The introduction of Bitcoin in 2008 began a gradual shift in public opinion about currency. At present, Bitcoin has inspired many other cryptocurrency options, each with its intended use. However, the constant criticism of Bitcoin’s volatility prompted the development of stablecoins.
Diem is one of several new digital money ideas that have cropped up recently. Diem, Facebook’s digital currency experiment, is set to launch in 2021. To make the right choice, you might ask what sets Diem apart from Bitcoin. It would be best if you also thought about how you would compare Diem and Bitcoin and write down those criteria. Many would say that the Bitcoin network and its developers are an open-source initiative. Though it has the support of a significant company, Diem is merely digital money or cryptocurrency. In other words, will Diem use Facebook to depose Bitcoin? In this article, we will compare Diem with Bitcoin to learn more about it.
Understanding the Terms Bitcoin and Diem
Get your definitions of Diem and Bitcoin straight before we get into their relative merits. It could be helpful to have a thorough grasp of both terminologies to decipher their distinctions. Gaining a comprehensive grasp of these concepts might also help illuminate how they can alter the international financial scene. The first step is to understand what Bitcoin is.
1. What is Bitcoin?
Cryptocurrency, digital currency, or virtual currency is the standard way to describe Bitcoin. It is essentially a form of money that does not exist in the real world. Bitcoin is like a digital version of traditional paper money or cash. Using Bitcoin to purchase goods and services is a viable option. Bitcoin is a legitimate form of payment, yet many countries and businesses still refuse to accept it. The encouraging thing is that several companies have begun to pay attention to Bitcoin’s increasing impact. Recently, a significant player in the online payment industry, PayPal, revealed that it would accept Bitcoin as payment.
The second critical aspect of Bitcoin that must be considered to comprehend the Bitcoin vs. Diem distinction is how it operates. Virtually every Bitcoin is just a file on a computer. The digital file is stored in a “digital wallet” or program on a computer or smartphone. Anyone could deposit Bitcoins into your “digital wallet” and vice versa. The blockchain is so unique because it records every Bitcoin transaction. Consequently, Bitcoin’s history is more user-friendly, making it easier to avoid accidental double-spending or transaction reversals.
2. What is Diem?
Diem is another cryptocurrency idea that has been compared to Bitcoin. Initially created by Facebook under the Libra name, it is managed independently by the Diem Association. Making sure that everyone can use Diem’s financial services is the main reason it was developed. Diem provides the benefits of scalability, security, and reliability by utilizing blockchain technology. Anyone can create applications on top of Diem since it uses open technology. Inspiring worldwide efforts for collaboration to grow Diem could be helped by the open-source prototype called Diem Core. Spotify, Andreessen Horowitz, Shopify, and Lyft are just a few well-known companies that are now members of the Diem Association.
Before delving into their similarities and differences, you should familiarize yourself with Bitcoin and Diem’s inner workings. You should know that Diem is a stablecoin if you want to know how it works. Cash and short-term government securities comprise the Diem Reserve, which backs the Diem Coins. Due to Diem’s centralized nature, a network of autonomous users governing it via a consensus mechanism is not feacentralizedally; a set of pre-defined validator nodes is in charge. Members of the Diem Association oversee the validator nodes. Verifying blocks and confirming transactions are the responsibilities of the validator nodes.
Difference between Diem and Bitcoin – Diem vs Bitcoin
Regulators like FINRA and the SEC have been sluggish in reacting to Bitcoin. FTC investigations into crypto fraud cloud the popularity of alternatives to cryptocurrencies. Hence, ensuring the authorities understand how Diem differs from Bitcoin is critical. Once you know how Bitcoin and Diem differ, you can shift your attention to how both alternatives could affect your finances.
So, let us take a look at the differences between Diem and Bitcoin based on various themes –
Origins
The whitepaper for Bitcoin was released to the public in 2008. In 2009, mining for the first Bitcoin took place. Now, millions worldwide can buy, sell, and trade across different exchanges using Bitcoin while keeping their transactions private and secure. In 2019, when Facebook released its whitepaper, the company announced the launch of Diem, the Libra cryptocurrency. After changing its name from Libra, Facebook transferred Diem control to the Diem Association. Reports have surfaced suggesting that Facebook’s first foray into digital currency, Diem, would launch in 2021.
Buying Power
How you can use cryptocurrencies is the second major factor to consider when comparing Bitcoin and Diem. Diem does not yet exist since it has not been officially launched. It may, however, become the de facto digital money for all Facebook, WhatsApp, and other Facebook-related transactions. People in the Diem Association may also decide to back Diem.
Alternatively, anyone, wherever in the world, can use Bitcoin, which is the other participant in this comparison. Bitcoin is attractive because it is decentralized and does not rely on any one entity or platform. If two users have Bitcoin in thdecentralizedallets and a third party is willing to authenticate the transaction by mining, they can send and receive Bitcoins.
