16. Januar 2021

It is no longer Libra. Now it’s Diem. What’s the difference?

Despite the drawbacks, Facebook continues with its plan to enter the financial world.

New name? New life? Probably not. But Facebook probably thought it could help. Facebook’s crypto-currency project, Libra, was largely rejected by regulators around the world. Now that same project, but with a different name and some changes, has a new name: Diem. „Diem“ as in Carpe Diem, the Roman maxim that means taking advantage of the present moment without expecting much from the future. Will the day see this controversial project in 2021?

On the one hand, time is perfect for such a project. The digitalization of the world, accelerated by the coronavirus crisis, has driven all Fintech projects. It is clear that what we have is a trend. China, which is light years away from us in terms of digital payments, has served as an inspiration to many in the West. And companies like Facebook don’t want to be left behind. Alibaba and especially WeChat have been integrating social networking and online trading with finance for years. So what we would have is a hybrid. A kind of Facebook/Free Market. Which would mean another source of income for Facebook, which would reduce its dependence on advertising.

The big technology companies are approaching the world of finance. And the financial sector is adopting technology. These two sectors are meeting in a new sector: Fintech. If we look at the list of the largest companies in the United States, we see that Big Tech and finance are predominant sectors. And each of the companies there have some kind of Fintech project. The consumer is increasingly buying online and the future looks very digital. The big companies have identified that pattern and are getting ready.

The increase in popularity of Bitcoin, crypto-currencies and blockchain technology in general is not accidental. Investors are seeing the crypto sector as a branch of the fintech revolution. Bitcoin is growing, but not for the reasons many bitcoiners believe. It’s already becoming evident that institutional capital investing Bitcoin doesn’t do so to promote the libertarian utopia and bitcoin pattern. Obviously, it’s not about the abolition of the dollar, the end of central banks, and the separation of the state and the economy in the context of free market fundamentalism. That is, the idea is not to create an anarcho-capitalist paradise. The administrator of institutional funds does not have a political project per se. What he wants is to make money.

Everything seems to indicate that integration is a vital part of every Fintech project. The consumer wants many options. Wall Street may not be seeing Bitcoin’s libertarian vision as promoted by the maximalists and cryptoradicals of the counterculture. Surely the vision is different. Bitcoin may be seeing itself as a very useful tool within the fintech universe.

Now, back to Diem. Facebook doesn’t want to be left out of the fintech revolution. We said earlier that the timing was very good. However, the timing is also very bad for such a project. Big Tech has become the new villain in the minds of the public and politicians. Many consider that these tech companies have accumulated too much power and abuse it. In other words, they must have limits. They must be accountable. And they are too big.

Facebook, in particular, has been in the eye of the storm because of its many transgressions. It is clear that Facebook abuses our information. On the other hand, it has the power to influence events, because it organizes and fragments the world into small digital tribes. This implies that it is very easy to be „atypical“ on the Internet. Do you think the Earth is flat? Well, on Facebook there is a group for you. Do you believe in the most absurd conspiracy theory in the world? Well, that group is active on Facebook. Digital tribalism encourages radicalism and fosters a chronic distrust of conventional authorities.

It is very difficult for the villain in the film to get permission to create his own currency. The mere fact of being the „villain“ predisposes us to distrust his intentions. That’s a start. But also the creation of a private currency is something very delicate. Especially in a world with a trade war. And, even more so, if we take into account the immense power of the Facebook network. Nowadays, it is considered that money should be under democratic control. This might sound strange in an era of total distrust of the authorities. But we must remember that the government is a public institution and central banks are designed to serve the public. In other words, the public owns the „money printer. When it is said that „they print money out of thin air“, we should actually say that we print our money in a fiduciary manner.

Of course, we usually feel alienated from our own government and prefer to use the pronoun „they“ to emphasize distance. However, at least officially, our money is democratic. A private currency is dangerous for several reasons. There is the problem of taxation. That is, it is more difficult to avoid fraud or manipulation. And, on the other hand, it is quite difficult to control the flow of capital. A free banking system is terribly chaotic. That’s why we have a legal currency.

Many authorities don’t consider Bitcoin a currency per se. It’s more of an asset or a commodity. Something that, despite its portability, is mainly used as a speculative vehicle. The stablecoins, however, are of a cautious nature. And a stablecoin issued by the most powerful network on the planet much, much more.

Of course, it is very positive that Facebook users have the possibility of accessing financial services. But let’s think for a moment about the effects of that on capital control. In the third world, for example, anyone could place their savings in this new currency. This would mean a great distortion for the local currency. It would be monetary chaos. And not much could be done, because we are talking about a private currency. Since money is democratic, our representatives can do something about it. But in the case of a private currency, what is private is private.

Why does Facebook insist on creating its own currency? Why doesn’t it use a system like PayPal? That is, it could become a bank. Or a second layer solution of the dollar. I assume that creating a private currency is much more advantageous due to the absence of controls. That’s the problem. The absence of controls. In order for Diem to get the green light from the regulators, he must demonstrate that he will implement all the necessary controls. Which ironically would make Diem a de facto dollar. In other words, another PayPal. It would be great to be able to buy Bitcoin with Diem.