Whether your interest in blockchain technology and cryptocurrencies comes from an investing or a developer’s point of view, you have probably found the term “white paper” somewhere. White papers are an essential part of most projects. They are documents which explain the project’s scope, objectives and benefits. Investors use them to assess the viability of the project, while developers use them to learn about the technologies used.
It is essential to be able to read and understand the contents of white papers correctly. Without understanding this documents, your investment could be, to put it mildly, a blind shot.
Since cryptocurrencies started exploding in popularity so did the scams and bad projects involving them. There are plenty of projects with great names, marketing and websites, but sometimes, the technical solution behind them is lacking.
In this article, we will look at how to process whitepaper information, what the right project should look like, and what technical steps it should go through.
What is a white paper?
A white paper is a document that acquaints the public with a project and exemplifies the applications of its product or service. White papers are not exclusive of blockchain or cryptocurrencies. These documents have a long history and they are used in various technological and business areas. Companies use white papers as a form of marketing in order to present themselves as experts in their field. Given this fact, it is necessary to take them with a grain of salt. Do not take everything you read in a white paper as fact, but as a proposal to be analyzed.
There are a few key questions you should ask yourself while studying them. Let’s look at them together:
What is the aim of this project?
The first question should be relatively simple, focusing on the overall nature of the project. If you ask what the goal of the project is, you should find a clear answer in the white paper. However, white paper authors can make it difficult to find the answer to this question by using buzz words and technical jargon.
If you are unsure about the project’s objective, there are only two likely conclusions. Either the project is so progressive that you need more knowledge to understand it, or it doesn’t bring anything groundbreaking.
There is one important rule regarding your understanding of a project’s objective. The rule is: no matter what other people say or what you read online–if you don’t understand a project, don’t invest in it.
How does the project intend to achieve its goal?
After you know the project’s objective, the next thing you should be interested in is the way it wants to achieve its goals.
A good white paper should clearly explain how the technology will work. At the same time, its content should be presented at different levels to be understood by people with diverse technical skills. Bitcoin’s white paper, which is very well written, could serve as an example. So if you haven’t read any, start with that one. It will help you get an idea of what such a document should look like.
A well-formulated whitepaper is a sign of a well thought out project. So, if the document does not explain how the team wants to meet their goals, you need to consider your investment twice.
Why does the world need this project?
You must examine the intent of the project in the context of real life. Who will use this product? Why is this solution better than anything that already exists? If you do not find a clear answer to these questions, the project might not have a very long life, and with that, your investment. There are hundreds of projects using blockchain technology, and it is quite possible that a similar project already exists.
White papers in crypto
If someone wants to successfully offer their own cryptocurrency, they should definitely pay attention to their white paper. They should provide a clear description and define objectives of their project. The success of newly arising digital currencies actually depends on this document. The white paper is the introduction that unveils their actual intention, it is the presentation of the project for their intended stakeholders. These prospective investors should have information on what the expectations regarding the development of the whole project are, what the market cap is and the reasons to invest in the project including the expected investment return.
Firstly, studying white papers is all about finding answers to your questions about a project’s viability. Only after answering these questions should you consider getting on board with a project and investing in it. Always remember that the companies writing these documents have not yet introduced their product, so there are many unknowns and you have to be careful.
If you ultimately decide to invest, follow a proven philosophy and do not invest more than you can afford to lose. Even the best whitepaper does not guarantee that the project will be successful in the future. The most important thing to have in mind though is that a bad white paper spells doom for the project almost every time.
Therefore, a white paper is mainly related to the initial offering of digital currencies – ICO. Every new offering needs a so-called “white book” or “white paper”.