Crypto Whitepaper Research: The Essentials
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What is a whitepaper?
When a company intends to launch a new cryptocurrency, they usually set out all the details in a whitepaper. Technical, financial and commercial information about the project is explained in this document. Normally they aim to provide a document that explains in plain language what they’re planning to do, to attract investors and other interested parties. In other words, the whitepaper explains the project’s purpose and process, the why and the how. The whitepaper is usually accompanied by a one pager, the project summarized in one page, and a position paper, which details the competition and their (better) position in comparison with that competition. An economics paper might also be included, to give you an idea about how the raised money is going to be spent.
Not every project or coin starts with a whitepaper. Litecoin started by giving a video presentation on ‘Creating Litecoin’ at a Coinbase event. Loom network decided not to write a whitepaper, but immediately started developing and delivering code. Others are just a fork of an existing project, like Bitcoin, so they don’t care to write their own whitepaper. Some projects bring out a pink paper, black paper, green paper or yellow paper. Other projects, such as Cardano, bring out multiple whitepapers, each describing a part of the tech they are building. However, 99% of the cryptocurrencies and ICO’s that are being launched daily, still release a whitepaper to outline their project and tech. So if you thinking about investing in a new coin or ICO, your first stop is reading the whitepaper.
The first whitepaper: Bitcoin
The first cryptocurrency whitepaper is of course the Bitcoin whitepaper. The whitepaper itself is really technical, but it provided a unique and innovative view that is the beginning of cryptocurrency in its current form. Here’s the abstract, which is full of essential terms that are the basis of the current technological innovations in the crypto space:
Bitcoin: A Peer-to-Peer Electronic Cash System by Satoshi Nakamoto
Abstract. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
What are the things to look for in a whitepaper?
Technology – The most important thing is the project’s proposed (technical) solution to a real problem, for a large enough relevant market. It doesn’t matter if it’s something new or a better application of existing tech. If the problem they are trying to solve doesn’t need solving or there are existing better solutions, there’s a big chance the project will fail. It shouldn’t be a ‘decentralized’ solution to a problem that has already been solved ‘centrally’, without the need for a blockchain or cryptocurrency. If the tech is OK, you can dive deeper into other conditions to make sure your investment is worthwhile.
Team – The people behind the project are essential for making it a success. Check out the team and their advisors thoroughly. What is their previous experience? What is their education? Are they involved in more projects? Ask questions if you are in doubt. Scourge the internet and Linkedin for the team members and verify that they are the real deal. Don’t forget to Google their pictures, if any, to see if they’re legit.
Roadmap – Technical development always takes longer than promised, but a roadmap gives you an idea if they’re realistic about their goals. If the roadmap states that a mainnet will be delivered within a few months, that would be great, but could also indicate that they’re trying to make a quick buck and repeatedly delay (unless they started the development way before the ICO, of course). If the mainnet is set to be delivered in 1+ years, that might be a more risky investment considering the rapidly changing crypto environment and other (similar) projects popping up.
Token allocation – Things to look at are the amount of tokens they are going to bring out. Will the tokens be locked up (vesting) for team members? Will they burn unsold tokens? Can they bring out extra tokens whenever they decide to do so? Or are they gradually releasing new tokens at set times? Is there an inflation rate? What is the consensus mechanism? These are all factors to take into consideration when you make an investment. Normally the best token allocation for investors is projects with a low token supply, so you get a bigger piece of the pie when you invest, but this strongly depends on the other factors.
The rest – Many other things in a whitepaper could be a dealbreaker for smart investors. What are the short and long term goals of the token holders? What role do the tokens play in the project? Can you use the tokens for a certain product, or are they more like shares in a company? Are there many large private sale investors with influence on the team or are the tokens distributed to many smaller investors? What is their marketing strategy? Are there no dubious statements? Like stating that they’re ‘SEC compliant’ whilst the SEC never pre-approves ICOs, or naming big partners without having the proper agreements or claimed partnerships. For example, IOTA claimed a Microsoft partnership, but it actually was just an Office 365 subscription.
In the end, you must feel some form of excitement after reading the whitepaper. You have to have faith in the why & how of the project and the team. You want to leave your money in the hands of a trustworthy project with a clear road ahead. Therefore your first stop for any project you want to invest in, is the whitepaper. To get started, you can check All Crypto White Papers, the largest crypto whitepaper database in the world. With almost 1700 projects in their database, it’s the best place to start your research. Also don’t forget to check out the Whitepaper of the Week and News section, so you don’t miss out on anything. Knowledge is power!
John van Rijck
John is chief-editor of the website www.allcryptowhitepapers.com, the largest online crypto whitepaper database. You can contact John on firstname.lastname@example.org if you have any questions about this article.