(Adds details, comment from TON Labs)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 12 (Reuters) – Messaging app Telegram has
shelved its blockchain project called Telegram Open Network
(TON) after a protracted legal battle with U.S. legal
authorities, founder Pavel Durov said in his blog posted on his
channel on Tuesday.

The blockchain project and cryptocurrency raised about $1.7
billion from investors in 2018, at the height of the initial
coin offering frenzy.

Telegram had been working for more than two years on a
blockchain platform called TON and a cryptocurrency to be named
Gram, much like bitcoin and ethereum, but with loftier goals,
Telegram said.

In October last year, the U.S. SEC sued to shut it down
because Grams, the tokens to be distributed to investors were
unregistered securities.

In March, a U.S. judge affirmed the SEC decision and ruled
that the Gram token couldn’t be distributed not only in the
United States, but also globally.

“Unfortunately, a U.S. court stopped TON from happening.
How? Imagine that several people put their money together to
build a gold mine – and to later split the gold that comes out
of it,” said Durov.

“Then a judge comes and tells the mine builders: ‘Many
people invested in the gold mine because they were looking for
profits. And they didn’t want that gold for themselves, they
wanted to sell it to other people. Because of this, you are not
allowed to give them the gold.'”

Durov pointed out that people outside the United States are
still dependent on the world’s largest economy when it comes to
finance and technology.

“Unfortunately, we – the 96% of the world’s population
living elsewhere – are dependent on decision makers elected by
the 4% living in the U.S.,” he said.

The Telegram blockchain’s developers – two brothers who
founded the widely-used encrypted messaging app Telegram –
raised funds in two private offerings to institutional investors
in 2018. In return, the developers promised that investors would
receive 2.9 billion ‘Grams,’ a new digital currency that was
slated to begin to circulate when the TON blockchain launched.

The developers spent $405 million, which they said would be
faster and more efficient than the bitcoin and ethereum
platforms, according to court documents.

“It is unfortunate that Telegram was forced to give up on
TON,” said TON Labs, tasked with creating infrastructure for the
Telegram’s TON network, in an emailed statement to Reuters.

TON Labs added it is now even “more convinced that genuine
decentralization is the only way to fast-track innovation.”
(Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)