SOCIETY
Is Telegram’s Crypto Potential Actually Behind Pavel Durov’s Arrest?
September 18, 2024
- Yuriy Marin
Digital Media Producer and Journalist
Journalist Yuriy Marin explains why, out of all the charges the Telegram CEO is facing in France, those related to cryptography and cryptocurrencies may be the most serious.
Pavel Durov is released on bail. August 28, 2024. Source: VK
Four days after his arrest, tech entrepreneur Pavel Durov was released on bail and barred from leaving France for the next six months. Since then, his Telegram messenger has seen several functional changes.
Firstly, the “people nearby” function, having earned a bad reputation in Europe as a channel for selling drugs and facilitating sex services, was disabled.
Secondly, Durov himself announced that he intended to transform moderation on the messenger “from a point of criticism to a point of praise.” Finally, Telegram began to turn over data on individual users to the French police.
The changes somewhat address the actual charges brought against Durov. Yet the high-profile arrest, coupled with the undercover investigation that preceded it, appears to be an overreaction to an issue that is hardly otherwise making headlines in France, giving rise to a number of theories about the real reason behind Durov’s case. Among them is the desire to create a vivid example for all tech entrepreneurs, as well as the interest of French intelligence in the Russian military’s use of the messenger.
Telegram’s problems
Four of the charges levied against the Telegram’s creator – involvement in the distribution of drugs and child pornography, piracy and abetting terrorist activity – have been made in the past against almost all major online platforms at least once. As a rule, however, they have responded by over time finding an acceptable means of control over content and user activity.
According to Le Monde, Durov’s arrest was not due to violations, but to the entrepreneur’s refusal to cooperate with French authorities, which are reported to have repeatedly notified Telegram about violations. Meanwhile, the US National Center for Missing and Exploited Children (NCMEC) has repeatedly sought to engage the messenger’s leadership to combat child pornography. The leadership, however, has consistently ignored this outreach, it is reported.
Nevertheless, it cannot be said that Durov refused to cooperate with any government in principle.
Firstly, the “people nearby” function, having earned a bad reputation in Europe as a channel for selling drugs and facilitating sex services, was disabled.
Secondly, Durov himself announced that he intended to transform moderation on the messenger “from a point of criticism to a point of praise.” Finally, Telegram began to turn over data on individual users to the French police.
The changes somewhat address the actual charges brought against Durov. Yet the high-profile arrest, coupled with the undercover investigation that preceded it, appears to be an overreaction to an issue that is hardly otherwise making headlines in France, giving rise to a number of theories about the real reason behind Durov’s case. Among them is the desire to create a vivid example for all tech entrepreneurs, as well as the interest of French intelligence in the Russian military’s use of the messenger.
Telegram’s problems
Four of the charges levied against the Telegram’s creator – involvement in the distribution of drugs and child pornography, piracy and abetting terrorist activity – have been made in the past against almost all major online platforms at least once. As a rule, however, they have responded by over time finding an acceptable means of control over content and user activity.
According to Le Monde, Durov’s arrest was not due to violations, but to the entrepreneur’s refusal to cooperate with French authorities, which are reported to have repeatedly notified Telegram about violations. Meanwhile, the US National Center for Missing and Exploited Children (NCMEC) has repeatedly sought to engage the messenger’s leadership to combat child pornography. The leadership, however, has consistently ignored this outreach, it is reported.
Nevertheless, it cannot be said that Durov refused to cooperate with any government in principle.
“When it came to court decisions or fines, Telegram removed content and closed group chats where illegal activities were being coordinated.”
For example, in 2023, the Brazilian authorities went so far as to block the messenger, though the block was lifted after the company met their demands. In 2022, at the request of the German government, several Telegram channels linked to the far-right activist Attila Hildmann were closed (an arrest warrant had been issued for him, after which Hildmann fled to Turkey).
