Since the development of the first cryptocurrency project, the whitepaper has stood as a valuable documentation. This complex documentation is the foundation for understanding the vision, technology, and mechanics behind new digital currency or blockchain projects.
Whether you are a seasoned cryptocurrency investor or someone new to the market, knowing how to read and interpret crypto whitepapers is essential for making informed decisions.
Whitepaper is a complex documentation with sophisticated technical jargon and intricate details that can be overwhelming, especially for newcomers. But that shouldn’t stop you from finding a potentially lucrative investment opportunity. In this guide, we will dissect the structure of a typical crypto whitepaper and provide tips on how you can interpret a whitepaper effectively.
What is a White Paper?
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A white paper or whitepaper is a type of documentation introduced in politics to introduce a new policy before it becomes a law. Politicians use whitepapers as a tool for measuring the acceptance of the policy they are planning to implement.
The popularity of the term “whitepaper” proliferated and business and marketing industries started adapting it to their marketing and business documentation. By the 1900s whitepaper became one of the essential tools for marketing a business or a product and raising awareness among the general public.
Crypto Whitepapers
Bitcoin whitepaper published by the creator of Bitcoin who goes by the pseudonym “Satoshi Nakamoto” is the first cryptocurrency whitepaper. This whitepaper published in 2008 described the original plan and protocol for Bitcoin and introduced the world to a new technology known as DeFi (decentralized finance).
While originally, whitepapers were used to spread awareness about cryptocurrency/blockchain projects. It has become a marketing tool or a sales pitch to raise funds. Usually, if a whitepaper tries too hard with its colorful designs and elements to appeal to the readers rather than providing the intricate details needed, it is a marketing tool. On the other hand, if it uses a simple tone and style explaining more technical aspects, it is an informative white paper.
Typical Structure of a Whitepaper
Ideally, the purpose of a crypto whitepaper is to lay out the explanation of the project’s technical details, purpose, and how they are addressing the problem they have found. Here is the typical structure of most modern whitepapers:
Introduction
The first section of a whitepaper is usually an introduction that briefs the project’s aim and objectives. The introduction may have hook statements to raise the reader’s curiosity and grab their attention.
Purpose of the technology
Though the title can vary, whitepapers usually contain a section explaining the purpose and use case of the technology. This can be a solution to an existing problem or a game-changing novel concept for the industry.
Technical details and architecture
This is where the companies explain the technical aspects of the project. A good blockchain project will explain the working, consensus mechanism, cryptography, and other details regarding the blockchain they are introducing. If the project works on existing blockchains such as Solano, and Ethereum, then the project should explain why they chose the chain.
Token utility and distribution
One of the best ways to find out the credibility of a blockchain/cryptocurrency project is to look at token distribution or token economics (tokenomics). An informative whitepaper will explain the different utilities of the token, how the tokens are distributed, and at what price where the tokens are offered in private events.
Roadmap
A roadmap is a strategic plan that lays out the future goals and desired outcomes. Look for a whitepaper that provides a realistic and achievable roadmap instead of unattainable marketing milestones. A good whitepaper will outline plans to increase the utility and acceptance of the project rather than a timeline of exchange listings, marketing campaigns, and website updates.
The team behind the project
Anonymity is the staple of cryptocurrency. However, when reading a whitepaper, you should look for details about the project’s creators. Some might argue that the crater of Bitcoin was anonymous under the pseudonym “Satoshi Nakamoto”.
However, the person or people behind the project were active on discussion forums, engaging with other developers till the project took off. So, you should look for any information revealing the creator’s expertise in the cryptocurrency and blockchain industry.
How to Read and Interpret the Crypto White Papers?
Now that you have a good understanding of what a white paper is, let’s dive into what you should look for, when reading one and how to interpret the details:
What is the project’s purpose?
Problem addressing: Verify what problem the project is trying to solve and make sure that the whitepaper explains a plan to address the problem.
Legitimacy of the solution: Examine if the proposed technology efficiently finds a legitimate solution to the problem it is addressing.
Vagueness of the statement: If the whitepaper just brushes off the purpose section without actually explaining it clearly, you should be more careful about the project.
Are the technical details given adequate and clear?
- Blockchain technology: Analyze the advantages of the new blockchain technology that the project is launching. Or if the project is utilizing an existing blockchain technology, check why they have chosen it.
- Consensus mechanism: There are different consensus mechanisms. Understand what mechanism is used and how energy-efficient and secure the mechanism is.
