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The Encrypted Story of the Largest ICO in History

Source: iStock/jacoblund
  • As many ICOs today, the Telegram token sale is not without controversy.
  • The company is still secretive about its ICO.

After already raising USD 850 million from 81 accredited investors this year, the popular encrypted messaging service Telegram has reportedly sent an email to investors saying that it will hold a second private pre-sale round.

Telegram is estimating it will be around the same size as the first round, which would bring the total raised to over USD 1.6 billion before the ICO (initial coin offering) even opens up to the general public, The Verge reported citing two undisclosed sources with knowledge of the deal. According to previous unsourced reports last December, the company was planning to raise USD 2 billion during its token sale.

However, Telegram still does not comment on its ICO plans and how much it is looking to raise in total. Previous unsourced report by Bloomberg suggested that the company is planning to raise USD 1.15 billion during a public initial coin offering in March on top of the private pre-sale.

Three large venture capital firms, Benchmark, Kleiner Perkins Caufield & Byers, and Sequoia Capital are reportedly listed among potential investors during the private pre-sale.

Furthermore, the demand for Telegram “Grams” is seemly already so high that a secondary market has already formed for pre-ICO allocation as the value of the token will apparently be twice as much during the public sale in March.

Gregory Klumov, a managing partner of brokerage firm Exante, which also handles cryptocurrency trades, said to Bloomberg:

“Some western funds that received a pre-ICO allocation are already offering to resell since the price of the public ICO in March will be twice as high.”

The Gram tokens are reportedly being sold in in the form of a Simple Agreement for Future Tokens, which is a contract that provides investors with the right to receive digital tokens once they become tradable in the secondary market.

Telegram plans for its Gram tokens to be listed on exchanges in 2019. Should that not occur, then all private sale participants would receive a refund.

Not Without Controversy

As many ICOs today, the Telegram token sale is not without controversy.

The Telegram Open Network (TON) platform claims to solve one of blockchain networks’ most challenging issue of scalability by developing an entirely new blockchain that will be able to process millions of transaction per second through the use of “infinite sharding” and “hypercube routing”. However, research into these concepts has been abandoned by other developers in the past.

Additionally, the ambitious project only lists only 15 developers in its whitepaper, which seems rather little for such a revolutionary and multifaceted platform.

Vinny Lingham, founder of blockchain identity startup Civic and a partner at Multicoin Capital, told Quartz that “[It’s] raising too much money for a small team,” and that the project’s deadline appears too ambitious for the scale of the project.

Pantera Capital, one of the earliest funds to invest in bitcoin, will also pass on the Telegram ICO. Quantitative analyst, Charles Noyes, said that his “primary concern with it is that, in the first offering institutions are seriously looking at, they’re promising something that will somehow be radically better than everything else out there, with no real explanation of how that will happen or outside scrutiny of those claims.”

Nick Tomaino, who manages the Marc Andreessen and Peter Thiel-backed digital currency investment fund 1confirmation, told Bloomberg that he also passed on the Telegram ICO because he is skeptical that its developer team can deliver.

“It’s a big-name ICO, attracting big-name investors, but I ultimately believe the effort requires deep technical expertise and historical context on crypto-economics, consensus mechanisms, and scalability, which they don’t have,” Tomaino said.

Blockchain Capital managing partner, Bart Stephens, who will not be investing in this ICO, told Bloomberg that “Venture investors with deep domain expertise in the blockchain technology sector and crypto ecosystem are passing. Generalist VC firms who feel that they have so far missed the boat on crypto appear to be interested.”

Aside from having to deliver on huge promises and overcome technological challenges, Telegram can also potentially run into regulatory challenges due to the encrypted nature of its messaging app. While libertarians and other privacy-loving individuals are fans of the applications, so are criminals and terrorists according to state officials such as UK Prime Minister Theresa May. In other words, a ban of the application is not entirely out of the question in several jurisdictions as its recent blocking in Iran has shown.

Scammers are Jumping Onto the Telegram ICO

It is an unfortunate reality in the cryptocurrency market that this space is filled with malicious individuals who prey on the knowledge gap between beginners and seasons cryptocurrency investors to steal digital currency. For this unscrupulous individuals, the hyped up Telegram ICO provides ample opportunity to make bank.

