Diem, the cryptocurrency project funded by Facebook, announced on Monday that it would “begin the process of winding down” and selling its technology and other assets.
The move ends a nearly two-year-long bid to launch the “stablecoin,” which had faced stiff resistance from regulators around the world.
“One of our highest priorities in designing the Diem Payment Network was building in controls to protect it against misuse by illicit actors,” Diem CEO Stuart Levey said in a statement.
“In the United States, a senior regulator informed us that Diem was the best-designed stablecoin project the US Government had seen,” he added.
Stablecoin is a type of cryptocurrency backed by a “stable” real-world asset. Diem was pegged to the US dollar.
Levey, however, blamed US federal regulators for shutting down the project.
“Despite giving us positive substantive feedback on the design of the network, it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead,” he said.
The Diem association’s assets will be sold to Silvergate Bank — a crypto-focused bank in California that had partnered with the group to launch the digital currency — for $182 million (€162 million).
Silvergate will acquire Diem’s assets, including development, deployment, and operations infrastructure and “tools for running a blockchain-based payment network,” the bank said in a statement.
Regulatory concerns
Facebook’s cryptocurrency project plans raised concerns among global finance officials and regulators. Many raised concerns about Diem’s security and reliability, with regulators arguing that the service could enable crime, including money laundering and harming user privacy.
Last year, some US lawmakers said Facebook could not be trusted to manage a cryptocurrency and urged the company to discontinue the test immediately.
“The combination of a stablecoin issuer or wallet provider and a commercial firm could lead to an excessive concentration of economic power,” US regulators said in a 2021 report.
“These policy concerns are analogous to those traditionally associated with the mixing of banking and commerce, such as advantages in accessing credit or using data to market or restrict access to products,” the report said.
Libra-turned-Diem
Facebook, which rebranded itself as Meta last October, had first announced its plans to introduce a cryptocurrency called Libra in 2019.
It would be controlled by the Libra Association, an independent entity based in Geneva, which would function along the lines of a central bank.
The goal was to create a stablecoin pegged to the US dollar which, unlike other cryptocurrencies, would not be as volatile and threaten price stability in case they were to be widely used.
The association, largely funded by Facebook, changed its name to Diem in December 2020, and moved its operations from Switzerland to the US as part of a “strategic shift.”
This report was written in part with material from Agence France-Presse.
Edited by: Rebecca Staudenmaier
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Bitcoin explained: How it works and what it is good for
The cryptic token
Bitcoin is thought of as a digital currency because it exists only virtually, without any physical coins or notes. It resides in a decentralized, encrypted network that is independent of commercial or central banks. This allows Bitcoin to be exchanged under the same conditions all around the globe. It’s also a cryptocurrency, because it uses encryption to conceal users’ identities and activities.
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Bitcoin explained: How it works and what it is good for
Bitcoin’s mysterious founder
The cryptocurrency was first publicly described in 2008 by an unknown person — or group of people — who used the name Satoshi Nakamoto. Its implementation began in January 2009, when it was released as open-source software.
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Bitcoin explained: How it works and what it is good for
How to get hold of Bitcoin
There are three different ways to acquire Bitcoin: First, you can buy the cryptocurrency with legal tender (e.g. dollars and euros) at online exchanges such as Coinbase or Bitfinance. Second, you may accept Bitcoin as a payment in exchange for your products and services. And third, you can create your own Bitcoins in a process known as mining.
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Bitcoin explained: How it works and what it is good for
No Bitcoins without a wallet
Before you can buy Bitcoin you have to install so-called wallet software onto your computer. It contains a public key (your address) as well as a private key that allows only the owner of the wallet to send or receive cryptocurrency. Smartphones, USB sticks or any other digital hardware or cloud-based data storage can serve as wallet. Without the digital wallet, no Bitcoin for you.
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Bitcoin explained: How it works and what it is good for
Hats off for Bitcoin purchases!
To see how the process of paying with Bitcoin works, let’s imagine Mr. X wants to buy a hat from Ms. Y. First thing Ms. Y needs to do is send Mr. X her public wallet address, which is like her Bitcoin bank account.
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Bitcoin explained: How it works and what it is good for
A chain of blocks
After Mr. X has received the public wallet address of Ms. Y, he signs off the transaction with his private key to verify that he is indeed the sender of the digital currency. The transaction is now stored on the Bitcoin blockchain with thousands of other transactions that are made with Bitcoin every day.
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Bitcoin explained: How it works and what it is good for
Miners in the digital age
Now Mr. X’s transaction is broadcast to all other participants in the peer-to-peer blockchain network, which are also called nodes. Essentially, they are private computers, or “miners,” which verify the validity of his transaction. After that, the Bitcoin gets sent to Ms. Y’s public address, where she can now unlock the transfer with her private key.
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Bitcoin explained: How it works and what it is good for
The Bitcoin machine room
Theoretically, everyone can become a “miner” in the blockchain network. But most of it is done in huge computer farms that boast the necessary computing power. Bitcoin processing keeps transactions secure by chronologically adding new transactions (or blocks) to the chain and keeping them in the queue.
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Bitcoin explained: How it works and what it is good for
An irreversible string of data.
The Bitcoin transaction between Mr. X and Ms. Y is finally included in a vast public ledger, the blockchain, where all confirmed transactions exist as blocks. As each block enters the system, all users are made aware of each transaction. Who has sent how many Bitcoins to whom, however, remains anonymous.Once confirmed, a transaction can’t be reversed — by anybody.
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Bitcoin explained: How it works and what it is good for
Controversial mining for Bitcoins
Miners generate new Bitcoins when they process transactions, which they do using special decryption software. Once solved, a new block is added to the chain and the miner is rewarded with Bitcoins. China is the biggest miner in the Bitcoin network. It’s cheap electricity from coal gives it a competitive edge over rival miners, mainly in the US, Russia, Iran and Malaysia.
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Bitcoin explained: How it works and what it is good for
Power-hungry Bitcoin
Due to the massive computing power needed for crypto mining and processing, the Bitcoin network consumes vast amounts of energy — about 120 terrawatt hours of power per year. University of Cambridge’s Bitcoin Electricity Consumption index, has calculated the cryptocurrency requires more energy than each of the countries shown in blue on the map above. Graphics: Per Sander Text: Gudrun Haupt
Author: Gudrun Haupt
