A few years ago, it would have been hard to imagine that the next big craze in the financial markets would be for digital currencies, where complex algorithms and encryption techniques are used to regulate the generation of currency and verify the transfer of funds whilst operating completely independently of a central bank or sovereign state. Notwithstanding the recent volatility of high profile crypto-currencies, there is still an appetite for digital currency offerings. A number of high profile “initial coin offerings” (ICOs), a form of crowdfunding in which firms issue digital “coins” or “tokens” in return for a payment, are expected to take place in 2018. In 2017 ICOs raked in an estimated US$3.2bn, rivalling the money flowing to internet start-ups from early-stage venture capital.
One of the most talked about upcoming ICOs is that of Telegram, a popular instant messaging application with a vision to become the standard for digital payments worldwide. If you believe the founders, in a few years millions of people will use Telegram to make instant payments to friends across the globe or in a digital marketplace. However, unlike existing services such as those offered by WeChat, payments via Telegram will be backed by a crypto-currency, the Gram. Grams will also become a way for people to pay to store, share and view data securely and away from state intrusion on a single (yet to build) platform called “The Open Network”.
Telegram is currently involved in a “presale” round to institutional investors, with a wider sale of Grams to retail investors expected in a few weeks. While numbers are not clear at this stage, initial reports suggest the offering could raise as much as US$1.2bn, with unconfirmed reports that Telegram has already raised US$850 million. This would make it by far the world’s largest ICO.
Objectively Telegram has a number of advantages over its competitors. Its encrypted messenger app is already globally popular, and particularly so with the “crypto crowd”. With nearly 200 million existing users, the firm is well placed to try to bring virtual money to the masses.
However, like all firms on the cutting-edge of technology Telegram’s future is not without uncertainty. Setting aside the obvious technical challenges faced with digital currencies including how Telegram will develop a means to process millions of transactions in seconds as envisioned, there are emerging regulatory issues. While the complexity of digital currency and blockchain technology resulted in relatively light touch legislation in its early years, crypto-currencies in general are now attracting far more attention from regulators.
The SEC recently halted a US$600m ICO by AriseBank alleging investor fraud, regulators in South Korea have cracked down on crypto-currency forex deals and Gibraltar has recently introduced regulations around ICOs. It is also expected that the global regulatory framework for crypto-currencies will be discussed at the upcoming G20 summit, with an aim of developing consistent rules to protect investors and preventing illegal activities such as money-laundering and the funding of terrorist groups. This is a legitimate and growing concern facing both digital currency and encrypted messaging providers.
Despite the challenges, clearly some providers still have ambitious plans for the future of digital currencies. While this author couldn’t provide you with an opinion as to where the market will go in 2018, it’s an area you should keep an eye on when looking to the future.
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