- Smart contracts: The availability of smart contracts is a plus point for blockchain projects.
- Interoperability: Interoperability with other blockchains can boost the success of the project long term.
Is the tokenomics promising?
- Token distribution: Analyze the token distribution, and check if the tokens are distributed fairly and no group is allowed to take advantage.
- Total token supply: Generally speaking, scarce tokens are more likely to be more valuable in the crypto market.
- Utilities: Ideally, the tokens should have diverse and essential use cases.
- Economic models: Check if the project provides incentives or interests for holding the tokens long-term.
Is the roadmap realistic and descriptive?
- Objectives and timelines: The proposed roadmap of the project should have clear objectives and realistic timelines.
- Technology upgrades: Verify if the timeline describes a plan for technological upgrades to improve the use cases of the project.
- Partnerships or collaborations: Having partnerships or collaborations with established companies in the market can have a positive impact.
Does the team behind the project have credible expertise?
- Anonymity: If the team behind the project completely stays anonymous, you need to exercise caution.
- Experience: Ideally, the project should have team members who have prior experience being a part of other blockchain projects or other relevant experience.
- Track record: History of controversies, legal actions, and other controversies can be a red flag.
The above listed are some of the things you should answer when reading a crypto whitepaper. However, be aware that, even if everything checks out and the project seems like it has legs to run, it doesn’t mean that the project can be a hundred per cent success.
So, prepare contingency plans before investing in a cryptocurrency/blockchain project. Especially, if the project is not already established.
Common Red Flags of a Whitepaper
When reading a whitepaper, you can look for the below common mistakes found in poorly written whitepapers to stay away from potential scams:
- Typos and grammatical errors: While one or two errors can be ignored, spelling mistakes and grammatical errors throughout the article can question the quality of the project.
- Vague and unexplained details: If the whitepaper tries to confuse the readers with vague statements rather than giving a straightforward explanation, it is a red flag.
- Lack of sufficient technical details: It suggests that the developers may not possess the technical knowledge needed for the development of the project.
- Copied or plagiarised content: Originality and uniqueness are the staples of a good whitepaper and blockchain projects.
- Unverifiable claims: While it is not a dealbreaker in itself if the whitepaper is filled with unrealistic and unverifiable claims, you should be wary of the project.
- Incomplete sections: Projects that have something to hide, will leave certain sections such as token distributions incomplete.
- Overly advertising: In the modern day, one of the major objectives of publishing a whitepaper is to attract investors. However, it is a red flag if the white paper becomes overly advertising rather than being technical.
- Typos and grammatical errors: While one or two errors can be ignored, spelling mistakes and grammatical errors throughout the article can question the quality of the project.
- Vague and unexplained details: If the whitepaper tries to confuse the readers with vague statements rather than giving a straightforward explanation, it is a red flag.
- Lack of sufficient technical details: It suggests that the developers may not possess the technical knowledge needed for the development of the project.
- Copied or plagiarised content: Originality and uniqueness are the staples of a good whitepaper and blockchain projects.
- Unverifiable claims: While it is not a dealbreaker in itself if the whitepaper is filled with unrealistic and unverifiable claims, you should be wary of the project.
- Incomplete sections: Projects that have something to hide, will leave certain sections such as token distributions incomplete.
- Overly advertising: In the modern day, one of the major objectives of publishing a whitepaper is to attract investors. However, it is a red flag if the white paper becomes overly advertising rather than being technical.
Also Read: How To Spot And Avoid Cryptocurrency Scams?
Examples of Good and Poor Whitepapers
You can further improve your whitepaper analyzing skills by reading some of the most famous crypto whitepapers in the industry. Here are the good ones and the bad ones:
Good crypto whitepaper examples:
- Bitcoin Whitepaper
- Ethereum Whitepaper
- Veracity Whitepaper
- Enjincoin Whitepaper
- Rentberry Whitepaper
Poor crypto whitepaper examples:
- Golden Ball Whitepaper
- Pi Network Whitepaper
By reading good whitepapers and bad whitepapers back to back, you can know the difference and will be able to discern the credibility of a new whitepaper when you read it.
Conclusion
Whitepapers are one of the most integral parts of a blockchain project. It outlines all aspects of the blockchain including its use case, technical aspects, objectives, tokenomics, and more. In this guide, we have explained how you can read and interpret the whitepaper. With enough experience, you will be able to recognize a good investment opportunity by analyzing the whitepaper.
