May 2019.[12] At this time it was known as "GlobalCoin" or "Facebook Coin".[13]
The project was formally announced on June 18, 2019, under the name Libra.[14][15] The creators of the coin are listed as Morgan Beller, David Marcus and Kevin Weil (Novi's VP of Product).[8] The first release was planned for 2020.[4]
On July 15, 2019, Facebook announced the currency would not launch until all regulatory concerns have been met and Libra had the "appropriate approvals".[16] On September 18, 2019, during a meeting with top Senate Democratic leaders, Mark Zuckerberg said that Libra would not be launched anywhere in the world without first obtaining approval from United States regulators.[17] In October 2019 multiple companies left Libra Association: PayPal left on 4 October,[18] eBay, Mastercard, Stripe, Visa and Mercado Pago followed on 11 October,[19][20] and Booking Holdings on 14 October.[21]
According to a November 2020 report in the Financial Times, Libra will be launching a slimmed down plan that includes the cryptocurrency being a stablecoin backed by the US dollar rather than a multiple currency collection. The newspaper also reported that the cryptocurrency will now be called Diem, which is Latin for "day".[22] In December 2020, Libra was rebranded as Diem, and Libra Association renamed Diem Association. As of December 2020, Diem Association had 27 members.[22]
In January 2022, it was reported that the Diem Association was winding down, with Diem's assets being sold to the California based Silvergate Capital for a reported $200 million.[23][24] Facebook was also reported to have planned to launch the token in the U.S. with it being issued by Silvergate although the Federal Reserve and the United States Department of the Treasury were not supportive of the project.[25][26]
In January 2023, Silvergate announced in their earnings call for Q4 2022 that they were writing down their entire investment in Diem.[27] Silvergate Bank was shut down in March 2023.[28]
Currency[edit]
The plan for the Libra token was to be backed by financial assets such as a basket of currencies,[29] and US Treasury securities in an attempt to avoid volatility.[30] Facebook announced that each of the partners would inject an initial US$10 million, so Libra had full asset backing on the day it opened.[31] As of January 2020, Libra is said to have dropped the idea of a mixed currency basket in favor of individual stablecoins pegged to individual currencies.[32]
Libra service partners, within the Libra Association, will create new Libra currency units based on demand.[31] Libra currency units will be retired as they are redeemed for conventional currency.
Initial reconciliation of transactions will be performed at each service partner, and the blockchain's distributed ledger will be used for reconciliation between service partners.[33] The intent is to help prevent everyone but members of the Libra Association from trying to extract and analyze data from the distributed ledger.
In contrast to cryptocurrencies such as bitcoin which use permissionless blockchains, Libra is not decentralized, relying on trust in the Libra Association as "a de facto central bank".[34]
In September 2019, Facebook announced that the reserve basket would be made up of: 50% United States dollar, 18% Euro, 14% Japanese yen, 11% Pound sterling and 7% Singapore dollar.[35]
Libra considered using coins based on individual national currencies on the network, alongside the basket-based Libra token. This was first mooted publicly by David Marcus in October 2019,[36] and by Mark Zuckerberg in his October 2019 Senate testimony.[37] The idea was promoted again in March 2020.[38]
On April 16, 2020, Libra announced plans to create an infrastructure for multiple cryptocurrencies, the preponderance of which will be backed by individual fiat currencies, and said the association was in talks with regulators from Switzerland for a payments license.[39]
In May 2021, Diem announced that it had withdrawn its application to the Swiss Financial Market Supervisory Authority and said that it would instead seek approval with the US treasury to register as a money services business.[40]
Facebook established the Libra Association (later renamed to Diem Association) to oversee the currency, founded in Geneva, Switzerland.[41] As of December 2020, Diem Association includes:
Seven other companies had been named as Libra Association members in the initial June 2019 announcement, but left before the first Libra meeting on 14 October 2019: Booking Holdings, eBay, Mastercard, Mercado Pago, PayPal, Stripe and Visa Inc. Visa chairman and CEO Alfred F. Kelly clarified in July that Visa had not joined, but had signed a nonbinding letter of intent; and that "no one has yet officially joined." He said that factors determining whether Visa would, in fact, join included "the ability of the association to satisfy all the requisite regulatory requirements."[45] Vodafone joined the association in October 2019, but left in January 2020, saying they preferred to work on their mobile banking subsidiary M-Pesa.[46]
Press coverage around the initial Libra announcement noted the absence of Apple Pay, Google Pay, Amazon and of any banks.[47][48][49] Banking executives had been reluctant to join due to uncertainties surrounding regulation and feasibility of the scheme.[50]
In late February 2020, e-commerce site Shopify[51] and cryptocurrency brokerage Tagomi[52] joined.
