The whitepaper is one of the things, crypto traders look out for when dealing with cryptocurrency. New projects are being released in the crypto world daily, what differentiates them is the content of their whitepapers.
The whitepaper is a solid term that business-minded people would definitely come across. Call it a business model, you are not far from it but it is more.
Today, terms like ”Cryptocurrency”, ”Bitcoins”, ”Wallet”, and ”Tokens” have formed part of our vocabulary as digital currency is becoming mainstream. The whitepaper is also on the list for those who are passionate about cryptocurrency.
In this post, we’ll learn about whitepapers and what to look out for in a crypto project’s whitepaper.
Table of Contents
What is a Whitepaper?
A whitepaper is basically a marketing tool that is used to persuade people to put their money into a specific commodity or asset. It contains all the basic information about a certain financial entity, and it basically influences decision-makers so they can go with that particular asset.
It is said to be called ‘white’ because the white color indicates that the document is available for all. This means that it could be interpreted and accessed by the public without delving into any kind of ranks or superiority filters.
In the crypto world, a whitepaper is intends to tell the investors & other interested parties about the plan of discussed cryptocurrency. An organization or individual launching a new cryptocurrency can prepare a white paper to convey all the technical, financial, and commercial information related to it comprehensively.
Crypto projects and blockchain utilize whitepaper as a marketing tool. It is what customers and investors would need to understand before putting their money into a product. For a person or organization to invest in a cryptocurrency, the first thing they do is read out a white paper.
Why Crypto Whitepaper?
Satoshi Nakamoto (pseudonymous name of Bitcoin creator) prepared the first crypto whitepaper (for Bitcoin). Bitcoin was explained as a purely peer-to-peer version of electronic payments that would enable users to initiate online payments without any financial body participation like a bank in the process.
As stated earlier, several projects has been created since then which have differences in their whitepapers. The style and contents of whitepapers can vary drastically. If you want to understand a crypto project very well, then you need to study its whitepaper.
5 Things To Look Out For In Crypto’s Whitepaper
Here are the top things to look out for in a cryptocurrency whitepaper. They are listed below in no particular order
1. Problem solving
A white paper should be to describe the problem it is solving. Blockchain has several uses which can be beneficial in the world we live in. The company launching a crypto project should be a problem solver which should be outlined in the white paper. An investor should know through the white paper if the company is solving a real problem, for a real, big-enough, and relevant market.
It must not focus on building a “decentralized” solution to the same problem other have solved centrally without any relevant additions. Some other white papers that have been produced after that of Satoshi Nakamoto were focused on solving problems of Bitcoin’s shortcomings.
You should therefore look at what the company is bringing to the table that hasn’t been tackled by existing ones.
2. Address the ”why’ and ”how” of a project
A white paper shouldn’t just be about problem-solving but why and how it intends to solve it. A great whitepaper will address the “why” and the “how” of a project.
The “why” is how you will be better than these solutions. The “how” is even more important. The best whitepapers will give details on how their solutions will outpace competitors, gain a community, and incentivize developers.
A detailed roadmap is something to look out for in this regard. Having a defined timeline on how to go about this is very important.
3. Validity of the business model
It is not enough to have the problems to be solved well-written and structured, if it is valid is a question to be answered. The model should make economical sense. If an idea already exists, not important if off- or on-chain, a new idea have to be 10x better.
Some questions to ask is which conditions does the currency appreciate in value and why? What are the underlying drivers and do I fully profit from it or are there any constraining conditions?
You’ll also need to do research about existing business models to know if the one on your table is valid.
4. Role the project is playing in the blockchain
If there is a need for the blockchain in the project, then you need to know the role it is playing. You have to check if it is delivering a key building block of the blockchain / tokenization ecosystem that we know is missing.
You have to know if it has room for more players and massive growth. You need to know if its a new revolutionary protocol with some following, or a tokenized business which has a unique edge in the market because of the use of the blockchain or the smart use of a token economy.
If the basics are not there, then the project doesn’t worth it.
5. What are the long and short term motivations for all stakeholders?
There should be an alignment of interest in the whitepaper. Investors should consider the long and short term motivation for all stakeholders.
Are the interests of the founders and advisers in parallel with the large investors and are they in line with the users of the platform, protocol or service? Are the issuers offering discounts or bonuses? Are they transparent about this and are they putting in vesting or lockout periods?
All these should be look out for while reading out a cryptocurrency whitepaper.
Other things to look out for in the white paper is the project’s utility token as regards investment. The team of developers involved in the project is also as important as other points.
Ultimately, reading a cryptocurrency white paper is about knowing what to look for and then trusting your gut. White papers come from companies that haven’t even launched yet, so there are bound to be a lot of unknowns. If you decide to invest in a project, then follow sound investment philosophy and don’t invest more than you can afford to lose.