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TON: Story, investors, GRAM token and TON blockchain overview
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May 01  |  14 min read

TON: the Blockchain to End All Blockchains

The COIN360 Editorial Team

With over 200 million active monthly users, Telegram is currently one of the world's largest messaging platforms. The recent privacy scandals and brief outage involving Whatsapp's parent company, Facebook, have only pushed more users to switch over to the Durov brothers' alternative.

But the Durovs' plans for the app go far beyond messaging. The hype surrounding the Telegram Open Network (TON)—a blockchain set to launch before October of 2019 is over—and its native cryptocurrency, the GRAM—which sold $1.7 billion in history's highest grossing ICO—is reaching a boiling point.

What's the story and controversy behind TON and GRAM? What predictions are there for GRAM's price? At what stage is its development, and what can we realistically expect?

Behind TON: VKontakte and Telegram

The Telegram Open Network (TON) is a project built upon the momentum of Telegram messaging app. The Russian rival to Whatsapp launched in August 2013 and was financed entirely by the $300 million and 2,000 BTC that Pavel Durov earned by selling his last 12% stake in VKontakte — Europe's biggest homegrown network, founded by Durov himself, which amassed 240 million users and was valued at $4B by December 2013.

Telegram's success has been attributed to its free-of-charge, ads-free policy, as much as to its hard emphasis on privacy — specifically because this last characteristic resonated so well with the crypto community.

Pavel Durov, CEO of Telegram

Pavel Durov at TechCrunch Disrupt in 2015.

Telegram in Numbers

In March 2018, Telegram claimed to have reached 200 million active monthly users and a daily average of around 700,000 new users (Investopedia.com). On Mar. 14, 2019, Durov wrote through his Telegram channel that “3 million new users (had) signed up for Telegram within the last 24 hours” (sources have concluded this surge may have been a direct result of Facebook and Instagram's downtime on Mar. 13) (TechCrunch).

Telegram’s Philosophy of Privacy

The organization's image builds upon Pavel Durov's reputation as the defender of absolute and uncompromising privacy. This principle applies to user-to-user experience—with secret chats (not uploaded to the cloud), self-destructing messages, and, as of Mar. 24 2019, an "unsend" option that allows users to delete any message ever sent, both from their device as well as the receiver's—and to users’ privacy against governments and third parties; the app was allegedly blocked in China, Oman, Pakistan and Iran (besides Russia) because the team refused to cooperate when these governments requested encryption keys and user data.

Pavel Durov on sharing private data with governments

Pavel Durov shows his commitment to user privacy on Twitter in 2017.

TON and GRAM

The Telegram Open Network (TON) is the brainchild of Nikolai Durov. TON’s existence as a project has been explained as both a consequence of Telegram's popularity among crypto holders and its possible need for more funding—the VKontakte money can only last so long (opinions here).

To illustrate the first point, a 2015 survey by GlobalWebIndex.net asked IM platform users in the UK and the US how interested they would be in seeing money transfer features in their platform of choice. It was Telegram users by far who seem keenest to access digital money transactions through their messaging service.

Global Web Index: Interest in money transfer features

The Global Web Index found that Telegram users were the most interested in money transfer features.

GRAM: ICO, Investors, and Price Speculation

The TON blockchain’s native token is the GRAM. According to the TON primer, of the 5 billion GRAMs minted, 4% were reserved for the Telegram team (with a four-year vesting period), 44% were sold during the ICO, and 52% were retained by the TON Reserve to protect GRAM from speculative trading and to maintain flexibility. The document also stated that the Durovs’ control of the project will shift to a non-profit foundation by 2021.

The TON ICO actually consisted of two consecutive rounds in February and March of 2018. Telegram had originally expected a record breaking $1.2 billion to come in — but the results exceeded all expectations.

Highest Grossing ICO Ever
Telegram raised $850 million from 81 investors through its ICO in February 2018, and doubled that amount the following month with the contribution of 94 more investors despite the token's price more than tripling for the second round (from $ 0.38 to $ 1.33 per GRAM). The grand total of $1.7 billion makes TON the highest grossing crypto project in ICO history.

During the first round, Vedomosti reported that an unnamed venture firm got word of TON investors already planning to offer their pre-sale purchased tokens at a 20% to 30% premium to would-be investors once the ICO was over.

Telegram used Simple Agreements for Futures Tokens (SAFTs), a form which allows developers to raise money from accredited investors before a functioning network is built, in order to circumvent securities laws. The GRAMs would be delivered to SAFT investors at a later date, after which they could sell the tokens to consumers.

TON’s Strict Requisites for Participation
Participation in the TON ICO was no piece of cake. Besides a strict KYC process, and a fiat-only policy in order to avoid problems with the SEC, there were minimum limits on investments and nationality-based bans.

