What is Diem?

December 4, 2020

Facebook-backed cryptocurrency Libra has been rebranded as “Diem” to gain regulatory approval by emphasising that the project has “organisational independence”. The independent organisation, Libra Association, which runs the Libra project will also be renamed as the Diem Association. Diem is a Latin term meaning “day”. Libra received criticism because of the possibility of it threatening the traditional government-run financial systems, which may result in upending of financial stability and threatening of privacy.

Diem is a stable coin. Unlike other cryptocurrencies, Diem is to use Permissioned blockchain. Majority of the other cryptocurrencies use Permissionless blockchain.

What is a stable coin?

Stable coins are cryptocurrencies. The only difference in stable coins is that these cryptocurrencies are backed by a reserve asset. Their market value is dependent on some external reference. For instance, it may be pegged to the value of gold or to that of US dollars or to the asset held by the launcher. The stable coins receive their prize stability through algorithm mechanism of buying and selling of the reference asset.

What are Permissioned Blockchains?

It is a private blockchain. The only difference between the permissioned and Permissionless blockchain is that the permissioned blockchain has an access control layer. In simple terms, this means that the user of the blockchain, Libra in this case, can govern who has access to the network.

What is the EU response on Diem?

The European Union has not yet begun to allow stable coins to operate within its territory. According to the EU, it might be a threat to monetary sovereignty of states.