One of the most well-known cases of Telegram’s cooperation with a government took place in 2021, when so-called Smart Voting, the strategy of Russian opposition leader Alexei Navalny to coordinate voting against the Kremlin in various elections across Russia, had its bot (an automated program running in the messenger) shut down.
This was commented on by Durov himself, who attributed the decision to the blackout period before elections. The entrepreneur’s relations with the Kremlin had been seen as strained – the Russian authorities had blocked Telegram and demanded that they hand over the encryption keys, with which Russian security services could read messages even in encrypted chats.
Deserving more attention are other, much more serious charges brought against Durov in France – regarding cryptography and cryptocurrencies, which states are extremely nervous about.
Telegram Open Network (TON)
Initially, the development of Telegram was funded solely by Pavel Durov with the proceeds from selling his stake in Russia’s VKontakte social network in 2014 (about $360-480 million), as well as the company ICVA Ltd, which owned the data center where the data of VKontakte users was stored (about $16 million).
Even though Telegram’s audience grew rapidly, it remained completely free for users. In 2017, however, additional funding was needed. Durov – having gone through the shareholder conflict at VKontakte in which he was ousted – turned to cryptocurrencies, which were surging at the time (Bitcoin quotes were up 1,000 times in 2018 versus 2015). This led to the creation of the blockchain project TON (Telegram Open Network or The Open Network), along with the Gram cryptocurrency running on it.
It was expected that a cryptocurrency wallet and special applications would work on the messenger, making Gram very easy to use, like a Visa card. An initial coin offering (ICO) of Gram, meanwhile, was supposed to finance the development and data centers of Telegram and TON. Specially for this, Durov’s company organized a private sale of essentially forward contracts to preapproved investors, with a minimum check of $20 million. Investors did not receive any shares in Telegram: they were offered to buy the cryptocurrency and benefit from its subsequent growth (it was expected to rise as quickly as Bitcoin and Etherium).
The ICO proved successful: Telegram managed to raise about $1.7 billion. But in October 2019, the US Securities and Exchange Commission (SEC) intervened, demanding that Gram be banned. Legal proceedings resulted in Gram being recognized as a security subject to securities regulation, and Durov was forced to close the project and return the money to investors. A year later, Telegram started monetizing through traditional methods, selling premium subscriptions and ads in channels.
Despite the regulatory issues, the TON project was not completely scrapped. In 2021, Telegram transferred all the work in progress to a team of enthusiasts who had continued its development, while Durov announced that he no longer had anything to do with the project. Two years later, a special Wallet bot for cryptocurrency operations appeared in Telegram.
Then, in April 2024, Durov spoke at the Token2049 crypto industry conference. He announced that Telegram would introduce the ability to purchase goods and services and unveiled a partnership with Tether, which owns the most popular stablecoin (a cryptocurrency pegged to the dollar, euro or other fiat currencies). Simply put, Wallet would now allow payment in dollars, and it looked like Durov had not abandoned his idea of a crypto revolution, despite the objections of the US government.
One of the most well-known cases of Telegram’s cooperation with a government took place in 2021, when so-called Smart Voting, the strategy of Russian opposition leader Alexei Navalny to coordinate voting against the Kremlin in various elections across Russia, had its bot (an automated program running in the messenger) shut down.
This was commented on by Durov himself, who attributed the decision to the blackout period before elections. The entrepreneur’s relations with the Kremlin had been seen as strained – the Russian authorities had blocked Telegram and demanded that they hand over the encryption keys, with which Russian security services could read messages even in encrypted chats.
Deserving more attention are other, much more serious charges brought against Durov in France – regarding cryptography and cryptocurrencies, which states are extremely nervous about.
Telegram Open Network (TON)
Initially, the development of Telegram was funded solely by Pavel Durov with the proceeds from selling his stake in Russia’s VKontakte social network in 2014 (about $360-480 million), as well as the company ICVA Ltd, which owned the data center where the data of VKontakte users was stored (about $16 million).
