Facebook just announced plans to overhaul the Bitcoin payment system

Facebook is plowing ahead with plans to overhaul the Bitcoin payment system, even as the company contends with new accusations by the Federal government that it is abusing its market power.

On Wednesday, David Marcus, the Facebook guru spearheading its Crypto efforts, unveiled new details about Novi, the digital wallet side of the initiative which he called a 'challenger in the payment industry'.

In a lengthy post on Medium, Marcus revealed that Novi has secured licenses or approvals in nearly every state of the U.S. It will serve free peer-to-peer payments 'domestically and internationally' and earn earnings from ‘merchant services’ similar to other crypto wallets.

Marcus' post came a day before the Federal Trade Commission refiled a claim that accused Facebook of running an illegal buy or bury scheme. Amid widespread concerns about the company's business practices, it's unclear whether the FTC's action could impact Facebook's ambition in the blockchain sector.

Dasm, previously known as diem, is the blockchain-based and digital money platform announced by Facebook in June 2019. After facing major backlash from global regulators and industry players, the tech giant reversed its plans and rebranded the project as Diem.

Yet unlike bitcoin and other cryptocoins like Ethereum and Dogecoin diem, they will run on a permissioned blockchain. Instead of using governance models such as Bitcoin's proof-of- work or Ethereum Proof of Stake Mechanism, which rely on mining cryptocurrency, Diem proposes to use the Switzerland-based Diem Association for transactions.

The cadre of private companies encountered trouble after losing many of the association's starting members like PayPal Mastercard Ebay and Visa just months after the project's inaugural 2019 announcement. In May, Silvergate Capital Corporation announced a partnership with Diem a Crypto holding company whose subsidiary, Silvergate Bank, provides banking to companies in the banking space. The partnership stated Silvergate would become the exclusive issuer of the Diem stablecoin which will be allocated to the US dollar, whose value would be valued in this coin. However, some analysts believe that Facebook's creation will face more regulatory roadblocks.

According to Marcus, the current payment infrastructure in the U.S. has remained in need of fixing and remained broken. He declared that to serve the 62 million American and 1.7 billion other people worldwide who are still without a bank account, America must step up, he declared.

The executive that stablecoins like Diem should at least be given a fair shot at providing the answer.

Basically cryptocurrencies backed by governments, some exchange traded currencies or even fixed commodities; stabilcoins have little to no volatility when compared to unpegged cryptocurrencies like Bitcoin and Ethereum.

And thanks to lower volatility, other crypto currencies provide a better medium of exchange than stablecoins. The Chinese currency, yuan (CCR), developed by the government and now registered for real-world use, has already been exposed in early 2021 in real world trials.

'Contrary to many points of view, stablecoins with strong control at the network and wallet levels unlock enormous opportunities to innovate in this area, wrote Marcus. Along with 1 to 1 reserve, a widely used fiat currency offers better consumer protections than the fiat balance held in any wallet available in the US right now.

The topic of stablecoins is hotter in finance than ever, and for good reason. With a market capitalization of $64 billion, Tether the largest stablecoin has been criticized for not auditing its reserves.

Marcus also argued that 'well-designed stablecoins and their ecosystem of wallets' have the potential to improve traditional controls for anti-money laundering, counter-terrorist financing sanctions and tax compliance. In short they can make the financial system more transparent, increase consumer protection and fight corruption in the money system.

The argument for diem has gotten a slight boost from El Salvador, which announced in June plans to make Bitcoin Legal tender in the country. While Bitcoin is not a stablecoin, its proposed use in El Salvador overlaps with some of the possible benefits and risks associated with stablecoins such as financial inclusion, transparency and legality.

One central goal of the Salvadoran law is to reduce the cost of cross-border remittances, which make up 20 percent of the country's gross domestic product. Currently, it proposes to do this by using Bitcoin's lightning network, a payment protocol that can be installed on top of Bitcoin which makes transactions faster, cheaper and more private.

Viktor Eck, director of digital assets strategy at the global investment manager Gabor Gurbacs, thinks that with the right approach, the Facebook initiative will work.

'Facebook has roughly 2.9 billion users. Their efforts and trajectory in digitization could become one of the most important social media developments for western hemisphere. I hope regulators allow technology companies to innovate, Gurbacs said.

One model for how this could work might be found in the digital company, Square, which owns the mobile payment service of Cash App.

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