Telegram, the developers of the popular and notorious encrypted messenger application, have made initial coin offering history with their very successful and ongoing ICO, which has already raised $850 million from corporate subscribers. On the heels of this historic event, we are examining this largest-ever initial coin offering and asking why it has been so popular, and whether it suggests that the field of cryptocurrency ICOs is maturing.
Why are Initial Coin Offerings So Popular?
Cryptocurrencies burst into public consciousness in 2017, with the exponential rise in prices of the major cryptocurrencies fueling a frenzied, speculative bubble. It was not only the major cryptocurrencies which benefited from enormous price increases – investors looking to buy cheap and get in at the ground floor of the next “big thing” sought out smaller, newer cryptocurrencies. Many of these new cryptocurrencies were capitalized through crowdfunding, whereby funders receive initial “coin” in the new cryptocurrency in return for financing it with legal tender fiat currency. The term “ICO” (initial coin offering) was “coined” to reflect the experience of an “initial public offering” by which a hot, newly public company offers its shares which typically then trade at a premium as soon as they hit the market. Speculators and investors have been eager to cash in on new cryptocurrencies in the same way many were happy to get their hands on new public shares of technology companies in the 1990s, or newly privatized utilities in the U.K. during the 1980s. It is against this background that Telegram recently completed the largest ever ICO for their new, currently unnamed cryptocurrency.
The Source of Admiration for Telegram
Telegram is a non-profit, cloud based instant messaging service, founded in 2013 by Pavel Durov. It has made a name for itself, as compared to similar technology applications, in the same way that Bitcoin made a name for itself against fiat currencies such as the U.S. Dollar. If that seems like a strange comparison, here is why I make it: Telegram is open-source, transparent, democratic, non-profit, and above all else, confidential. Telegram has positioned itself on the edge of a very live political debate – whether individuals will be able to enjoy digital privacy, free from spying eyes. Other communication apps such as Facebook or Twitter exist to make money, and they pander to corporate and government interests while taking the data of their users for free. On Telegram’s site, the FAQs include the following statement, which has come to be politically extraordinary in 2018:
Telegram is confidential, free, not-for-profit, and refuses to monetize its users’ data. This is incredible and politically revolutionary. Its emphasis on secure encryption, refusal to share data, and a refusal to be held responsible for nefarious uses of its technology stands out, and has something of the scent of cryptocurrencies and WikiLeaks: an anarchic, decentralized, technologically driven people power that sticks up its middle finger to the Man. Bitcoin is lauded by its ideologically-driven libertarian proponents as doing the same thing to central banks’ abilities to debase and manipulate the money supply. They all stand for creating fair platforms that cannot be gamed by elites and are part of the modern tech zeitgeist.
Leaving politics and fashion to one side, what about the business case for Telegram? It has been hugely successful, becoming a brand of choice for users requiring secure and confidential free digital communication. It is seen as one of the few emerging tech companies that truly has the “space” to build its own digital currency which will have a genuine market for genuine users of the currency, rather than being primarily a speculative venture. This is the major reason why Telegram’s ongoing ICO has been not only unique but the largest and most successful ICO to date.
Telegram’s Biggest-Ever ICO
In February 2018, Telegram raised a record $850 million in an ICO which for the first stage was open only to venture capital firms and corporate investors. Telegram is the first “unicorn” (Silicon Valley terminology for a start-up company valued at more than $1 billion U.S., typically in the software or technology sector) to hold an ICO. Telegram can boast an impressive list of investors from this round, such as Sequoia Capital and Kleiner Perkins Caufield & Byers. When retail investors from the public are invited to apply for the new tokens, they will pay a much higher price. The ICO is a big psychological boost for fans of crypto, who see it as a sign that the field is maturing and that slowly, regulators and titans of the financial system will begin to accept crypto and become part of the ICO ecosystem. If this happens, the kind of “arbitrage” advantage that corporate investors enjoy will become regulated away.
Telegram plans to use the $850 million raised to cover the development of its TON blockchain, as well as for the ongoing development and maintenance costs of its Messenger application. While Telegram boasts on its website that it still has money gifted to it by its CEO Pavel Durov, its finances will have received a strong boost. Telegram is hoping to raise an additional $350 million from the public stage of the ICO.
There are reports that GRAM, the name of Telegram’s soon to be launched cryptocurrency, is already changing hands at a premium before the public ICO has even begun, even though some institutional investors passed on participation. Industry analysts tend to attribute this more to fears over Telegram’s reputation as a useful tool for criminals and terrorists, which gives rise to worries that governments will eventually regulate away its confidentiality.
Every time regulators, central bankers, and tech giants lay into cryptocurrency as a worthless Ponzi scheme, it seems that a glimmer of hope for crypto enthusiasts emerges. Google have just announced that they will no longer accept advertising for ICOs. Yet an ICO done right, such as Telegram’s, points the way to a future where tech environments with a genuine need for their own unit of transaction will be able to successfully launch their own cryptocurrencies.