February 08, 2018
Jason D. Rowley is a venture capital and technology reporter based in Chicago.
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Blockchain, smart contracts, tokens, cryptocurrencies, and other forms of magical internet money are the hot topic of conversation in most tech circles these days. If you’re not reading about cryptocurrency in the news, or overhearing entrepreneurs pitch their ICOs in corner coffee shops, you may be chatting about them with friends and strangers on a messaging app.

You wouldn’t be alone, either. Cryptocurrency speculators, putative entrepreneurs hawking digital tokens, newly-minted enthusiasts, and the merely curious have flocked to messaging apps to chat about blockchain. And where the community chats about crypto, tokens miraculously appear to follow.

It’s a convergence that has caught our attention, and with help of experts, is worthy of an investigation.

The Curious Convergence Of Crypto & Chat Apps

Many of the world’s largest messaging platforms—the Whatsapps, iMessages, and Facebook Messengers of the world—haven’t made serious moves into the cryptocurrency space. Another tier-one messaging platform, WeChat, which has nearly a billion monthly active users primarily located in China, has cracked down on cryptocurrency trading groups as a consequence of Chinese government regulations.

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But some second-tier messaging platforms seem to embrace cryptocurrencies and the active, if somewhat hurly burly, communities around them. In this section, we briefly review cryptocurrency adoption by these platform providers.

Kik: An Early ICO

Kik, the Canadian mobile messaging company, was among the first VC-backed tech companies to raise money in an ICO. Before its ICO, Kik raised over $120 million in venture funding. In May 2017, Kik CEO Ted Livingston announced that the messaging platform would launch Kin, a token and medium of exchange for Kik users.

In August 2017, Kik raised 168,732 ETH in an ICO, then valued at around $48 million, plus an additional $50 million raised in a presale for three blockchain-focused venture funds: Polychain Capital, Pantera Capital, and Blockchain Capital. Although Kik raised a total of $98 million in its ICO, it fell short of its original goal of $125 million. Like many ICO’d tokens, Kin is an ERC20 token riding on the Ethereum blockchain.

Kin was issued at a price of $0.0001 USD apiece or 0.00000043 ETH. According to data from Coinmarketcap, at time of writing, Kin trades at 0.00000037, down fourteen percent from its issue price. Its USD-denominated price of $0.000309 may be more than three times higher, but that’s mostly due to ETH price appreciation.

Telegram: A Central Hub

These days, Telegram is in the news for a number of reasons, not all of which are positive.

Telegram is in the middle of raising one of the largest ICOs to date to fund the development of the Telegram Open Network (TON), a decentralized blockchain protocol and token for its 180 million users. It’s a little unclear just how much Telegram intends to raise through the offering. Crunchbase News has reported that the size of the offering ranges from $1.2 billion to as much as $5 billion. Investors like Kleiner Perkins and Sequoia are reported to be investing in the presale earmarked for investors.

In an update to previous reporting, Crunchbase News has learned Telegram aims to raise “around $2 billion, but that number keeps on changing,” according to a party involved in the transaction.

Telegram is also the primary messaging platform for organizing and hyping ICOs, some of which are legitimate (insofar as any ICO is legitimate), although many are blatant scams. As BuzzFeed News reported recently, Telegram is also home to many “pump and dump” groups. Members of these groups coordinate mass buys of thinly-traded tokens to boost the price only to sell these newly-inflated tokens as other market participants—who aren’t in on the scheme—unwittingly buy into tokens that appear to be gaining market traction.

Through the app, we reached out to Telegram’s press contact for comment. Despite being able to see that Telegram’s press read the message, Crunchbase News hasn’t received a reply.

Line & Kakao: Large Exchanges Emerge Alongside Messaging Apps

LINE Corporation, makers of the LINE messaging service popular in Japan, announced the formation of a new corporate subsidiary last week. According to the statement, LINE Financial Corporation (also known as LINE Financial) will be used “as a base” as its corporate parent makes “preparations to provide a variety of financial services, including a place to exchange and transact virtual currencies, loans, and insurance—all from the LINE app.” When the exchange service and other financial products will launch to LINE’s 200 million users is to be determined.

Joseph Young, a cryptocurrency analyst and writer, suggested on Twitter that LINE’s plan to launch a cryptocurrency exchange is a sign of growing competition in the space. Young posits that LINE’s announcement was a direct response to a South Korean competitor, a chat app called Kakao, which launched a cryptocurrency exchange called UpBit in partnership with U.S.-based exchange provider Bittrex LLC.

Blockchain-Native And Blockchain-Adjacent Messaging Protocols

In addition to these more centralized platforms that are just now dipping toes into choppy cryptocurrency markets, there are a number of blockchain-native and blockchain-adjacent messaging protocols. Privacy and peer-to-peer commerce appear to be the most common themes in the space.

Here’s the list:

  • Matrix is a decentralized communication protocol based on technology that’s “quite closely related” to blockchain but better optimized for real-time communications, Matthew Hodgson, Matrix’s founder, told Crunchbase News.
  • Whisper and PSS (Postal Service over Swarm) are two systems built on the Ethereum blockchain.
  • Dust, a decentralized chat app backed by Mark Cuban, launched the Mercury Protocol, also built on the Ethereum blockchain.
  • Air and Gliph are two peer-to-peer commerce platforms that use blockchain technology for transaction systems.
  • Sensay is an “AI-powered platform for chatbots” that recently announced a token to reward humans for content they contribute online.
  • Hush Messenger offers end-to-end encrypted messaging platform built on the zCash protocol.

