A coin’s white paper is oftentimes the first document that outlines every single aspect of that coin’s existence for the public and investors. In this article, we’ll explore what crypto white papers are, how to read them, and go over some basic terms that will help you understand one.
- A cryptocurrency white paper can be thought of as the blueprint for a cryptocurrency. Every time a new token or coin is released into the crypto ecosystem, a whitepaper generally follows.
- Information in a white paper generally includes – a project outline, the solution, an overview of the team, key information for early investors, and the project roadmap for the token.
- A crypto white paper is generally used to condense information about a token, educate investors, establish credibility, and gather a loyal base of followers in the market.
What Is A Crypto White Paper?
A cryptocurrency white paper can be thought of as the blueprint for a cryptocurrency. Every time a new token or coin is released into the crypto ecosystem, a whitepaper generally follows. This document outlines the basic features of the token, including how it was conceived, what functionalities it has, and what problems it solves.
Here are some goals of a crypto white paper:
- Provide useful information about the token in a condensed format.
- Convince the market to invest in the coin by highlighting features, unique tech, etc.
- Establish credibility. Having a whitepaper usually is a prerequisite for a legitimate cryptocurrency.
- Educate people about the project’s goals and objectives.
Elements Of A White Paper
White papers are written by different developers about entirely different coin projects. In the absence of a set format, white papers differ a lot from token to token. While they look and read differently from one another, most white papers have similar information elements for their readers.
The information in a white paper includes the following.
- Project Outline – A project outline gives an overview of the token and its long-term goals, along with its USP and differentiating elements.
- Solution – This section identifies problems in the status quo and highlights how the token will be able to address them.
- Team overview – Lists down the background and contributions of the developing and founding team.
- Key information – Perhaps the most important part of the white paper, this section gives information about the release of the token and marketplace considerations
- Project Roadmap – Lists the long-term objectives of the project and characterizes how it will achieve them.
White papers usually start off by describing problems that are currently being faced in the crypto markets or a subsection thereof. They describe the problem in-depth, aiming to build a foundation for eventually solving it with their token.
The whitepaper also incorporates numbers, data, statistics, and graphs to better convey the economics of the project to potential investors. One characteristic of a well-crafted white paper is coherence between the described problem and the prescribed solution. This information, however, is not represented in a marketing fashion, meaning that it isn’t like an advertisement.
While the goal of these white papers is to attract future investments, they don’t aim to ‘market’ the token; rather, a good white paper aims to sell the token based on fundamental strengths and add actual value.
What Is An ICO?
A white paper also outlines how the token aims to raise money in the markets and how investors will get their money back. Usually, this part of the white paper outlines the token’s ICO strategy.
What is an ICO, you ask?
An Initial Coin Offering is the crypto equivalent of an Initial Public Offering (IPO) in the stock market. Here, retail investors are given a chance to buy into the cryptocurrency during its launch on the market and take advantage of short-term price rallies. ICOs are launched with the aim of raising money for the project and giving some liquidity to founders and developers.
A white paper is also responsible for fleshing out contingency mechanisms for an ICO, providing mechanisms that get triggered if the ICO does not raise enough money. While all plans may not be explicitly given a place in the white paper, investors are made privy to this information either on their websites or on a separate document, depending on project to project.
Can Everyone Read A White Paper?
Yes! While white papers might look complicated at first glance, they’re really not. Satoshi Nakamoto’s Bitcoin White Paper is the gold standard for all crypto documentation of that type and it is an easy read if you know the right concepts.
Here are some terms you need to know before you start reading a crypto white paper.
- Blockchain – A decentralized mechanism that enables every single cryptocurrency in the world. The blockchain allows people to interact without a third party.
- Consensus mechanisms – Consensus mechanisms are algorithms that cryptocurrencies use to verify transactions on the blockchain. Read about all the different types here.
- Forks – A change in blockchain protocol that sometimes results in the creation of a new token. So what are hard forks?
- Smart contracts – A smart contract is a unique application of certain cryptocurrencies, one that enables DeFi, metaverses, and NFTs. Want to know more?
- And how they all work together.
That’s not it, though. Here’s more!
If you’re interested in reading a white paper now, we’d recommend starting with Bitcoin’s white paper “Bitcoin: A Peer-To-Peer Electronic Cash System”. As an investor, it is very important for you to understand your investments fundamentally and there’s no better way to do that than reading such documents.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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