Why multimillionaire Pavel Durov wants to mint his own cryptocurrency
Pavel Durov is the multimillionaire founder of controversial messaging service Telegram. Now the mysterious Russian entrepreneur wants to mint his own cryptocurrency, reports James Ashton
The Russian-born entrepreneur Pavel Durov was once caught on camera throwing paper aeroplanes out of his St Petersburg office window, carefully folded from 5,000-rouble notes. If helping one of his lieutenants give away his bonus was the outspoken libertarian’s way of showing contempt for money, he appears to have changed his tune.
Rather than frittering cash, over the coming weeks Durov is intent on gathering a huge pile of it. Telegram, the encrypted messaging platform he set up five years ago, has the world’s wealthiest internet backers scrambling to invest. But in his quest to raise $1.2 billion in two stages, Durov is not selling shares in his company. The 33-year-old, who began coding aged 10 and created his first multi-player game soon afterwards, is offering the chance to buy units of a cryptocurrency that does not yet exist.
To the uninitiated, it might sound like the equivalent of selling your best cow for a handful of magic beans but there are enough investors out there who believe Telegram is building a beanstalk to a new world. Its so-called “initial coin offering” will not be the first of its kind but it will be the biggest to date. And as Bitcoin slumps to half the price it peaked at in December because of a new advertising crackdown on Facebook, this sale is being seen as an acid test. Beyond the hype, can digital currencies that exist in cyberspace and with no regard for national borders ever rival sterling, dollars and yen — or, more likely, Visa or Mastercard?
Telegram’s leaked “primer” document, designed to whet investors’ appetites, sums up the industry’s problem. “Cryptocurrencies and other blockchain-based technologies have the potential to make the world more secure and self-governed,” it states. “However, to this day, no consensus-backed currency has been able to appeal to the mass market and reach mainstream adoption.”
That is one of the reasons the investment industry is buzzing about Telegram. It is not just launching another cryptocurrency into a vacuum: it claims 200 million monthly users and has a lofty target of reaching a billion by 2022. What if it can persuade even a small proportion to start trading with its new currency?
Durov does not stop there. The Telegram Open Network he wants to establish will offer remote file storage, anonymous browsing and micropayments for all manner of services. Such vaunting ambition for a whole new digital ecosystem rivals the scale of what Facebook and others had in mind in their early years.
And that is the second reason veteran technology funds including Benchmark, Sequoia Capital and Kleiner, Perkins, Caufield & Byers are reported to be lining up to spend $20 million a time on tokens without a clear path to getting their money back.
“I don’t think this deal should only be looked at through a cryptocurrency lens,” says George Henry, a partner at LocalGlobe, a London venture capital firm. “In my opinion, it’s primarily about the opportunity to get exposure to Telegram, which has been reluctant to take any VC money so far. It is one of the few fast-growing, independent consumer apps in the market today. It is not about whether it makes sense to invest in tokens but which projects to back.”
Buying into cryptocurrencies also offers another angle on the exciting blockchain technology which underpins them. Data that was once held as central records can be dispersed across thousands of sources that are constantly updated and supposedly more resistant to fraud. It has the potential to redraw everything from how we bank to how companies are audited.
It is no surprise that Durov is launching into this brave new world. He is often likened to Mark Zuckerberg, whose Messenger, Instagram and WhatsApp have cornered the messaging market but have done less well with payments.
At university Durov set up Russia’s answer to Facebook, VKontakte — meaning “in touch” — first of all as an online library for students. The entrepreneur, who counts Steve Jobs and Che Guevara among his heroes, allowed the platform to become a space for campaigners disaffected with President Putin to air their views. The final straw came when Durov refused to hand over to the authorities the personal details of Ukrainians who were using VKontakte.
In 2014 he resigned, having been forced out of the company where Arsenal investor Alisher Usmanov had become a prime mover.
He fled the country. He paid to become a citizen of St Kitts and Nevis but has remained on the move. He might closely guard his privacy but still found time to launch #PutinShirtlessChallenge by posing on Instagram by a pool in Bali.
From Berlin, Singapore and Dubai he has overseen Telegram’s remarkable growth and its team of 15 developers, who include his older brother Nikolai. “Not sure why some media would refer to @telegram as ‘Russia-based’,” he tweeted three weeks ago. “We have no servers, developers, companies, bank accounts or offices in that country.”
As governments wrestle with social media’s role in tracking criminals and censoring content, Durov has become a divisive figure akin to Julian Assange or Edward Snowden. Telegram was one platform on which Islamic State plotted its attack on the Bataclan.
“Telegram is one of a handful of social media platforms that operate outside of large governmental control,” says James Chappell, co-founder and chief technology officer of Digital Shadows, a cyber-security firm. “We do detect a higher than average level of criminal use on this platform compared to others.”
In her World Economic Forum address in Davos, Theresa May called for technology companies to do more to deal with harmful and illegal online activity. She singled out Telegram “because smaller platforms can quickly become home to criminals and terrorists”.
While pointing out that Telegram blocked more than 8,500 channels related to terrorism last October alone, Durov blogged that “Telegram has never yielded to pressure from officials who want us to perform political censorship. Freedom of speech is one of the values we’ve defended for the past 11 years, first in Russia, and then globally.”
Such controversy is unlikely to dampen investors’ enthusiasm. In October last year Telegram was delivering 70 billion messages a day. But its critics say annual operating costs of $70 million will have burnt a large hole in Durov’s estimated $250 million fortune from VKontakte, even though he has another $35 million of Bitcoin which he bought for $1.5 million in 2013 if the real money runs out. It could be that Telegram’s cryptocurrency sale is vital to keep it going.
The primer document — which the company has not commented on — proposes to create 500 billion tokens but put 52 per cent of them in a foundation to fund the platform. That’s fine, as long as they maintain their value.
Durov’s aim is to preserve Telegram as a not-for-profit service. The fund chiefs can take a punt on his new currency, but he won’t let anyone else take control like last time. “Even for $20 billion, it’s not for sale,” he told a Bloomberg reporter last month. “That’s a lifetime guarantee.”
Source: Evening Standard