The blockchain space has grown with exciting updates and new upgrades over the years. These changes make the blockchain space accessible and usable. While the space is relatively new, the major challenge is growing regulations. Granted, laws are necessary to bring sanity and clarity to the industry. However, many restrictions have affected the growth of numerous blockchain-related projects. One of the biggest firms that have been affected by the space’s growing regulations is Facebook. Facebook is arguably one of the biggest tech firms in the world. It is one of the most popular social media platforms existing. In recent years, Facebook has become interested in blockchain technology and has taken steps to become part of this industry. However, regulations have played the most significant role in ensuring that these projects don’t see the light of the day.
An Outlook on Crypto Regulations
A lot of countries have set up rules to govern the cryptocurrency space. While many of these countries have completely outlawed cryptos, some have welcomed them with open hands. The US is one of the top markets for crypto products. Many people who own digital assets come from America. Cryptocurrency is not seen as legal tender in America, but regulations differ by state. While FinCEN does not see cryptocurrencies as legal tenders, it believes that they are a store of value that can substitute for currency.
Additionally, the US allows exchanges to operate within most states, provided they comply with the regulations. Some mandate KYC requirements to prevent cryptocurrencies from being used for malicious purposes. This requirement helps exchanges know their customers and understand their transactions. The US is one of the most crypto-friendly countries worldwide. While there are numerous regulations in the country, users can still own and make transactions with cryptocurrency.
Many governments believe that cryptocurrencies are used for money laundering and crime financing. This led to more stringent regulations for centralized exchanges. It may be possible to track and know all customers and their transactions with this. For people using decentralized exchanges, it’s almost impossible to pinpoint those initiating those transactions since blockchain technology allows anonymity.
One of the country’s latest attempts to regulate cryptocurrency is centered on data collection. The country hopes to combat crime with the help of exchanges. These trading platforms have to notify the appropriate authorities of suspicious cryptocurrency-related transactions. One of the most known bodies regulating the space is the SEC. SEC has filed many lawsuits against crypto projects when it suspects foul play. While this has helped the space mature, it has also affected new and promising projects.
How Regulators Buried Libra
Libra is a cryptocurrency created by the tech giant Facebook. This asset looked promising, especially since it promised low transaction fees. Creators wanted it to be a global currency that people could use to pay for products. After a while, the team changed Libra to Diem. The name change was an effort to ensure compliance with regulations. Changing to the ‘Diem’ was supposed to show organization independence. One of the biggest reasons Diem failed may be because it threatens traditional financial systems.
The team overseeing the Libra, previously known as the Libra association, changed to the Diem association. This effort was to ensure that the Diem dollar launches. However, the project faced a series of challenges and setbacks. Not many people wanted to be associated with a controversial project, especially since lawmakers have voiced their concerns. Congress members also revealed that they distrusted Facebook, even after Mark Zuckerberg tried to convince members of Congress. This significantly affected the project’s lifespan as regulations were afraid of how the coin may affect the economy.
According to the creators, the coin’s purpose was to serve as a medium of exchange. They assured that Diem is backed by numerous currencies, hoping to complement and not replace those currencies. While the team was working on the project, some people feared Libra was created to replace fiat. The team assured users that the coin’s purpose is to serve as a simple way to exchange value. Users can buy the tokens with fiat and transfer them to other people—similar to how most digital assets work.
Why Was Libra Created?
The coin’s whitepaper shows that it was created for individuals to access cheaper ways to transfer money. International transactions are costly, even with modern technology. Individuals spend hundreds of dollars to transfer money with the traditional financial institutions, which are usually very slow and expensive. However, cryptocurrencies have changed how people can move money. Also, the team believed that many people find it challenging to store money with a financial institution, especially in remote places where there are no banks. This may lead to robbers stealing their money.
The solution to this problem is cryptocurrency. Since many people own mobile phones, they believe that creating a stable cryptocurrency would allow individuals to access some financial services. Diem was to be an efficient way to transfer money at a competitive fee. While banks charge numerous fees, some blockchains also charge high gas fees. Facebook made Diem mainly for transfers since the team planned on helping people access cheaper financial services.
What Made Libra Crypto Special?
Almost every cryptocurrency has something that differentiates them from other cryptocurrencies. What makes it different is that real-world assets back it. This may help it remain stable, even when the cryptocurrency space experiences challenges. The digital asset space is highly volatile. Sometimes, this affects the value of assets transferred. For instance, if $50 worth of Bitcoin at a particular time, the value may change when it gets to the receiver. The asset’s value may have grown higher or lower. This makes it difficult to pay for services with cryptocurrency. However, Facebook created Diem for stability, so the price would not fluctuate like most assets. This may help find it more reliable for transferring money abroad.
What Led to Diem’s Failure?
Despite having so much potential, Diem did not see the light of the day. The project, barely three years old, failed to grow and attract the needed crowd. When the team announced the project in 2019, regulators expressed their concerns over it when it was still Libra. Even the group’s move to peg the currency to the USD came with many controversies. Regulations and internal problems led to the nail in the coffin. Some of the project’s leaders, including co-founder Kevin Weil, left the project. Facebook pulled the plug on the project, confirming Diem’s death. However, Facebook is still looking to explore the blockchain space. One of the significant challenges Diem faced while it existed was opposition from authorities. They didn’t believe in stablecoins, and since many countries are looking to create a centralized currency, it’s natural that they would want to prevent competition.
Conclusion
While Facebook has pulled the plug on Libra, which rebranded as Diem, it still has interests in the metaverse. The metaverse is presently a vague concept, but Mark Zuckerberg believes that it will be the future of the internet. Diem faced numerous challenges, such as problems with regulations and internal conflicts amongst leaders. The firm plans to create a solution to the issues but nothing has happened yet.