Even though Telegram’s audience grew rapidly, it remained completely free for users. In 2017, however, additional funding was needed. Durov – having gone through the shareholder conflict at VKontakte in which he was ousted – turned to cryptocurrencies, which were surging at the time (Bitcoin quotes were up 1,000 times in 2018 versus 2015). This led to the creation of the blockchain project TON (Telegram Open Network or The Open Network), along with the Gram cryptocurrency running on it.
It was expected that a cryptocurrency wallet and special applications would work on the messenger, making Gram very easy to use, like a Visa card. An initial coin offering (ICO) of Gram, meanwhile, was supposed to finance the development and data centers of Telegram and TON. Specially for this, Durov’s company organized a private sale of essentially forward contracts to preapproved investors, with a minimum check of $20 million. Investors did not receive any shares in Telegram: they were offered to buy the cryptocurrency and benefit from its subsequent growth (it was expected to rise as quickly as Bitcoin and Etherium).
The ICO proved successful: Telegram managed to raise about $1.7 billion. But in October 2019, the US Securities and Exchange Commission (SEC) intervened, demanding that Gram be banned. Legal proceedings resulted in Gram being recognized as a security subject to securities regulation, and Durov was forced to close the project and return the money to investors. A year later, Telegram started monetizing through traditional methods, selling premium subscriptions and ads in channels.
Despite the regulatory issues, the TON project was not completely scrapped. In 2021, Telegram transferred all the work in progress to a team of enthusiasts who had continued its development, while Durov announced that he no longer had anything to do with the project. Two years later, a special Wallet bot for cryptocurrency operations appeared in Telegram.
Then, in April 2024, Durov spoke at the Token2049 crypto industry conference. He announced that Telegram would introduce the ability to purchase goods and services and unveiled a partnership with Tether, which owns the most popular stablecoin (a cryptocurrency pegged to the dollar, euro or other fiat currencies). Simply put, Wallet would now allow payment in dollars, and it looked like Durov had not abandoned his idea of a crypto revolution, despite the objections of the US government.
There have been suspicions that the arrest could have been orchestrated by American intelligence, which over the past year has carried out many such arrests around the world related to crypto-to-cash services, as well as those of so-called “mixers” (which blends the crypto of many users together to obfuscate the origins of funds).
Security services vs tech entrepreneurs
Persecution of tech entrepreneurs remains relatively rare today, though as the economic influence of internet companies grows, such cases have become more common.
Usually, the charges relate to “traditional” cybercrimes like scamming, hacking and violating intellectual property rights, but with the crypto startup boom, entrepreneurs have also been prosecuted for defrauding investors and distributing harmful content.
Facebook creator Mark Zuckerberg has been accused of negligence in handling the personal data of Facebook users, resulting in leaks and possible interference in US presidential elections. Zuckerberg, one of the wealthiest people in the country and world, was hauled in front of the US Senate, though this did not lead to his arrest.
The FBI remains the leader in combating cybercrime. It has managed to arrest the administrators of several trading platforms on the dark web (the special, non-indexed part of the internet, accessible only through anonymizing browsers), where illegal information was exchanged (stolen account databases, passwords, credit card data), including Joker’s Stash and WWH Club.
The most famous FBI operation remains the arrest of Megaupload creator Kim Dotcom, who was accused of roughly the same things as Durov: piracy, money laundering and distributing child pornography. He was arrested in a very dramatic manner at his home in New Zealand, with an assault team and helicopters.
This is not the first time that Durov has been pressured by security services: at the height of the conflict with the Russian IT holding Mail.ru Group (now called VK Group) – which at that time owned a significant stake in Durov-created VKontakte – Durov was accused in a criminal case of hitting a traffic policeman in St Petersburg.
