Facebook, one of the world’s first social media performers that has 2.8 billion monthly active users, has once again captured global attention. But this time it is not about any new feature, collaboration or a newer privacy controversy. This time, the company is venturing into the world of cryptocurrency with Facebook’s new cryptocurrency known as ‘Libra’, which is also rebranded as Diem.
The social media giant’s new bold move is to revolutionize the world of finance and it’s also a move to enhance digital economies. Facebook’s new cryptocurrency has implications for the global financial system. So during this blog, we will discuss the details of the new cryptocurrency’s potential impact on the finance, and what challenges it might face.
The Genesis of Facebook’s New Cryptocurrency
This social media giant announced its new cryptocurrency project named Libra in June 2019. This latest project is a stupid and accessible digital currency that can be used for online transactions, a currency that can create stability and one that provides financial inclusion for the unbanked population globally.
The goal of Facebook’s new currency is to use its millions of social media followers and technology resources with great new kinds of financial networks. The company plans to use a vast user base to bring financial management to the crypto world.
But for the leaders, the vision seems too ambitious. Despite many goals, this new project faced much backlash and criticism from regulators, financial institutes and policymakers globally.
Several concerns about financial stability and money laundering can hinder data privacy and undermine the national currencies. In response to all the criticism and backlash faced by the new cryptocurrency, the company made several changes to the project.
That includes branding and giving it a new name called Diem and shifting the goals to focus on compliance and regulatory cooperation.
What is Diem?
Diem, also formally known as Libra, is designed to be a stablecoin that can be pegged into a basket of fiat currencies. Or it can help other assets to minimize price volatility.
If we compare traditional cryptocurrencies like Bitcoin which experience significant price drops, this Facebook’s New cryptocurrency aims to bring stability and add value to everyday transactions.
The Diem Association is one of the Swiss-based independents that regulates cryptocurrency. This can also help other companies and organizations from various sectors. And helps to create a decentralized regulated ecosystem for any cryptocurrency.
Plus the goal is to launch Facebook’s new cryptocurrency as a fully compliant currency which can meet money laundering and know your customer requirements. Along with that helps in addressing all the regulatory challenges that the policymakers raised concerns about earlier.
The Potential Impact of Diem
Financial Inclusion
One of the important goals behind Facebook’s new cryptocurrency, Diem, is to improve financial inclusion. As per the most recent report of the World Bank around 1.7 billion individuals universally stay in banks, which implies these individuals do not have any get to to traditional Banking System.
Hence, Facebook aims to resolve this by helping these individuals to participate in a global economy by providing them with a secure and accessible means of transferring values and storing them.
Reduced Transaction Costs
The second potential impact on the financial system is to help reduce transaction costs for cross-border payments. There are many kinds of charges levied by the traditional banking systems and it takes several days to process cross-border payments. So to solve this problem, Diem uses blockchain technology that can help in facilitating near-instant transactions at minimal cost which benefits both businesses and consumers as well.
Enhanced Efficiency
The third potential goal of Facebook’s new cryptocurrency, Diem, is to help build chain infrastructure that can help streamline various financial processes. It aims to minimize the requirement of any middleman that can help in improving the efficiency of transactions. By leveraging smart contracts, and programmable digital contracts, new crypto currency can be executed automatically when certain conditions are met. This could further enhance the utility of Diem in various industries from real estate to supply chain management.
Innovation in Financial Services
The introduction of Facebook’s new cryptocurrency can spur innovative solutions in the financial sector. As companies and businesses continue to grow, they need to build applications and services on top of the Diem blockchain. Hence, we could see new financial products, free financial products and services that might emerge from this new cryptocurrency. It can also bring innovations in centralized finance applications to newer payment solutions.
Challenges and Concerns
There are many advantages of Facebook’s new cryptocurrency but it also faces many significant challenges such as:
Regulatory Scrutiny
The first major challenge faced by Facebook’s new cryptocurrency is its regulatory concerns. From its inception, this cryptocurrency has faced scrutiny of regulator policymakers and government institutions due to its impact on financial stability, risk of illicit activities and its potential impact on monetary policies. To solve all these concerns, the Diem Association has laid out a new plan that provides its commitment to compliance and working closely with regulators. And that’s why this new cryptocurrency aims to fulfill all requirements.
Data Privacy
The second challenge faced by almost every cryptocurrency in the world is data privacy issues. There are a lot of concerns about how user data is handled in the Diem ecosystem and how Facebook can keep track of all the activities. So, the plan is to ensure robust data protection and transparency to gain public trust and acceptance.
Competition from Central Bank Digital Currencies (CBDCs)
A third major challenge faced by the cryptocurrency is from Central banks. As Central banks explore the development of their currencies, Facebook’s new cryptocurrency might face heavy competition amongst government-backed initiatives. CBDCs also provide many advantages while being fully integrated into existing financial systems. Plus they are also under the government authority.
Conclusion
Hence, Facebook’s new cryptocurrency represents a significant development in the ongoing evolution of decentralized networks. As Facebook’s new cryptocurrency inches closer to its launch, the world is watching very closely. Its success will also determine and pave the way for a new era of digital currencies and will shape how we think about money and use financial services.
Whether it faces used backlash or becomes a globally adopted cryptocurrency, remains to be seen. But one thing’s for sure this new initiative can spark a crucial debate about the future of finance in this digital era.
Also read about Shiba Inu coin