The minimum limit for the first round allegedly was $20 million for outsiders and $500,000 for “friends”, although the report filed to SEC stated that the minimum accepted investment from any outside investor was $0 for the first round and $1,000,000 for the second.

Additionally, according to the GRAM purchase agreement, would-be investors under sanctions from the United States, Britain, European Union or the UN Security Council, were banned from participating, and so were their relatives: children, spouses, parents and siblings included. Investments coming from sanctioned countries, such as Cuba, Iran, Crimea, North Korea and Syria were simply rejected.

Who Invested?
The SEC did not disclose the identities of any investors, but the Russian media outlet, Vedomosti, revealed a few: Sergei Solonin, CEO of Russian payment service provider QIWI, invested $17 million; David Yakobashvili, co-founder of dairy product company Wimm-Bill-Dann, invested $10 million; and Russian-Israeli billionaire amd politician Roman Abramovich (worth $13.1 billion), invested anywhere between $20 million and $300 million — two sources are going word against word. Jon Mann, Abramovich’s spokesperson, denied the $300 million claim (Cointelegraph).

Russian-Israeli billionaire Roman Abramovich, TON investor

Roman Abramovich, Russian-Israeli billionaire, invested in TON

It has also been reported that leading Silicon Valley investors such as Andreessen Horowitz, Union Square Ventures and Bessemer Venture Partners, opted out of this investment opportunity, while faces less familiar with crypto, including Benchmark, Sequoia Capital, Kleiner Perkins Caufield & Byers, and Yuri Milner, offered as much as $20 million in investments.

Any Word on GRAM's Price?

A post dated Feb. 6, 2019 on the Telegram news blog, Tgram.ru (read here), speculated briefly about the future price of GRAM, though the token is not yet listed on exchanges.

“A message from a private mailing list to TON investors has recently fallen into our hands,” reads the post. Among the highlights were:

  • “According to preliminary information, GRAM will initially be traded on Asian exchanges. It can be assumed that it can be Huobi, Binance, OKEx, Bitfinex”
  • “Relations with e-commerce, retail and other online services are being actively developed”
  • “The project itself sets a goal on the price of the TON token at $ 5.9 by the end of 2019”

$5.9 seems ambitious for a coin that sold for $1.33 at its best during the ICO. It is worth noting that this post had also confirmed the TON mainnet launch for March 2019, and this failed to happen. There is no security that the publication has access to the sources it claims.

About the TON Blockchain

TON is a proof-of-stake, multi-blockchain system consisting of a master chain and up to 292 accompanying blockchains. Its purpose is to integrate a digital transactions network (based on the GRAM token), a decentralized app platform, a private browser, and data storage and file-sharing into the Telegram messenger. TON promises a transaction speed comparable to that of Visa and Mastercard (that is, processing millions of transactions per second, thanks to its Hypercube Routing system), legal compliance, and the ability to "host all reasonable applications currently proposed and conceived," in the future (read the whitepaper for more info here).

The blockchain is not just a good way to secure further funding for Telegram, but an explicit plan to get the messaging app's over 200 million users to mass adopt a single cryptocurrency in a matter of weeks. The team believes the GRAM, TON's native token, could “potentially outcast Bitcoin from its pedestal as the main cryptocurrency in the world” (Ton-telegram.net).

TON's integration of blockchain technology and a file-sharing platform

TON will integrate a multi-blockchain system and an app and file-sharing platform

These are the main characteristics of the TON Blockchain:

Infinite Sharding Paradigm: TON’s scalability solution is built-in, automatic sharding support: its multiple blockchains quickly split and merge to accommodate changes in load. New blocks are generated fast, and the absence of long queues helps keep transaction costs low, no matter how many transaction requests are emitted.

Hypercube Routing: TON blockchains will use smart routing mechanisms to process transaction seamlessly across blockchains. The time needed to pass information between TON blockchains grows exponentially with the amount available, so scaling to even millions of chains will allow them all to communicate at top speed.

Proof-of-Stake: In TON, nodes (called validators) deposit stakes to guarantee their dependability and reach consensus through a variant of the Byzantine Fault Tolerant protocol. The point of this particular proof-of-stake approach is to allow TON to focus the computing power of its nodes on handling transactions and smart contracts, further increasing speed and efficiency.

2-D Distributed Ledgers: TON can «grow» new valid blocks on top of any blocks that were proven to be incorrect, voiding the need for forks. It is a self-healing mechanism, which saves resources and guarantees that valid transactions will not be discarded due to unrelated errors.

TON P2P Network: Used to access the TON blockchains. It can be reused to give a significant boost in flexibility to the platform.

TON Storage: Possibly Telegram’s response to TRON, TON Storage is “a distributed file-storage technology, accessible through the TON P2P Network and available for storing arbitrary files, with torrent-like access technology and smart contracts used to enforce availability.” The purpose is to support entire decentralized apps that may require storing large amounts of data; like Telegram.

