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Telegram, Facebook, and the furious fight over the future of cryptocurrency

It’s not just two companies trying to beat each other to launch. It’s about two competing visions for how we will send and receive money online.

Telegram, Facebook, and the furious fight over the future of cryptocurrency

[Photos: sayhmog/iStock; Mathew Schwartz/Unsplash]

BY Harry McCracken9 minute read

Cryptocurrency, and the blockchain technology that underlies it, has long promised to change the way we use money online. But after decades spent on the periphery, the revolution could finally come into the mainstream once and for all, thanks to tech company Telegram and its Gram token. Now all Telegram has to do is beat Facebook to the punch.

Telegram, the messenger app founded by underdog tech icon Pavel Durov, is in court this week over its commitment to revolutionize online transactions. His proposed blockchain platform, the Telegram Open Network (TON), was revealed in 2017 and promised to create a cryptocurrency wallet tied to the Telegram app itself. The tokens, known as Grams, would be an example of “social crypto,” a digital currency tied to a major social media platform and its user base. If successfully launched, Telegram’s 300,000 users will be able to send money to each other instantly, simplifying remittances, payments, and other transactions.

But TON caught the eye of the U.S. Securities and Exchange Commission, which successfully filed for a cease-and-desist order before TON’s launch last October pending a hearing—one that started this past Wednesday, over whether the company needed to have registered with the government body before release. The outcome will decide whether or not Durov will be able to move forward with his revolution at all.

While investors, banks, and crypto enthusiasts are keeping an eye on the proceedings, there’s another interested party involved: Facebook. The Silicon Valley giant has its own stake in social crypto as it’s seeking to launch its own token, Libra, as soon as possible. Given Facebook’s much larger user base, Libra could effectively reduce Durov’s platform to an afterthought if the SEC succeeds in delaying TON’s release.

Telegram Open Network caught the eye of the SEC.

In fact, Facebook’s approach to social crypto is diametrically opposed to Durov’s, with a focus on centralized and private (or “permissioned”) networks backed by assets controlled by the Libra Association, a Geneva-based consortium affiliated with the social network. This is in stark contrast with Telegram’s vision of a decentralized crypto ledger that exists in an ecosystem beholden only to its users, one that corresponds with how cryptocurrency has operated since its inception.

While the potential delays caused by the SEC case may seem, at least on the surface, to impact two major companies looking to beat each other to launch, it’s really about which vision will define the future of how we send and receive money online.

Trolls for freedom

TON is merely the latest of Durov’s attempts to use technology to reshape our online horizons—most of which correspond to his controversial, libertarian understanding of freedom.

Before Telegram, he founded the Russian social network Vkontakte (Russian for “in contact”), or VK, with his mathematician brother Nikolay. Launched in 2006, the site set itself apart from the pack for its file-sharing capacities, turning it into a catalogue of media ranging from harmless memes to extreme pornography. Given how the site was effectively a Facebook clone, it served as a middle finger raised at the American company as well as at the niceties of Western copyright law. Nikolay took care of back-end coding while Pavel embraced the role of an enfant terrible entrepreneur—a troll in chief, if you will.

This was in the mid-2000s, an age before Russia’s president, Vladimir Putin, asserted himself as an authoritarian force pushing laws for a sovereign internet, government surveillance, and penalties for “homosexual propaganda.” Russia was coming out of the 1990s, a decade of violent deregulation that painted the region as a Wild Wild East, where horseback entrepreneurs (often oligarchs) engaged in winner-take-all competitions. While the economic toll on the country was immense, it was conducive to the rise of young, savvy techies like Durov well into the next decade.

Facebook’s approach to social crypto is diametrically opposed to Durov’s.

That all changed with Putin’s heel turn in 2011. Returning to the presidency after having switched places with prime minister Dmitry Medvedev (himself ousted last month), Putin abandoned rapprochement with the West and forged an increasingly authoritarian path. Durov, up until then content with poking fun at Western regulatory excess, found himself asserting his libertarian preferences for freedom once more, but this time against his own government.

For his efforts he was pushed out of VK, in what he claims was a move orchestrated by official bodies and, potentially, the Russian secret services. Since then, he and Nikolay have lived in luxurious exile, dividing time between Berlin and Dubai with the help of passports from St. Kitts and Nevis, a nation that combines authoritarian social tendencies with the opportunity for entrepreneurs to buy citizenship.

While abroad he founded the successful Telegram messenger, with encryption tools that have been used by civil activists and terrorists alike. This attracted the attention of countries like Iran and Russia, the latter of which attempted to block the app after Durov refused to hand over the keys or build a backdoor. The move was famously unsuccessful, as Telegram was so embedded in internet structures that the Kremlin’s attempts to shut it down ended up bringing with it pages from Amazon, Google, and even its own governmental services.