Exchanges, direct trade websites, and wallet-to-wallet transfers are all possible with Bitcoin. In contrast to Bitcoin, the Diem Association would have legal authority over all Diem transactions. So, it’s not just for buying illicit stuff on the dark web or ransomware blackmail. Because it does not have a robust regulatory framework, it can be easily used for illegal activities.
Centralization
When comparing Diem with Bitcoin, another prominent metric is the potential for centCentralizationre, where the blockchain viewpoint becomes relevant. Bitcoin is a decentralized cryptocurrency that uses blockchain technology to facilitate transactions between decentralized in a global network. Anyone with the correct set of skills can start mining Bitcoins because the network is permissionless. Since verifying Bitcoin transactions could take a long time, this is a significant problem with the cryptocurrency.
Contrarily, Diem paints an entirely false picture. Diem employs a permissioned network despite its foundation in blockchain technology. Consequently, the Diem Association’s control over Diem makes it a plausible centralized blockchain platform. This means Diem can guarantee scalable transactions with lightning centralized. Several of Diem’s original members were IT and financial businesses, which is why only authorized entities were allowed to contribute transactions to the ledger.
Foundation of Value
Diem authorized differ significantly in terms of their value basis. Diem and Bitcoin’s monetary systems and international value are interconnected and affect how these cryptocurrencies are differentiated. Economic scarcity is the foundation upon which Bitcoin is built.
Economic scarcity, as it pertains to Bitcoin, means that a finite amount of coins were created when it was first introduced. Bitcoin price has zero correlation to the traditional monetary system. The demand for Bitcoin is one factor that determines its price. After that, a fixed supply is formed by verifying unit scarcity on the ledger. Conversely, Diem is based on the principle of issuer trust. A group of fiat currencies is supporting Diem. The value of the appropriate fiat pool would always be adjusted by the collective to account for the same number of coins. Users will generate associated assets whenever they trade fiat money for Diem. The same holds for Diem; paying it or withdrawing its value will demonetize the assets.
Scalability
One must also consider scalability to grasp how Diem differs from Bitcoin fully. Scalability is a problem for most fintech organizations. The Visa network, for instance, could guarantee the approval of nearly 65,000 transaorganizationssecond. Contrarily, Bitcoin has a daily transaction limit of just a few hundred thousand.
Ensuring the Bitcoin network can scale to meet desired levels of economic viability is well within the realm of possibility. However, the absence of a regulating authority poses significant challenges to expanding scalability. There have been many attempts at making the Bitcoin network scalable, but each one has sparked heated controversy. New Bitcoin variants like BitcoinCash and BitcoinGold have emerged due to the decentralized network’s absence of central authority. When pitted against Bitcoin, Diem can offer a decentralized advantage. Diem provides a clear governance structure, which solves all the problems with Bitcoin governance. The Diem Association could make a well-organized decision regarding the technical adjustments.
The Diem Association’s members, however well-organized, put their needs above those of their clients. Worries regarding the trust factor are further exacerbated by the fact that Diem Association companies do not adequately protect user privacy. Therefore, Diem provides scalability but compromises user privacy.
Privacy and Trust
The image of Bitcoin as a decentralized, private currency that allows for anonymous transactions has persisted throughout itsdecentralized the facts usually show otherwise. Bitcoin is only partially anonymous. It doesn’t provide any way to prove that someone has a separate wallet or account.
Bitcoin, on the other hand, makes it possible to monitor all transactions on the open blockchain. Crypto users who value privacy and anonymity rely on tumblers to mask their Bitcoin transactions. Here, cryptocurrencies like Monero can provide superior protection for privacy-conscious users.
When comparing Diem to Bitcoin from a privacy and trust perspective, Diem enters unexplored terrain. The original Facebook announcement said that Calibra, a wholly owned company, would assist with the management of Diem (or Libra) back in the day. Additionally, Facebook mentioned that Calibra will protect user privacy. The intended Libra “Friend Finder” feature, on the other hand, raises serious privacy issues. Many people have reservations about Diem’s commitment to privacy and security because of Facebook’s disregard for users’ personal information rights.
Bottom Line
Diem has certain advantages over Bitcoin. The benefit of time, however, is absent. It has been through a lot, including regulatory obstacles, and has not yet launched. Diem is built on blockchain technology, however, its primary goal is to undermine blockchain’s decentralized principle.
Diem Association members may benefit from the association’s skewed control. However, the contrast between Bitcoin and Diem reveals Bitcoin’s flaws as well. Contrary to popular belief, it is neither anonymous nor quick. So, will Bitcoin or Diem emerge victorious in the cryptocurrency market?
