The popular encrypted messaging app Telegram is planning an initial cryptocurrency offering (ICO) that might be worth up to $500 million (€407.40 million).
The proposed Telegram Open Network (TON) ICO is designed to raise $400 million (€325.92 million) to cover Telegram’s operating costs and another $100 million for other purposes, The Financial Times reported. Few details of TON are available and nothing about it appears at Telegram’s website.
TON was described as a third-generation blockchain with superior capabilities to Ethereum (ETH) and Bitcoin (BTC), Techcrunch reported. News reports did not say whether TON would be ERC20 (Ethereum-based) or a totally-original cryptocurrency.
Techcrunch’s article was not very reliable because it was based on “sources.” “Sources” is journalist code for guesswork and hearsay. Any article that uses the word “source” should always be viewed with suspicion.
Supposed Details of the Telegram Open Network Available
Some TON details are available through what Cryptoinvest claims is a whitepaper about the Telegram Open Network. The “whitepaper” was supposedly written by Telegram cofounder Dr. Nikolai Durov.
Since the Whitepaper was “leaked” there is no way to know if it is real. Leaked is journalist lingo for “unconfirmed information from an unreliable or unknown source.” Always be skeptical of any news report that contains the words “leak” or “leaked.”
The TON Platform described in the Cryptoinvest article sounds a great deal like yet another Ethereum clone. It would include a TON ecosystem, 2D distributed ledgers (I guess those are decentralized apps or DApps), Instant Hypercube Routing, an Infinite Sharing Paradigm, and a Proof of Stake Approach for verification of funds.
One has to wonder how the TON attributes described by Cryptoinvest would be any better than existing blockchain ecosystems like Ethereum. The only advantage the Telegram Open Network might have is its accessibility via Telegram.
Telegram wants to become a Financial Network
The TON ICO could have an initial value of $500 million (€407.40 million) and a potential value of $3 billion (€2.44 billion) to $5 billion (€4.07 billion), Techcrunch claimed. That would make it the largest ICO ever.
The plan is for Telegram users to send money through TON, which would transform Telegram from a humble messaging app to a financial network. That would make it a sort of PayPal or Venmo for blockchain applications. It would also be perfect for international remittances, money immigrants send to folks back home.
Migrants sent around $601 billion (€489.69 billion) in remittances in 2015, the World Bank estimated. The biggest countries for remittances are the United States at $56 billion (€45.63 billion) and Saudi Arabia at $37 billion (€30.15 billion).
Telegram CEO Pavel Durov wants to enter financial services in order to make his company independent of investors and free from government interference. Durov, a Russian, currently lives in Dubai, where he fled after running afoul of Vladimir Putin.
Does Telegram Make Money?
Unlike most ICO companies Telegram has an established business but it is not clear if that business makes any money.
Telegram currently has around 100 million users; which makes it small potatoes in the messaging app business. The biggest messaging apps are Facebook’s (NASDAQ: FB) WhatsApp and Facebook Messenger which 1.3 billion users each in September 2017 according to Statista.
Since Telegram is a privately held company it is impossible to know if it actually makes money. Although, it is clear that one publically traded messaging solution Twitter (NYSE: TWTR) is not making money.
Twitter reported a loss of -$21.09 million (-€17.18 million) and “earnings” of -$17.53 million (/€14.28 million), and operating income of $7.28 million on September 30, 2017, Stockrow data indicates. Twitter’s revenues shrank by -4.72% during the 3rd quarter of 2017. Twitter had some cash in the form of $205.36 million (€167.33 million) in free cash flow and $4.258 billion (€3.47 billion) in cash and short-term investments in September 2017.
The Twitter financials show us why Pavel Durov is so anxious to get into the cryptocurrency business. He is probably losing a lot of money in the messaging business. The hope is that adding a cryptocurrency would give Telegram some cash flow and a chance to enter lucrative fields like remittances and lending.
Will Telegram’s ICO be Legal?
The Telegram ICO is on some very shaky legal ground. Regulators like the US Securities and Exchange Commission (SEC) and the British Financial Services Authority (FSA) are likely to see TON as an attempt to do an end-run around investment laws.
BitConnect has received “cease and desist” orders from regulators in the American states of Texas and North Carolina, Coindesk reported. The North Carolina Securities Division and the Texas States Securities Board view the BitConnect ICO as an effort to get around U.S. laws governing stocks.
Telegram is likely to run into similar problems, especially since it is based in Dubai. Regulators probably wouldn’t be able to shut down the TON ICO but they would be able to block U.S. citizens or British subjects from investing in it.
A greater problem for the Durovs would be efforts by the Russian government to label TON a money-laundering scheme. That might get it banned or in trouble. Some governments including that in Britain have tried to ban encrypted messaging apps like Telegram and WhatsApp as a threat to national security in the past.
Such attacks are likely to be revived if Dr. Durov is able to add cryptocurrency and blockchain to Telegram. It is hard to imagine governments sitting back and letting their citizens get access to an encrypted means of instantly transferring money anywhere in the world. That sounds like a tax evader’s dream, and a tax collector’s nightmare.
Would Telegram’s ICO really be worth $500 million?
The Telegram Open Network would be worth $500 million (€407.40 million) if it works as advertised and if no government tries to ban or sabotage it.
A major possibility here is that Russia, the USA, the European Union, the People’s Republic of China, or Her Majesty’s Government, will put behind the scenes pressure on Dubai’s government to pull the plug on TON. Another is that cryptocurrency industry companies will stay away from it.
Investors should stay away from TON until the political and legal issues are settled. Telegram is simply taking too making risks with its ICO to be a good or even a credible investment.
Disclaimer: This commentary is intended as food for thought, not as financial or investment advice!! Please folks do your own research and thinking and make up your minds.
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