The $2 billion crypto offering that’s dividing tech

February 15, 2018

To date, Telegram has been funded by Pavel Durov, who four years ago sold his 12 percent stake in VKontakte for reportedly around $300 million. His development team has a proven ability to build and scale large social platforms.

But creating a whole new blockchain, with all the encryption, security and infrastructure required, is an entirely different undertaking.

Because it’s decentralized, a critical component to crypto development is something called a consensus mechanism, an automated way of maintaining order and establishing and enforcing rules within a blockchain. For example, bitcoin has a consensus algorithm called “proof of work” that ensures a single version of the truth.

“The teams that will win are teams with deep historical context who have been tinkering with consensus mechanisms and scalability for several years. It’s more like science than entrepreneurship,” said Nick Tomaino, the founder of a crypto fund called 1confirmation. Of Telegram, he says, “In my mind, they don’t have the talent to do that.”

Charles Noyes of Pantera Capital is similarly skeptical — and far less polite.

In a recent blog post, Noyes, a quantitative trader, called the Telegram ICO an “opportunistic ploy” and described the project’s 132-page technical whitepaper as “essentially a wishlist of things they want to have, and how it will work assuming that their wishlist doesn’t crash and burn.”

Noyes wrote that Telegram’s approach is “incompatible with blockchain technology,” and said that as an investor, “I certainly would not put a single cent I care more than nil about losing into this.”

Despite such warnings, Telegram is having no problem raising money. Most investors who spoke to CNBC for this story said the offering is oversubscribed and could value TON at up to $5 billion.

According to a story last month in Recode, big-name venture firms including Sequoia Capital, Benchmark and Kleiner Perkins Caufield & Byers are participating in the deal. However, Andreessen Horowitz and Union Square Ventures, which made early bets in the crypto space, have taken a pass.

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