Social network Telegram is abandoning its plans to launch a new blockchain, the firm announced yesterday in a blogpost from its chief executive, Pavel Durov.
Together with the recent decision by Facebook-backed Libra to scale back its plans for a global currency, the move signals an end to the most aggressive attempts to build digital money systems on top of social networks.
Messaging app Telegram, which has over 400 million users worldwide, was launched in 2013 by the Durov brothers, who had set up VKontakte, a Russian version of Facebook, in 2006.
In January 2018, during the Initial Coin Offering (ICO) boom, Telegram raised $1.8bn to build its own blockchain, called the ‘Telegram Open Network’ or ‘TON’, which would use a native digital token, called Gram.
However, in October 2019, the US securities regulator, the Securities and Exchange Commission (SEC) filed an injunction against Telegram, alleging that Telegram and TON had breached US securities law by including US entities in the 2018 Gram sale and by failing to register the offers and sales of Grams, which it sees as securities.
“The Court’s decision may have a substantial effect on the token industry”
On March 24, US district judge Kevin Castel granted the SEC its injunction, finding that the US regulator was likely to succeed in proving that Telegram and TON had engaged in an unregistered offering of securities, breaching US law.
“The Court’s decision may have a substantial effect on the token industry because of its focus on ‘economic reality’ in piercing through contractual representations and warranties in deciding whether a token sale should be regulated under the securities laws,” US law firm Greenberg Traurig wrote last month.
On April 30, after announcing a second delay to its launch plans, Telegram said it was offering investors in TON a chance to receive 72 percent of their stakes back immediately, or 110 percent of their initial investment if they waited until April 2021.
“We are still dependent on the US when it comes to finance and technology”
However, in his May 12 blogpost announcing the cancellation of the TON project, Telegram’s CEO made no mention of reimbursing investors.
Durov, however, aimed pointed comments at what he sees at US hegemony over the global finance and technology industry.
“Sadly, the US judge is right about one thing: we, the people outside the US, can vote for our presidents and elect our parliaments, but we are still dependent on the United States when it comes to finance and technology,” Durov said.
“The US can use its control over the dollar and the global financial system to shut down any bank or bank account in the world. It can use its control over Apple and Google to remove apps from the App Store and Google Play. So yes, it is true that other countries do not have full sovereignty over what to allow on their territory. Unfortunately, we—the 96% of the world’s population living elsewhere—are dependent on decision makers elected by the 4% living in the US,” Durov said.
The US exercises de facto control over global money flows via the fact that any US dollar transactions have to be cleared in New York in the accounts of the Federal Reserve, the US central bank.
Durov has also accused Facebook-owned WhatsApp of being used as a Trojan horse by governments to spy on users’ content, including the photos kept on their phones.
“We hope that you succeed where we have failed”
In August last year, the outgoing governor of the Bank of England, Mark Carney, also attacked what he saw as the destabilising effect of US monetary dominance.
In a speech to the 2019 Jackson Hole symposium, Carney blamed the outsized role of the US dollar for rising international tensions.
The dollar is the unit of account in invoices worth five times more than the US’s share in world goods imports, said Carney, and three times the country’s share in world exports.
“The growing asymmetry at the heart of the international monetary and financial system is putting the global economy under increasing strain,” Carney said.
While Carney called for the introduction of a new multipolar currency system, based on a basket of currencies issued by participating countries, Telegram’s chief executive yesterday sought to draw the battle over money and technology in broader, political terms.
“I want to conclude this post by wishing luck to all those striving for decentralization, balance and equality in the world. You are fighting the right battle. This battle may well be the most important battle of our generation. We hope that you succeed where we have failed,” Durov said.
Keep up with New Money Review content: sign up here for our newsletter
Click here for a full list of episodes of the New Money Review podcast: the future of money in 30 minutes
