Why multimillionaire Pavel Durov wants to mint his own cryptocurrency

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.