A white paper is an official document issued by a crypto project. It explains the details of the project’s purpose, plans, objectives and technologies. It can contain any information that the project deems necessary, but in essence, it details a specific problem and clarifies how the project plans to solve it. The white paper can tell us why the project needs a blockchain in the first place, why it has tokens and how these tokens are used to solve real-life problems. It can also lay out the marketing methods, the roadmap and information about the team members, but as mentioned, it’s really up to each project to decide how much information is provided.
How to use a white paper
Carefully analyzing a project’s white paper should be part of your research when deciding what token to invest in. It’s something that may set you apart from other crypto investors. As an experiment, visit Youtube and check out the thumbnails of the most popular crypto videos. You’ll see that most people are not interested in foundational analysis – they want price targets and they want them fast. Taking some time to read a white paper puts you in front of those who base their investment decisions on hype alone. It will also help you find long-time winners, detect scams, and learn more about blockchain technology.
There is no official way to produce a white paper – there are neither rules nor laws. The document can be very visual and aesthetically pleasing like Enjin’s white paper, or it can be written in plain black and white. Some are written like stories, whilst others, like Bitcoin for example, are quite formal. The white paper’s purpose can also differ from project to project. Where some choose to focus more on technological aspects, others use it primarily for marketing purposes – in order to onboard new users.
A white paper is usually published on a project’s website, and often posted on internet forums before an official launch. For this reason, it’s important to remember that anyone on the internet can write them. Since they don’t always require a working product, a website, or even developers’ real names (Eg. Bitcoin was created by an anonym called Satoshi Nakamoto), you need to be careful before trusting the information. To prove it wasn’t written by a random teenager in a dorm room, ask yourself the following questions to ensure the project’s legitimacy and eliminate any risk of being scammed.
Do I understand what the project does?
It has been said that you only fully understand something when you can explain it to a seven-year-old. As you may have guessed, the vocabulary related to cryptocurrencies and blockchains can be complicated. Therefore, if the project communicates their ideas clearly, it’s likely they know what they’re doing. In contrast, if you’re struggling to comprehend even the basics of what the project does, it could mean one of two things – either you have a lack of knowledge in that specific area, or the project itself has lost its sense of direction.
How will the project accomplish everything it has promised?
Let’s assume that the project wants to make a faster, more scalable, and more private payment system. You’ll want to find something that proves this project knows how to achieve its goals, and also whether it has the actual technology to back up its ideas. A solid project will clearly explain how its special tokenomics, research, coding language, developer team, or marketplace choice helps it to grow, develop and ultimately succeed.
It’s one thing to say ‘what is possible’ but another to explain ‘how it is possible’. If the white paper answers the question of ‘how’ then it’s likely to give potential investors a sense of trust and confidence in the project.
Is there really a need for this project?
White papers usually point out who the end-users of their products are. It allows you to make a comparison and figure out whether their solution is better than any that already exist in more traditional markets or other blockchain projects.
Secondly, if the project’s ideas do seem to be orginal, you can still consider the reason as to why it doesn’t already exist – not everything has to be decentralized and based on token design. It could be that there is no need to solve this probelm. On the other hand, it could be a groundbreaking project that’s about to take the world by storm.
Finally, it’s worth evaluating how big the problem actually is, in order to understand just how valuable the project may turn out to be. For example, Bitcoin strives to be the peer-to-peer electronic cash system that solves the issues experienced in traditional banking. Undoubtedly, this is a big problem to solve, and if achieved, the project will become immensely valuable. Could we make the same case for tokenized book shops? – perhaps not.
Conclusion
There is no universal way to write a white paper. Similarly, there are no step by step manuals for analyzing them. Therefore, it comes down to asking the right questions and trusting your intuition which enables you to make an informed decision. Before going on an alt-coin white paper research spree, be sure to read through Bitcoin’s and Ethereum’s white papers to get more familiar with the layout and the details.
New to Huobi? Register for a Huobi account and receive up to $300 worth as a ‘Welcome Bonus’ to help you start your investment journey! If you’re an existing user, check out Huobi Earn and start earning interest on your idle cryptocurrencies.
