“Long Island Iced Tea” becoming “Long Blockchain” this is not. In planning a $2 billion initial coin offering that’s meant to launch this month, messaging service Telegram isn’t just looking for a quick boost in value. If the dollar amount weren’t enough to get your attention, consider the ambition behind it: Telegram is promising investors who buy into its home-grown cryptocurrency that it will solve some of the blockchain world’s thorniest problems.
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The ICO space is already on fire, and while Telegram aims to be the richest ever, plenty of other companies have tallied nine-figure crypto fund-raising rounds, with one, called EOS, on pace to raise far more than a billion—all founded almost entirely on dreams of blockchain systems that doesn’t exist yet.
But investors’ excitement about Telegram’s offering could be more than froth. Telegram already has more than 100 million users on its encrypted messaging service. Such a clientele also makes a lot of sense for censorship-resistant applications like decentralized file storage, anonymous browsing, and cryptocurrency micropayments—all of which are appear in a leaked white paper describing the so-called Telegram Open Network (TON).
Delivering on the promises in the white paper will require solving some of the most vexing challenges facing cryptocurrencies. The blockchain holy grail is a system that runs cheaply and efficiently at a large scale while remaining truly “decentralized.” Telegram says TON will do this, but it hasn’t said how. The white paper should have a disclaimer that reads “all of the technical things we said this will do are completely unproven and have not been subject to outside scrutiny,” writes Charles Noyes, an analyst and trader at Pantera Capital, a cryptocurrency-focused investment fund.
The explanations of the system’s monetary policy and governance system also leave much to be desired, according to Christian Catalini, a professor at MIT’s Sloan School of Management and an expert in the economics of cryptocurrencies. There are no details clarifying how tokens will be distributed, how the network will make decisions and handle disagreements, and how much control the company will maintain over those processes, he says. Such issues cut to the heart of what it means to have a decentralized currency. In the case of Bitcoin, arguments over how the network should evolve led to a “hard fork” that split the blockchain in two and still threaten to tear the community apart.
The bottom line is that although Telegram’s blockchain dream may make sense at first glance, many cryptocurrency experts will be skeptical until the company clarifies how it intends to to solve some big technical and economic challenges. If the company’s fund-raising efforts come to fruition, it will at least have plenty of cash to invest in trying to figure it all out.