Trends Of A Feather Come Together

So why are so many messaging platforms flocking to blockchain tech, and seemingly all at the same time?

We put that question to a number of people at organizations on all sides of this issue. Here’s who we heard back from:

  • Chris Coyne, cofounder of SparkNotes, OkCupid, and, most recently, Keybase. Keybase builds secure, end-to-end encrypted individual and team messaging services, an encrypted filesystem, and other cryptography software. Apart from a bitcoin brain wallet generator called Warp, Keybase doesn’t currently offer blockchain-based products or services.
  • Matthew Hodgson of Matrix, a decentralized communication platform. Matrix does not have a token, nor does it use blockchain-based payments in its platform.
  • A Kik spokesperson.

Through them, we identified a few key trends that drive the adoption of cryptocurrencies and blockchain technology by chat applications.

A New Business Model

The ICO/token offering craze made it clear that, with a bit of PR, projects could raise a lot of money

Launching cryptocurrencies gives chat platform providers a way to build an economy, or at least facilitate economic transactions, inside their services. This creates a new business model, a way to fund development, and another vector for growth.

Matthew Hodgson explained that the reason why many chat platforms are launching tokens is because “it gives a way to monetise… as well as a way to reward users on the platform with tokens.” He also mentioned that attaching a financial value to tokens and requiring tokens to use the app “has potential to limit spam by requiring users to spend some funds before they speak to other users.”

Chris Coyne said that tokens offer a path to “easy fundraising.”

“The ICO/token offering craze made it clear that, with a bit of PR, projects could raise a lot of money,” Coyne told Crunchbase News. “A lot of hogwash promises have raised tens of millions of dollars. It’s no surprise messaging apps have jumped on this.”

Differentiation From Incumbents

A sea of sameness

In a mobile messaging market where some of the most significant players are eschewing cryptocurrency and blockchain technology, chat app makers on the lower rung of the MAU ladder see blockchain and cryptocurrency as a way to differentiate themselves.

Kik’s spokesperson said that the platform strived to innovate in the messaging space since the company’s launch, but “it is becoming increasingly difficult for companies in our space to continue to differentiate through innovation.” They explained that “intense competition and commoditization of product features and experiences” has created a somewhat stagnant market, which she colorfully characterized as “a sea of sameness.”

“The blockchain and related technologies [presented] an opportunity to create a fair and open ecosystem that preferences diverse participation and innovation,” said the spokesperson.

Kik completed its Kin ICO in the late summer of 2017 and rolled out the Kin product in December. A Kin Foundation blog post from mid-January 2018—roughly one month into the rollout—said that 68 percent of Kin users held their tokens, while another 32 percent chose to earn and spend them. The post reports that 18,000 transactions have occurred using Kin.

Trust In Trustless Systems

Modern messaging apps want to be secure

Blockchain technology can help a chat platform stay honest, so to speak, by removing the need for honesty. A user doesn’t need to trust a third party, like a bank or a chat platform provider, to be honest and transparent with them. Blockchains, by default, are typically transparent.

Matthew Hodgson told us that blockchain technologies “provide a decentralisation building block that can be used by chat platforms to spread freely on the internet and be run by the community rather than a centralised service.”

Chris Coyne also noted that blockchain tech helps with “transparent key lookups.” He explained that “modern messaging apps want to be secure” and that “secure conversations require trading public keys in some way.”

“Blockchain tech offers a level of transparency to show that a server isn’t lying. There are blatant lies to avoid, such as an evil server giving the wrong key for someone. And more subtle lies, such as a server lying by omission, when someone revokes a key,” Coyne explained. “Since cryptocurrencies are entirely public databases, it’s easy to see that everyone is getting the same answer for a key lookup.”

Coyne noted that Keybase works on a hybrid model that “doesn’t require running a full cryptocurrency node but achieves the same effects” as using a blockchain.

“We control writes to a database on our servers, but that database is entirely public and structured to prove all Keybase users are getting the same answers. […] If you look up someone’s keys on Keybase, you’ll see the same answer as anyone else using Keybase.”

He added that this hybrid, non-blockchain approach carries a bonus: “It’s fast.” And as Crunchbase News has covered in the past, this isn’t exactly the case with many blockchain systems.

Social Construction Of Value

There is one last trend that may be the most important. Chat platforms seem to be a natural medium for cryptocurrency transactions to take place and for communities to form.

“I believe the wallet of the future will require messaging built inside it. And the messengers of the future will allow sending money,” Coyne told Crunchbase News. “This product converge is natural, since people want to talk to the people they’re sending money to.”

The communal aspect of commerce is only part of the story, though. It’s also important to note that cryptocurrencies and other blockchain assets have financial value only because a lot of people seem to agree that they have value. So if the value of these assets is ultimately a social construct, it makes sense that, through chat platforms, people are able to construct that value socially.

The Message Is The Medium

Since shortly after the time bitcoin was released, blockchain technology has been something of a community affair. The communities that started on internet forums are now starting to move to chat applications, and many newcomers to the market don’t remember a time before they could chat about coins and tokens with friends through their phones.

A common refrain in the blockchain space is that “these are still the early days,” and insofar as that’s true, there’s no way to know how, or how quickly, the market for decentralized technologies will evolve. But there’s one thing for sure: more people are talking about it, and through messaging apps, it’s easier to do so than ever before.

Update: Attribution to the Kik spokesperson has been changed since original publication.

Illustration: Li-Anne Dias