The association hopes to grow to 100 members with an equal vote.[53]
In late April 2020, the payment processing company, Checkout.com, announced they would be joining the association.[54] In May 2020, Singapore state investor Temasek Holdings, cryptocurrency investor Paradigm and private equity firm Slow Ventures announced they would join the association.[55]
Libra Association was renamed to Diem Association on December 1, 2020, as part of the rebranding from Libra to Diem.[56]
Legal issues[edit]
Diem Association (formerly Libra Association) faced legal challenges as both the name and the logo of the digital currency are already in use within different territories.
Finco Services Inc filed a lawsuit with New York Southern District Court against Facebook, Inc., Novi Financial, Inc., Jlv, LLC and Character SF, LLC for an alleged trademark infringement[86] arising out of the use by the latter of a logo similar to the start-up bank operated by Finco Services, Inc. The plaintiff requested a preliminary and permanent injunctive relief as well as monetary relief from the defendants.[87] A settlement conference in this matter is scheduled for March 26, 2020 in the United States Courthouse, while the parties did not consent to conducting the proceedings before a magistrate judge and requested to be tried to a jury.[88]
In Europe, Libra Association filed an application with the European Union Intellectual Property Office for the registration of the word "LIBRA" as a verbal trademark. The proceeding already received five oppositions to registration from four European companies based mainly on the alleged likelihood of confusion with their prior trademarks.[89] The opposing companies are Lyra Network, Libra Internet Bank, Libri GmbH and Advanced New Technologies Co., Ltd. In April 2020, the parties will reach the adversarial part of the opposition proceedings, unless a settlement is reached during the cooling-off period.
Implementation[edit]
Blockchain consensus[edit]
Diem will not rely on cryptocurrency mining.[42] Only members of Diem Association will be able to process transactions via the permissioned blockchain.
Diem hopes to begin transitioning to a permissionless proof-of-stake system within five years;[15] although their own materials admit that no solution exists "that can deliver the scale, stability, and security needed to support billions of people and transactions across the globe through a permissionless network."[90][5]
Software[edit]
Diem source code is written in Rust and published as open source under the Apache License on GitHub.
In June 2019, Elaine Ou, an opinion writer at Bloomberg News, tried compiling and running the publicly released code for Libra. At the time, the software did little more than allow fake coins to be put in a wallet; almost none of the functionality outlined in the white paper was implemented, including "major architectural features that have yet to be invented." Ou was surprised that Facebook "would release software in such a state".[5]
Digital wallet[edit]
In June 2019, Facebook announced plans to release a digital wallet called Calibra in 2020, as a standalone app and also to integrate it within Messenger and WhatsApp.[3] In May 2020, Calibra was renamed Novi.[91] As of February 2021, Novi and Diem were not released yet and do not have a set release date.[1]
Move[edit]
Move was the Diem blockchain's proposed smart contract and custom transactions language. It was planned to be a statically-typed programming language, compiled to bytecode.
The Move language syntax was never released. An example Intermediate representation of the language is shown in the Move white paper:[92]