The accusations did not concern the entrepreneur’s business directly, yet owing to their absurdity, theylooked like an attempt by the security services to put pressure on Durov – the Kremlin was trying to take control of key media resources in the country at that time, including VKontakte. Durov himself openly mocked the charges, but a year later he finally gave in to the pressure and sold his stake in the social network.
The second serious incident occurred in 2017, this time over Telegram. Roskomnadzor listed the messenger in a special registry of disseminators of information, imposing a number of obligations on it, while the Russian FSB demanded that the cryptographic keys to decrypt messages in Telegram be handed over, claiming that the messenger was used to organize terrorist attacks in St Petersburg. Durov publicly refused, after which Telegram was blocked in Russia for some time.
Security services vs tech entrepreneurs
Persecution of tech entrepreneurs remains relatively rare today, though as the economic influence of internet companies grows, such cases have become more common.
Usually, the charges relate to “traditional” cybercrimes like scamming, hacking and violating intellectual property rights, but with the crypto startup boom, entrepreneurs have also been prosecuted for defrauding investors and distributing harmful content.
Facebook creator Mark Zuckerberg has been accused of negligence in handling the personal data of Facebook users, resulting in leaks and possible interference in US presidential elections. Zuckerberg, one of the wealthiest people in the country and world, was hauled in front of the US Senate, though this did not lead to his arrest.
The FBI remains the leader in combating cybercrime. It has managed to arrest the administrators of several trading platforms on the dark web (the special, non-indexed part of the internet, accessible only through anonymizing browsers), where illegal information was exchanged (stolen account databases, passwords, credit card data), including Joker’s Stash and WWH Club.
The most famous FBI operation remains the arrest of Megaupload creator Kim Dotcom, who was accused of roughly the same things as Durov: piracy, money laundering and distributing child pornography. He was arrested in a very dramatic manner at his home in New Zealand, with an assault team and helicopters.
This is not the first time that Durov has been pressured by security services: at the height of the conflict with the Russian IT holding Mail.ru Group (now called VK Group) – which at that time owned a significant stake in Durov-created VKontakte – Durov was accused in a criminal case of hitting a traffic policeman in St Petersburg.
The accusations did not concern the entrepreneur’s business directly, yet owing to their absurdity, theylooked like an attempt by the security services to put pressure on Durov – the Kremlin was trying to take control of key media resources in the country at that time, including VKontakte. Durov himself openly mocked the charges, but a year later he finally gave in to the pressure and sold his stake in the social network.
The second serious incident occurred in 2017, this time over Telegram. Roskomnadzor listed the messenger in a special registry of disseminators of information, imposing a number of obligations on it, while the Russian FSB demanded that the cryptographic keys to decrypt messages in Telegram be handed over, claiming that the messenger was used to organize terrorist attacks in St Petersburg. Durov publicly refused, after which Telegram was blocked in Russia for some time.
Tucker Carlson's interview with Pavel Durov. Dubai, February 2024 (the full version was released in April). Source: X
In an interview with American commentator Tucker Carlson, Durov claimed that the FBI tried to recruit a Telegram employee, while following Durov’s arrest in France, it emerged that his phone had been hacked by French and UAE intelligence for surveil him.
The US government, which previously had issues with Telegram, has yet to react to the case in France, and there is no direct evidence that it was Telegram’s crypto functionality that drove Durov’s arrest.That, however, can only be completely ruled out after the details of the case come out.
In his first post after being released on bail, Durov thanked Telegram users for their support and noted that the messenger will continue to do good and protect people’s fundamental rights. To defend these principles, it is ready to leave markets that it deems incompatible with them.
The US government, which previously had issues with Telegram, has yet to react to the case in France, and there is no direct evidence that it was Telegram’s crypto functionality that drove Durov’s arrest.That, however, can only be completely ruled out after the details of the case come out.
In his first post after being released on bail, Durov thanked Telegram users for their support and noted that the messenger will continue to do good and protect people’s fundamental rights. To defend these principles, it is ready to leave markets that it deems incompatible with them.
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