According to TechCrunch, several fake Telegram ICO websites have popped up including grampreico.com, tgram.cc, as well as ton-gram.io, Gramtoken.tech, and Gramtoken.io. Many of these websites were soon called out as fake on social media and were taken offline soon thereafter.

The latter, Gramtoken.io, was the most prominent out of the above and managed to defraud unknowing investors by running Facebook ads that led to its fraudulent ICO page. How much the scam’s perpetrators managed to raise, however, is unclear.

The individuals behind Ton-gram.io, managed to steal more than USD 30,000 from 70 victims according to an Ethereum wallet connected to the website.

In light of the amount of ICO scams that have been piggybacking off the hype surrounding the Telegram ICO, CEO Pavel Durov went on Twitter to say: “Attention: Telegram publishes its official announcements only at https://telegram.org. Everything else is most likely scam.”

Should You Invest in Gram?

Needless to say, the demand for a digital token issued by an established tech startup that possesses a user base of over 200 million will be high. Whether it will be high enough for the company to hit its USD 2 billion target remains to be seen but the successful pre-sale indicate that it might.

Should the ICO succeed and the Gram token launch successfully, it could become the most adopted cryptocurrency in the world as every Telegram user would then also own a Gram wallet and due to the hype around the ICO and the popularity of Telegram in the cryptocurrency community the value of the token will likely increase.

Having said that, the project is highly ambitious and - like many new blockchain projects - is claiming to be better than all the others. Whether the developers working on TON will actually be able to deliver on that, however, will remain to be seen.

CryptoNews.com reached out to Telegram’s spokesperson Markus Ra on Telegram but he was unresponsive.

***

Background

What is Telegram?

Telegram is a messaging application that was founded in 2013 by Russian entrepreneurs Pavel Durov and Nikolai Durov, who previously founded and ran the largest Russian social networking platform VK.

The Telegram messaging app’s key focus is on end-to-end encryption, which adds a layer of privacy for individuals and online communities when communicating online. Since its inception, the user base of the application has grown to over 200 million users with 500,000 new users joining each day.

Due to the regulatory grey area that the cryptocurrency markets and initial coin offerings find themselves, many blockchain projects are resorting to the use of the encrypted messaging app to communicate with their communities and investors. Hence, Telegram has grown in tremendous popularity among the cryptocurrency community over the last few years.

The Telegram Open Network ICO

While Telegram is yet to officially release the terms of its token sale, its whitepaper, its promotional video, as well as other details have already been leaked online.

Telegram aims to raise money to build the Telegram Open Network (TON), which will be a blockchain-powered platform that will incorporate online communications, payments, smart contracts, and decentralized applications built as a scalable solution using a Proof-of-Stake consumes mechanism.

TON aims to create a “third generation” blockchain that will not be plagued by the scalability issues that the likes of Bitcoin and Ethereum are increasingly facing by developing a multi-blockchain architecture that allows for the creation of new blockchains within the network as well as instant off-chain transactions. The TON plans to combine speed and scalability with an intuitive user interface and an already existing user base.

More specifically, the TON blockchain will use sharding, which will allow it to automatically split and merge to accommodate changes in load. This, in turn, will keep transaction costs low even during times of high blockchain usage. Additionally, the TON platform’s planned hypercube routing mechanisms will enable transactions to be processed quickly even as the blockchain network grows to a substantial size. Also, the TON blockchain will use proof-of-stake as a consensus mechanism, which also helps scalability as no miners are required to run the network. Finally, the platform will also use 2-D distributed ledgers, which will allow the network to grow new valid blocks on top of existing validated blocks. This mechanism will save resources and guarantees that correct transactions will not be discarded.

According to its leaked whitepaper, “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 TON platform will include distributed data storage, the integration of third-party decentralized applications, payments, a DNS service and a proxy service to enhance user privacy on the network.

On the topic of token distribution, the whitepaper states: “Four percent of the supply (200 million Grams) will be reserved for the development team with a 4-year vesting period. During the initial stage of active TON development, at least 52% of the entire supply will be retained by the TON Reserve to protect the nascent cryptocurrency from speculative trading and to maintain flexibility at the early stages of the evolution of the system.” The remaining 44% will be sold to investors.

“The price of the first token will be 0.1 USD and then each successive token will be priced one billionth higher than the previous one. As a result, the additional supply coming from the TON Reserve will always be more expensive than the price paid by any of the existing buyers. This structure should allow the market to define the fair price and volume for the token sale,” the whitepaper adds.

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