TON Proxy: Similar to I2P and Orchid Labs, the TON Proxy an anonymizing layer used to “create decentralized VPN services and blockchain-based TOR alternatives to achieve anonymity and protect online privacy.” In theory, The TON proxy, in conjunction with the TON DNS and the TON P2P Network, make TON and Telegram immune to censorship.

TON Services: Telegram’s own decentralized browser: “A platform for third-party services of any kind that enables smartphone-like friendly interfaces for decentralized apps and smart contracts, as well as a World Wide Web-like decentralized browsing experience.” TON Services would compete against Coinbase’s Toshi marketplace, and Sirin.

TON DNS: “A service for assigning human-readable names to accounts, smart contracts, services and network nodes.” This is similar to MaidSafe and Blockstack.

TON Payments: Finally, the promise of instant payments in “a platform for micropayments (...) used for instant off-chain value transfers between users, bots, and other services (...) as secure as on-chain transactions.” It is comparable to Bitcoin’s Lightning Network.

Controversy: Is TON Viable?

As is common with ICOs, Telegram was criticized for offering an overly optimistic and suspiciously nonconcrete white paper. Nick Tomaino—Founder of the Peter Thiel backed VC firm, 1confirmation—was quoted on the Durovs’ big plans for TON by Forbes: “In my mind, (Telegram doesn’t) have the talent to do that.” The same report quoted Charles Noyes, Quant Researcher/Protocol Analyst at Pantera Capital, saying “the entire thing should have a disclaimer attached: ‘all of the technical things we said this will do are completely unproven and have not been subjected to outside scrutiny’.”

Amazingly, it is not only outside agents who claim the team, led by the Durov brothers, is unqualified to achieve a blockchain like TON: in March 2019, TON investors allegedly received a nine-page memorandum called “Certain risks associated with the purchase, sale and use of GRAM”, which stated that Telegram "may not be able to attract developers with the technical experience and competencies necessary for the successful implementation of the TON blockchain."

Is TON Secure?

TON works on the same homegrown security protocol that Telegram uses: MTProto.

In the past years, several privacy experts have put forth that MTProto's security may not be as impressive as the company claims (read more on this here and here). In 2018, Alan Woodward (board member at a cybersecurity research center at the University of Kent) voiced skepticism towards Telegram's homegrown security protocol, MTProto, and its security by obscurity. "I’ve seen no proper proofs of its security," he warned. “Unless you have considerable experience, you shouldn’t write your own crypto. No one really understands why they did that” (Forbes). Tomáš Sušánka, a student and developer at SatoshiLabs, has reported that Telegram obfuscates its traffic by re-encrypting data with a prepended key—which the Telegram Security team confirmed when asked to comment. "Its functionality is doubtful at best,” said Sušánka (Forbes).

In January 2019, the security firm, Forcepoint Labs, found a Windows-based malware that took instructions from a hacker sending commands over Telegram (full report here). This is the most recent indication of MTProto’s vulnerabilities, still present as we draw closer to TON’s launch.

Recent TON Developments

Private TON Beta Allegedly Running

On Apr. 11, 2019, Russian media outlet Vedomosti reported that Telegram has launched a private beta testing for TON, open to “a limited number of global developers”. Testers and sources are unnamed and no concrete results were provided. This would allegedly be because the blockchain’s code and smart contracts are still being tested.

No More Stalling: TON Must Launch Before Halloween 2019

The team has kept pushing the launch of TON Mainnet back, but they’re running out of time. A purchase agreement for GRAMs recently made available (download here) states Oct. 31 of 2019 as Telegram’s “Deadline Date”. If the network has not launched by then, investors’ purchase of GRAMs will be voided, and the money must be returned to investors.

On Apr. 23, 2019, Tgram’s Telegram channel joyously commented that “one of the participants in the UI design competition suggested a prototype of GRAM translations without leaving the chat.” Admins take this as a sign that the launch must be near.

Final Thoughts

The story of an overly ambitious blockchain project is one we are more than familiar with. The stakes with TON are big enough to worry TRON, another giant with a similar plan; to tap into an already established massive decentralized network (BitTorrent), install a cryptocurrency, and jumpstart its mass adoption. The Durov brothers just might accomplish this in more style than Justin Sun—after all, they built their massive network from scratch.

There is a huge “if” involved. Telegram is incredibly popular, but criticism against its quality is abundant, and there’s no certainty that TON will not inherit Telegram’s same security problems. Both platforms are built upon the Durovs’ homegrown MTProto, afterall.

After several delays with TON’s launch, and information warning investors to tread cautiously, how sure can we be that we will be amazed by the Russian brothers’ flagship project by this coming Halloween?

Thanks for reading,
The COIN360 Editorial Team