Telegram (and Durov himself) immediately became fashionable symbols of the Russian opposition, as well as of resistance to tyranny generally. This made strange bedfellows of libertarians and the liberal activists who held that certain regulations were key to protecting essential human rights. But with free speech successfully defended, Durov quickly moved on to the world of finance.

TON vs. Libra

TON was announced in late 2017, months after Moscow’s failed attempt to block Telegram’s messenger app, and its white pages boasted liberty from the banking systems that made it difficult to send money across borders. The Gram wallet, embedded within the messenger’s new blockchain-enhanced ecosystem, would allow transfers to be made with the ease of picking an emoji.

And investors were ready to buy into his vision. TON’s initial coin offering (ICO) raised a jaw-dropping $1.7 billion, the most successful ICO at the time. The money was a sign of trust: Durov’s investors were expecting him to change the future. Again.

But Facebook was planning its own revolution around the same time. In February 2018, a few months after Telegram’s own announcement, Facebook employee Morgan Beller was meeting with crypto experts to flesh out ideas for the token that would eventually be called Libra.

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Just as Durov’s libertarian, even trollish tendencies were built into the vision for TON and its Gram tokens, so Facebook’s Big Tech tendencies toward centralization (and even micromanagement) couldn’t help but surface in Libra. While TON would operate as a conventional, independent crypto ledger built by its users, Libra’s own blockchain would launch under the eye of the Libra Association, a consortium of 28 major financial companies including PayPal, Lyft, and eBay. Ultimate control would lie in their hands, and they would decide regulatory questions in the future.

But this was only the latest move in the ongoing beef between the two companies. VK piggybacked off of Facebook’s success and added sharing features that the American company could never have sanctioned. Durov positioned his messenger as a more secure alternative to Facebook-owned WhatsApp, which he continued to lambaste after the SEC’s complaint halted TON’s launch last October.

If Facebook was the dependable breadwinner on devices the world over, Durov’s products were the cool uncle, and when the American tech giant eventually announced Libra, it was significantly behind in the game. But it still had the major advantage of being able to bring social crypto to billions of users, which would enable the company to define the technology’s future should they be first to launch.

The road to said launch, however, has proved anything but smooth for both parties.

Major setbacks for social crypto

While both companies boast utopian visions of a revolution in fintech, each has fallen afoul of regulatory obstacles in the rush to launch.

TON has certainly had a bumpier road, with launch dates moved from late 2018 to spring 2019 to October that year, leading some to wonder if Nikolay’s programming team had what it took to deliver. Durov banked everything on the October release, a date after which he would be compelled to return investments gained from the ICO. This is when the SEC made its move.

The regulatory organization’s court order tied Durov’s hands and stopped the launch singlehandedly. While most of his investors proved loyal (or curious) enough not to pull out their funds, Durov was brought to court for a deposition in Dubai in early January. The extended hearing started this past Wednesday and has yet to yield an ambiguous winner—both sides, as it were, continue to dig in for the fight.

It would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding any further on the Libra project.”

Maxine Waters

Facebook had cause for rejoicing, but it faced its own troubles in the lead-up to Libra’s launch. Major backers from the 28-member Libra Association started backing out over regulatory and other issues, including names like Visa, Mastercard, and Stripe, among others. U.S. politicians have also declared their misgivings in light of Facebook’s ongoing scandals, with California representative Maxine Waters having declared, “I have come to the conclusion that it would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding any further on the Libra project.” Libra doesn’t face the same legal troubles as Gram, but these setbacks prove an existential threat nonetheless.

And while Durov continues to keep head above water, winning a case before his deposition against an SEC request for financial disclosures, he was still compelled in early January to release a statement—the first to officially recognize the crisis—in which he declared that the wallet feature would not be attached to the messenger at launch. This condition is tentative only as long as the hearing goes on, but it has the potential to undo the main innovation he proposed in the first place. The SEC has since sought to undermine the legitimacy of the $1.7 billion ICO on which the company depends.

But hope isn’t lost for TON, even if Telegram finds its hands increasingly tied. Last weekend, a group of supporters (including investors and Telegram staff) formed the TON Community Foundation, an independent body aiming to implement elements of TON’s functionality should Telegram itself prove legally unable. The company released a new version of its white papers, which further asserts its independence from the platform and enables other bodies to continue the work.

This kind of flexibility is the antithesis of Facebook’s own approach, and may in the end be what allows TON to cross the finish line before Libra. In an age when Big Tech is becoming increasingly bloated (and bogged down in questions of privacy, digital sovereignty, and data responsibility), it may be that the smaller, more agile, even trollier companies have what it takes to define the future of revolutions like social crypto. If so, 2020 could be the year that fintech changes for good, and this month’s TON hearing may define who exactly will be allowed to shape the future.

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ABOUT THE AUTHOR

Harry McCracken is the global technology editor for Fast Company, based in San Francisco. In past lives, he was editor at large for Time magazine, founder and editor of Technologizer, and editor of PC World More


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