What is a Whitepaper?A whitepaper is a document that explains the purpose of a project and how it works. For a cryptocurrency, the whitepaper is a guide to its technology, features, and goals. It’s designed to introduce the project to a new audience of prospective users and investors.
Cryptocurrency whitepapers are normally written in an academic format with technical information, statistics, and diagrams. Founders of a new cryptocurrency publish the whitepaper before launch to generate interest, especially if they plan on holding an initial coin offering (ICO) for fundraising purposes.
It’s important to clarify that there are no rules about what constitutes a whitepaper. Having a whitepaper doesn’t mean a cryptocurrency is a quality project. The team behind a project can write the whitepaper in any style they want. They’re not always detailed — or even useful, as anyone who has read the whitepaper for a meme coin can tell you.
What does a Whitepaper include?Crypto whitepapers are packed full of information and are often around 25 pages long. But what do they typically include? We’ll give you the lowdown:
- The problem and solution – this section is where the project is introduced, including the problem it intends to solve and how it will achieve this. The solution provides details of the full product description, as well as a market analysis to show the exact need for the product and how it fits into the existing market.
- Token information and marketplace consideration – when starting an ICO, there’s certain information that is vital for investors to know. This includes details surrounding the new crypto tokens, such as their value, how many will be in circulation and what platform they will operate on. Whitepapers should also include how investors can redeem their tokens, as well as details on what will happen if the ICO doesn’t reach its funding targets.
- Technical description – an important part of any crypto whitepaper, this section explains the technical aspects and the technology behind the project.
- Project timeline – this outlines a working plan for the next few months, including what will happen, when sales will start and when the token will be launched.
- Team and advisors – this introduces the founders, employees and advisors behind the project. Much like the technical aspects, this is also a crucial factor as it provides important information on the team’s skills and experience and its relevancy to the project.
How to read a crypto Whitepaper?These are the Key elements that you should look for when reading Whitepaper:
1. What does the project do?The critical section of the white paper reveals the main purpose and function of a particular project.
What is the project about? Does it aim to create a platform for other developers? Or Does it help to reward artists and authors? A transparent document must, and will, answer these questions.
White papers are the face of the project. Those solid, legitimate teams behind them do their best to create clear and understandable documents. If the explanations are vague or hide behind a ton of technical jargon, treat this as a red flag that the project does not have a specific aim and probably has no real value or purpose.
2. What problem does it aim to solve?To build on this, the crypto project must clearly explain why it has been created. What problem does it solve? And most importantly, is it a real problem, or a fabrication? It might sound crazy, but numerous projects are created just for the sake of creation. They solve problems that do not exist or are so niche that they affect only a handful of people.
Next, look for the answer as to why the problem is relevant now. Search for the broader situation or global trend that has generated the urgency to find a solution right now. Check the arguments carefully to understand the real scope of the problem. Do your research and use other resources if needed.
3. How does this project solve the problem?When the problem is stated clearly, what should follow is the answer of HOW exactly the project aims to solve it. This section is typically more technical as it explains how the technology behind the project could help to achieve its primary goals.
This segment should also justify why exactly the project needs to be built on blockchain. Does creating an expensive decentralized technology really benefit the project? In what way? Not all solutions require blockchain. Some may only use it as a trendy technology to cover up a regular (or worse, irregular) business model.
4. Token economicsDon’t be intimidated. This abracadabra of industry buzzwords explains what role tokens play in the business of a given project, and what their growth potential may be. This enables you to understand the future value of the token.
Token utilityThe more clearly defined utility features a token has, the more valuable it becomes. Many traders buy cryptos as an investment, hoping that they will increase in value. It’s usually best when the paper contains arguments that motivate them to hold tokens in their portfolio long-term. If there are no expectations related to the token, it will become a purely speculative asset, and users will drop it as soon as the price falls.
Token supplyAnother factor that is critical to the price of the token is the supply. Is it limited or infinite? Tokens with a finite supply are scarce, which eventually leads to price growth. Meanwhile, those with unlimited supply will eventually lose their value as new inflows enter the market.
Token allocationEvaluate which part of all tokens belongs to the project founders and their team. How many funds are they willing to invest to further develop their project? Be careful of projects, whose teams (founders, advisors) hold more for themselves than they spend on project development.
Token listingsKeep in mind which exchanges are listing the token. What are their trading volumes? The larger, and thus more liquid, the trading platforms, the easier it is to buy and sell tokens without huge price differences.
5. The RoadmapIn a nutshell, the roadmap is the summary of the project’s development. It reveals short and long-term plans on a timeline of when they can be expected to be achieved. This is an important feature which helps to monitor the evolution of projects and thus enables one to set realistic expectations.
6. The Team The final, crucial factor to consider is the people behind the project. Who are the founders, employees and advisors? What skills and experience do they bring to the table? Is it relevant to the project they are working on? What is their general reputation?
The crypto space is full of scammers who use fake “big names” and biographies to promote their projects. This is why it is always worth it to go the extra mile and check their LinkedIn and other social media profiles. How big is their following? How active is the community? A massive but passive following tends to indicate a fake account.
