Telegram is conducting an ICO for its cryptocurrency Telegram Open Network (TON) that may raise up to $1.2 billion, an amount that would make it the largest ICO ever (Filecoin, the second largest ICO, raised $257 million in September). Telegram is an encrypted chat platform with 200 million users and is the platform of choice for people involved with cryptocurrencies who use it to launch project token sales and ICOs, keep followers up to date on projects, and coordinate developer efforts. The cryptocurrency created by the Telegram ICO would be closely integrated with the chat application and attempt to provide solutions for file storage, payments, and anonymous browsing.
This piece will proivde an overview of the white paper set forth by Telegram and explore how the proposed project might fit into the existing cryptocurrency ecosystem. Additionally, this piece will survey public responses from news outlets and cryptocurrency investors. This piece does not make an investment recommendation for or against the Telegram ICO.
White Paper Review
As stated in the TON white paper introduction,
“Cryptocurrencies and other blockchain-based technologies have the potential
to make the world more secure and self-governed. However, to this day,
no consensus-backed currency has been able to appeal to the mass market
and reach mainstream adoption. This paper outlines a vision for a new cryptocurrency and an ecosystem capable of meeting the
needs of hundreds of millions of consumers, including 200 million Telegram users. … Bitcoin has established itself as the digital gold, and Ethereum has proved to be an efficient platform for token crowd sales. However, there is no current standard cryptocurrency used for the regular exchange of value in the daily lives of ordinary people. The blockchain ecosystem needs a decentralized counterpart to everyday money — a truly mass-market cryptocurrency.”
Telegram wants to leverage its existing user base to create a solution for cryptocurrency payments. So far, cryptocurrencies have reached initial adoption with users who are primarily interested in investing/speculation. Telegram wants to create a cryptocurrency that is used functionally for payments. Telegram sees the following difficulties as roadblocks to adoption:
Telegram suggests it is suited to tackle these challenge as further detailed in the white paper, “Telegram is uniquely positioned to establish the first mass-market cryptocurrency. Telegram will use its expertise in encrypted distributed data storage to create TON, a fast and inherently scalable multi-blockchain architecture. TON can be regarded as a decentralized supercomputer and value transfer system. By combining minimum transaction time with maximum security, TON can become a VISA/Mastercard alternative for the new decentralized economy.
The Telegram Team will rely on its 10-year experience in building user-friendly interfaces for tens of millions to create light wallets, exchanges, and identification services that will allow users to get on board with cryptocurrencies in an intuitive way. Integrated into Telegram applications, the TON wallet will become the world’s most adopted cryptocurrency wallet. Telegram will leverage its existing ecosystem of communities, developers, publishers, payment providers, and merchants to drive demand and value for TON cryptocurrency. A whole new economy saturated with goods and services sold for cryptocurrency will be born — similar to WeChat’s fiat-based marketplace, but not confined to a centralized service.”
The proposed technical details are presented here without editorialization. There is meaningful disagreement about this section of the white paper and both sides will be presented in the “Press and Investor Response” section. Reference the white paper for further details, but the high-level overview provided by Telegram is shown below:
From the white paper, Telegram has provided the following roadmap:
Use of Funds
Scope of Project
If and when the project is complete and fully operational, TON is planned to support (as summarized by TechCrunch):
- Distributed file storage akin to services like Dropcoin and ICO company Filecoin
- A proxy service for creating decentralized VPN services and TOR-like secure browsing environments based on the blockchain
- Services for decentralized apps, smart contracts and decentralized web browsing experiences
- Payments for micropayments and peer-to-peer transactions
Telegram hopes to become the entry point and backbone for the decentralized web.
Press and Investor Response
The Telegram ICO is exciting partly because it has been so divisive. According to an article from Recode, venture firms are split on participating in the Telegram ICO. Firms that have made early cryptocurrency investments, like Union Square Ventures and Andreesen Horowitz, have decided to pass on investing in the offering while other well known venture firms that are newer to making investments in the cryptocurrency space, like Sequoia and Benchmark, are participating.
Firms and individuals that are pessimistic about the project are quick to point out that the white paper that has been released is light on technical details related to implementation. Additionally, critics point out that the Telegram ICO does not present a strong case for introducing the technical changes proposed and the team has not proven capable in the cryptocurrency space. Finally, critics are skeptical about both the amount of money raised and the intended scope of the project. What is described by Telegram in the white paper would essentially cover all bases related to the decentralized web by attempting to tackle payments and decentralized application infrastructure, which is quite an undertaking to say the least.
Proponents of the Telegram ICO, on the other hand, focus on other aspects of the project and emphasize that it is indeed the point that Telegram is not undertaking significant new technical challenges and is instead innovating by leveraging its user base of 200 million and experience building a massive consumer product to bring cryptocurrencies to the masses. These investors view Telegram as having the potential to capture the on ramp to cryptocurrencies, facilitate widespread adoption, and own the decentralized application ecosystem. The project is bold, but the potential rewards if the project succeeds are immense. For this reason, investors in the project argue that the potential rewards if the project succeeds are sufficient to take the risk of investing.
It was announced February 16th that the private sale round of the Telegram ICO was oversubscribed and raised $850 million, an amount greater than the $600 million private sale raise planned. A public sale is set to take place in March during which another $600 million is planned to be raised (this round may also end up being oversubscribed). Stay tuned.