Telegram: What’s The Noise All About?

There has been a lot of noise lately about Telegram.  When I first looked at the messaging app, it looked a lot like just another messaging platform.  Does the world really need another one of these? There are already over a dozen. Facebook Messenger leads and that is a huge competitor.  And then there is WhatsApp and WeChat.

I’m not a paid shill for Telegram. I write about things that are interesting to me and hopefully give you something to think about.  Like a lot of others, I am hearing valuation numbers for Telegram that seem ridiculous. It’s time to do some digging. So let’s get started.

The Biggest Asset: 200 Million Users

Over the course of the last 4+ years Telegram has connected 200 million users, mostly cryptocurrency owners.  This clearly has to be their core asset in placing a value on the company.

After that, there is just one question.  How much money do 200 million users generate?    Here is founder Pavel Durov’s answer:

“We believe in fast and secure messaging that is also 100% free. Telegram is not intended to bring revenue, it will never sell ads or accept outside investment. It also cannot be sold. We’re not building a “user base”, we are building a messenger for the people.”  Sounds a lot like Karl Marx.

Is Telegram’s non-profit approach any different the bitcoin or Ethereum? Not really.  What makes Telegram different from the start is the valuation.

According to several estimates, Telegram is aiming to bring in as much as $1.2 billion with its ICO.  Recently an independent analyst predicted that by 2023 Telegram could be worth $200 billion. How can a company that intends to remain 100% free generate so much value?

Telegram Whitepaper Reveals Huge Vision

Once you get a peep into Pavel Durov’s whitepaper, it becomes clear that Telegram intends to be much more than a messenger app. The fact that Telegram’s 200 million users are believed to be overwhelmingly cryptocurrency or ICO owners gives Durov the perfect target audience to aim a new cryptocurrency that he believes is a bona fide improvement over bitcoin and Ethereum.  Here are several key tidbits from the whitepaper.

Neither bitcoin or Ethereum have the capacity to replace VISA or Mastercard. The current architecture limits bitcoin transactions to a maximum of only 7 transactions per second and 15 transactions per second for Ethereum. This is insufficient speeds resulting in higher transaction costs.

Secondly, new users starting to engage with bitcoin and similar technologies often get confused when trying to buy, store, and send their coins. Launched in 2015, Telegrams API represents a important gain.

Finally, Telegram claims the market of goods and services that can be bought with cryptocurrencies is limited, and the demand for crypto-assets comes mainly from investors, not consumers.  Telegram launched a payments platform in Q2 2017 aiming to change all that.

The Vision

Telegram claim to be uniquely positioned to establish the Telegram Open Network and be the first mass-market cryptocurrency based on the following properties.

Speed and Scalability

The biggest advantage appears to be the TON use of multi-blockchain architecture that allows for processing millions of transactions per second.  This is still a long way from Visa and MasterCard at over 150 million transactions per day, but a major step forward nevertheless.

Intuitive User Interfaces

Any first time user will attest to the fact that dealing with exchanges, wallets and other crypto data sources can be daunting.  Telegram believes they can change that.

A Captive User Base

Over 200 million existing users already place Telegram among the five largest messaging services.  That is as many customers as PayPal. According to Forbes, Telegram is the cryptocurrency world’s preferred messaging app.

Promising A Giant Step Forward

We can pretty much agree there are three major issues crypto investors are concerned with: regulation, transaction speed and security.  The TON addresses processing speed and like everyone Telegram claims to have the security question answered. With no disparaging intended, only time will tell.

Business Plan Or Wish List

There have been enough ICOs sporting flashy whitepapers filled with globally disruptive technologies not to mention ecosystems to follow, that Telegram’s whitepaper really isn’t much different.  

The question that is stumping the investment world is: what is Telegram worth? Various estimates have placed a value of as much as $200 billion by 2023. If Metcalfe’s Law is applied, the value in five years could go even higher.

But those interested in the ICO want to know how much is Telegram worth today.  Even though you are not buying equity, you still need to know the probabilities of Telegram achieving its goals and being worth far more in the next few years.  

Telegram’s road map is laid out below.  I am in agreement with Bloomberg News that quoted AQR Capital Management as saying Telegram’s lofty valuations require everything to go right. There is lots of technology experience and wisdom behind that statement.

I like Telegram’s audacious plan. But at some point in the future, someone will miss a deadline, there will be a platform with faster transaction speeds and lower energy consumption.  That is the time when the risk will be in your favor.

Timeline

Q2 2017  Start of the development of TON

Q1 2018  Launch of Telegram External Secure ID

Q2 2018  Launch of the Minimal Viable Test Network of TON

Q3 2018  Testing and security audits of TON

Q4 2018  Deployment of the stable version of TON

Q4 2018  Launch of Telegram Wallet

Q1 2019  Creation of TON-based economy in Telegram

Q2 2019  Launch of TON Services, TON Storage, and TON Proxy

Featured image courtesy of Shutterstock. 

Author:
James Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.