Telegram’s ICO – Revolution or Just a Scam?

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Telegram is one of the fastest growing instant messaging services, offering the platform for all common operating systems. Two whitepapers leaked in December 2017 describe a new cryptocurrency designed by Telegram co-founder Dr. Nikolai Durov which may be issued by an ICO. Since nothing is confirmed by Telegram’sofficials yet, this article assumes the authenticity of the leaked whitepapers. In times of the cryptocurrency-hype, a possible ICO obviously attracts a various group of market participants including speculators, serious investors, regulators as well as managers of start-ups and larger companies, which could make use of this new cryptocurrency. This article briefly describes this planned cryptocurrency without becoming too technical and discusses the legitimacy of a possible ICO.

What is Telegram?

In August 2011, Facebook released the Facebook Messenger app; in February 2014 they acquired WhatsApp Inc. (founded 2009) for US$19 billion. Both apps are used by more than 1.3 billion active monthly users, respectively, making them the most used messaging apps by far. Founded in August 2013 by Russian entrepreneurs Nikolai and Pavel Durov, Telegram introduced the end-to-end encrypted chats and calls two years ahead of WhatsApp. Even though Telegram is considered to be a small messaging app (180 million users, December 2017) compared to the outstanding figures of Facebook’s Messenger and WhatsApp, the app is quickly catching up by realizing at least 500,000 new registrations per day. Currently, both apps are free of charge; however, WhatsApp was fully acquired by Facebook, while Telegram still remains a nonprofit organisation solely lead by the Durov brothers. 

The History & Mechanics of the ICO Ecosystem

The blockchain technology was initially implemented in Bitcoin, the mother of all cryptocurrencies, by Satoshi Nakamoto in 2009. Since then, a myriad of typical companies and start-ups launched projects based on this technology. To finance further development, research, and expansion, these companies often launchInitial Coin Offerings (ICOs) instead of raising capital via venture capital, angel investors or private investors. Simply speaking, instead of equity, companies offertokens in exchange for the investors’ money (which is usually transferred in Bitcoin or Ether). This means that investors have no ownership of the company, but they may have governance rights via the ownership of the cryptocurrency. However,investors often do not even believe in the company’s or project’s success, in contrast to common crowdfunding, but expect a significant increase in the token’svalue. Obviously, this strategy comes with a huge risk but incredibly high returns (e.g. IOTA recording a return of 60,000%), due to sale of tokens at high discounts for the investors. On the other hand, many ICOs have failed since their cryptocurrency lacks in terms of utility or security. To achieve a sustainable increase in the token’s value over time, the token clearly has to be a crucialcomponent of a growing project, i.e. has to be exposed to as many users, buyers and holders as possible, resulting in a greater demand of the token.