Tech

Let Telegram Try to Build a Digital Nation

This upcoming ICO aims to bring cryptocurrencies to the masses.

Pavel Durov has a vision.

Photographer: Chris Ratcliffe/Bloomberg

Messenger apps have proven that they can double as powerful payment platforms -- just look at the trillions being spent using WeChat in China. But can it work for cryptocurrencies as well? Pavel and Nikolai Durov, the brothers who founded the Telegram messenger, are about to find out. 

QuickTake Bitcoin and Blockchain

If it works, they'll end up, more or less, with a digital equivalent of an autonomous economy.

So far, all attempts to turn bitcoin and its peers into a convenient, widely accepted means of payment have failed. Long processing times and high fees make them impractical for legitimate purchases. Even if the bitcoin ecosystem, Ethereum or a newer currency solves its scaling problems, there aren't enough people using them now to attract major retailers. The Durovs' idea, which they are about to test in the biggest initial coin offering ever -- one worth $1.2 billion -- is to create a digital currency for an ecosystem that already has some 170 million users. By their estimation, it'll grow to 200 million in the first quarter of this year.

If there's an upcoming ICO to be watched, it's this one. Pavel Durov is an avowed libertarian, and his plan for Telegram Open Network reads like a blueprint for a kind of digital nation built out of the Telegram user base. 

Nikolai Durov, the technical brains behind Telegram and leading Russian social media site Vkontakte, is promising an infinitely scalable version of the blockchain, the distributed ledger that is the basis for all cryptocurrency projects. But the brothers' white paper doesn't quite explain how they'll build it, encouraging skepticism from experts like Pantera Capital's Charles Noyes. And the Durovs' secrecy and Russian roots create justifiable suspicions concerning Russian intelligence services' access to its source code and data. 1  

I'm not, however, here to dispense investment advice. Perhaps the Durovs can't deliver, and perhaps Telegram is an elaborate Kremlin plot. That doesn't make their fundamental vision any less intriguing.

Imagine a messenger app that serves as a passport to a whole semi-autonomous economy. A user is initially identified by a copy of a government-issued ID. That copy is stored in an encrypted form only accessible to its owner, yet the digital proof of identification works for all purposes within the ecosystem. As today, the community will have their own media in the form of Telegram channels, but the built-in cryptocurrency and smart contract platform will allow channel owners to sell advertising in a less ad-hoc way than they do now.

Users will be able to browse the web anonymously via a proxy built into the system. They'll also gain access to tools that instantly transfer grams -- the network's digital currency -- to fellow users and to vendors with a presence on the network, as well as for the conversion of grams into fiat currency. The whole experience, the Durovs promise, will be simple enough for non-technical folks.

All the resulting system lacks to be a fully fledged digital nation is a government (but who needs another one of those?) and a social safety net (though a voluntary one would be easy to add on). With its own identification and monetary systems, its own media, as well as more "citizens" than most countries, it could, at least in theory, quickly attract enough economic agents to become a big economy. 

To be sure, simply betting that a large user base will want to use a messaging system for payments is not necessarily a smart idea. It works in China but not the U.S.: Only a small percentage of Americans regularly avail themselves of the money transfer and payment features built into Facebook Messenger. In the Western world, traditional payments and banking are so ingrained into everyday life that there's not much need for alternatives.

Telegram, however, wants to go a step further than WeChat or Facebook. Because the future system's users would be anonymous to the outside world, Telegram would immediately become attractive to people who don't want their payments traced by the taxman or by companies who sell data to advertisers. There's a risk of a regulatory crackdown, but given how cautiously regulators have proceeded on cryptocurrencies, it doesn't seem like an immediate danger.

While it would be wrong to assume that Telegram users will immediately embrace the Durovs' plan -- they may just want a handy messenger, after all -- the ambition behind the plan is probably more audacious than anything we've seen since the birth of Facebook. It might run into numerous technical, legal and psychological obstacles, but then all blockchain projects are inherently risky because both the technology and its applications are developing so quickly. Arrogantly or presciently, the Durovs never built any monetization opportunities into Telegram. The ICO would give them enough cash to pursue their vision; it would be a shame if they didn't get a chance to try it. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
  1. The messenger's core team may be based in Dubai, but a former employee claimed during a recent court battle with the Durov that part of the development was being done in St. Petersburg, Russia -- something the brothers have denied.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Mike Nizza at mnizza3@bloomberg.net

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