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What little remains of Meta’s once ambitious cryptocurrency project is coming to an end.
A pilot program for Novi, a money transfer service that uses a cryptocurrency wallet of the same name, will stop working on September 1, according to a notice on its website. Novi operates only in Guatemala and the United States.
“The Novi pilot is ending soon,” according to the notice, which was reported earlier by Bloomberg News. “We made it easy for you to get your remaining balance and download your Novi information.”
The planned gradual release of Novi is hardly surprising. Earlier this year, Meta and its partners terminated Diem, the cryptocurrency project launched under the name Balance in 2019, when the company was called Facebook. In another blow to the plans, David Marcus, one of the executives behind Meta’s push into cryptocurrencies, said last year he would be leaving the company to pursue entrepreneurial ventures.
The Libra-Diem-Novi project has received little love in its brief history. Partners got away, details changed, and lawmakers slammed the plans. CEO Mark Zuckerberg eventually shifted his focus to the metaverse, and the end of crypto plans seemed inevitable.
For the record, here is what was interesting in the badly starred project.
Why did Facebook want a cryptocurrency?
Diem wasn’t really Facebook’s cryptocurrency. It was a project of the Diem Association, which Facebook originally co-founded as the Libra Association. The association would have served as a monetary authority. The project was designed to “empower billions of people”, and organizers cited 1.7 billion adults without bank accounts who could have used the currency.
Of course, Facebook had its own interest in digital money, which predates Diem. The social network launched a virtual currencycalled Credits, for about four years as a way to make payments on games played on Facebook.
Zuckerberg said sending money online should be as easy as sending photos. Diem was designed to make it easier and cheaper for people to transfer money online, which could also attract new users to the social network. Zuckerberg acknowledged that people using cryptocurrency would likely benefit Facebook by making advertising on the social network more desirable and, therefore, more expensive.
Meta’s subsidiary Novi operated a wallet to hold and use the digital currency.
Did Facebook/Meta have direct control over Diem?
No. Meta was one of the members of the Diem association. (Meta membership is through Novi.) The association had hoped increase to 100 members, most of which would shell out $10 million. Each member had the same vote in the association, so Meta technically had no more say in association decisions than any other member.
That said, Meta played an outsized role in the early stages of the project.
Why did the members of the association drop out?
Some of the most important founding members seemed to be cold-blooded. A quarter of the 28 founding members resigned before the association’s inaugural meeting in Geneva. Those who go out included PayPal, eBay, Stripe and financial services giants Visa and Mastercard. Departures have been a big loss because these members have brought expertise in payments and transfer technology.
How would Diem have been different from other cryptocurrencies?
Let’s start by seeing what it looked like in other cryptocurrencies, such as bitcoin and ether. Like them, Diem would have existed entirely in digital form. No physical notes or coins. And like other cryptocurrencies, Diem transactions had to be recorded in a software ledger, known as blockchain.
This is what a wallet would look like on a phone.
Facebook
Diem was to be pegged to the US dollar, a format widely known as a stablecoin. This is in contrast to bitcoin, ether, and some other cryptocurrencies which are unbacked by anything and swing wildly in response to speculation.
Initially, the plan was to use a basket of assets to anchor the value of the cryptocurrency. The association did not specify what those assets would have been, but said they would be denominated in major global currencies, such as the dollar and euro, which do not fluctuate wildly from day to day. The association allegedly bought more underlying assets to create, or “mention”, a new Diem when people wanted more cryptocurrency. When people cashed in, the association would have sold those assets and “burned” Diem.
Backing up a currency with an asset is nothing new. In fact, it was common. The US dollar was backed by gold until 1971. The value of the Hong Kong dollar is pegged to the US dollar and managed by a currency board, which can issue new notes only if its reserves are sufficient.
How do cryptocurrencies compare to the dollar?
The US dollar has proven itself and is practically accepted all over the world. Some countries love the dollar so much that they use it instead of their own money. Dollars earn interest, but at today’s rates, that won’t amount to much.
Of course, the dollar has weaknesses. Using dollars, especially across borders, can be expensive as banks charge a discount to convert them into local currencies. If you use dollars on a prepaid card, the credit card company likely charges the merchant for a portion of your purchase. If the US government prints too many dollars, inflation could follow.
Despite the hype, cryptocurrencies are not widely used yet. Try buy a cup of coffee with ether. (Yes, it’s possiblebut not practical.) The value of cryptocurrencies is volatile, often rising or falling by more than 5% per day, making it difficult to get a sense of the long-term value of the asset.
Cryptocurrencies can make it easier to send money directly to someone. Bitcoin transactions are not truly untraceable, although they can be very difficult to trace. Likewise, the use of bitcoin is not absolutely anonymous. This is a pseudonym, which means that your bitcoin address is recorded even though your identity is not.
Some cryptocurrencies, most notably bitcoin, have a cap on the number of coins that can be minted, which means owners of existing coins don’t have to worry about new coins being arbitrarily minted, even though it might. create other problems in the future.
Was Diem just a ploy so Meta could get my financial data and send more targeted ads?
We hear you. Meta and its social network Facebook don’t have a great reputation when it comes to privacy.
The social network said not to worry. What else would you expect? When the plans were first unveiled, Meta was careful to point out that its wallet was hosted at a subsidiary of the social network. The arrangement was designed to allow the holding company to be regulated by authorities and to prevent money laundering and other financial crimes. The company also said it would keep financial data separate from Facebook’s social data.
