How to read a White paper?

Introduction 

White papers are a must-read for anybody involved in the blockchain industry, whether as an investor, entrepreneur, or developer. Almost every week, there is a new white paper claiming that a new blockchain or cryptocurrency technology would revolutionize the industry. Many of the biggest projects in the sector, such as Bitcoin and Ethereum, were launched with white papers. 

Due to their role in developing new blockchain projects, white papers have grown to be considered important to the process. To gain their trust, investors, corporate executives, and developers want to see a paper outlining exactly how the Project will address their concerns. 

Therefore, everybody interested in cryptocurrency should understand how to read a white paper. As most investors and industry observers know, there are many scams in the market. In addition, many initiatives look legitimate, with the correct buzzwords and marketing jargon, but they lack follow-through and quickly fade away. In this article, we'll look at how to recognize a good white paper with a sound concept and the necessary technical know-how to put the concept into action. 

What is Whitepaper? 

White papers are texts that investigate a specific use case for a product or service. While most blockchain investors associate white papers with bitcoin, they have a rich history in technologies and business in general. 

Furthermore, they are not confined to technical applications, and there are no hard and fast guidelines about what makes a white paper. Anyone may construct one. Finally, they've become about marketing as much as they are about communicating a problem and a solution. Savvy companies utilize white papers to promote themselves as domain experts, hoping that competitors in the market would reference their "research." White papers, however, have no peer review and no limits. It's useful to conceive of them simply as "reports" or "idea papers." 

The term "white paper" has acquired a cachet that denotes technical expertise. But you've realized by now that this may not be the case. The term "white paper" does not imply that it is unique or distinct from any other marketing material. As a result, you should not always believe everything you're told and should always examine every white document you come across. 

This is not to imply that all white papers are useless. For example, Satoshi's original concept for the Bitcoin protocol was published as a white paper. The next big blockchain platform will almost certainly have a white paper before it has a functional product. But be cautious. Scam coins and useless ventures can also have white papers. 

What should you consider when reading a White paper? 

To establish the validity of a cryptocurrency white paper, you should ask two important questions: 

What is the goal of this Project? 

The first question is quite obvious, but white papers are often confusing for newcomers. The standard cryptocurrency white paper's blend of buzzwords, technical jargon, and made-up names is usually difficult to read. 

If you're unsure what the Project accomplishes, there are two possible outcomes. Either the Project is so technical that you will need a better understanding to grasp it, or the Project does nothing. 

In either of those circumstances, you should probably not invest in the Project just yet. If you don't understand a project, don't invest in it, regardless of what other people think or what you read on Twitter, Reddit, or the forums. 

How does it function? 

After determining what a project's goals are, the follow-up question is "How?" 

A solid cryptocurrency white paper should describe how the technology will operate, with varying levels of sophistication and technical understanding necessary. The original Bitcoin white paper shines in this respect. It is one of the most interesting and easily understood blockchain white papers ever published. In addition, unlike many recent white papers, it is not too lengthy. The Bitcoin white paper is a nice place to start if you've never read it. It will provide you with a fantastic starting point for creating a superb cryptocurrency white paper. 

If you can't identify what issue the project addresses and how it does so by the end of the white paper, the white paper did a bad job. A well-written white paper is an indication of a well-thought-out initiative. On the other hand, the reverse is also true. 

Why do we need this Project? 

I could create a blockchain project specializing in underwater fire defense, but would we need it? 

That is clearly not a worthwhile project. Nonetheless, it raises an intriguing question. It is vital that you assess the Project from the perspective of the actual world. Who will really utilize this product, and why is it superior to whatever else they have? If the cryptocurrency white paper answers who needs this Project and why they need it, you're on the right track. 

However, before investing your time or money in the Project, conduct some research to determine whether someone else is already doing it better. Perhaps a comparable project already exists among the hundreds of blockchain projects that are currently in development? 

What's the point of doing it on a blockchain? 

A blockchain isn't required for every Project. 

As a result, many of the blockchain ICOs we encounter should actually be web applications. In addition, a large number of small enterprises are attempting to take advantage of the blockchain movement in order to gain access to funding. 

However, launching a corporation with an ICO as a means of raising funds is perfectly acceptable. Many businesses, on the other hand, strive to portray their firm as a groundbreaking application of blockchain technology when in reality, it is nothing more than a normal corporation. 

When writing a white paper, it's best, to be honest, to know why you need the blockchain. It's completely OK for projects to acknowledge that they will just be using the blockchain for token creation and some smart contract administration. However, be wary of startups that claim to have some weird ideas, such as a blockchain-based carwash. 

What is the Project's tokenomics? 

There should be information in the whitepaper on the token's maximum supply, inflation rate, and mining process, as this is standard in most crypto projects. Also included here is a comprehensive explanation of how fees are calculated, as well as the ways in which various parties are incentivized to contribute their resources to the network. The value obtained from governance and other utility tokens differs; thus, prospective investors should analyze the proposed function of the token.  

What are the Project's finances? 

Whitepapers should include a part that clearly explains factors such as pre-mining, pre-sales, and total supply retained by team members. In the event of a pre-sale or ICO, this part should also explain how the funds received will be utilized to help the Project. Assessing whether or not the team behind the Project has excessive influence over the token supply might help potential investors avoid questionable ventures in the first place. 

Do they have a solid team behind them? 

If you're considering a cryptocurrency project, it's a good idea to check out the team and advisors. What other crypto projects has the team worked on in the past, and are they still active? What role do blockchain specialists and marketers have on the team? It is not generally a bad thing for a project to have an anonymous crew, but the fact that investors are unable to verify their qualifications should be taken into consideration. For this reason, DeFi rug pulls frequently include anonymous teams, which are less liable in the case of a project failure or scam. 

How is the Project governed? 

The whitepaper should also clarify how the Project is governed, whether centrally by the organization or dispersed autonomously with a DAO. Both models have their merits, but the amount of control the team has over the Project must be taken into consideration. Investors should be wary of ventures that appear to be significantly more decentralized than they are. 

Does the whitepaper have any substance? 

Ensuring that a whitepaper provides meaningful and accurate material goes a long way toward determining its legitimacy. A whitepaper that is packed with promotional language, buzzwords, or generally lacks actual content may create a weak case for the Project it's tied to. The white papers of meme currencies such as Safemoon and) are standout examples. Prospective investors should ensure that they understand the fundamental technology and that the Project has a value proposition that is not solely related to speculation. 

Signs of a Bad White Paper 

Finally, you should be aware of the most evident red flags of substandard white papers. If you see any of the following, you should reevaluate your investing decision: 

Errors and Poor Language 

Some white papers aren't authored by or for native English speakers. Nonetheless, a professional team should be able to employ a native speaker as an editor. 

Vagueness 

Many terrible white papers make broad statements such as "revolutionize payments" or "be part of the web3 movement." If a project can't articulate what it accomplishes clearly, it's definitely sand in your eyes. 

Huge Promises 

Similarly, be wary of projects that claim to be "the next Bitcoin" and completely disrupt the blockchain industry. Startups in the cryptocurrency industry are professionals at overpromising and underdelivering. As a result, unrealistic promises should be seen as a marketing tactic. 

Sections are missing or do not provide relevant information 

The standard rule is that more information is better. If a project lacks sufficient details, it is exceedingly speculative and should be considered as such. 

The White Paper is Hidden 

Most projects now include a link to the whitepaper on their website. If you must spend time searching for that or any other vital information, it's a good indication that the team doesn't want you to find it. 

Conclusion 

While the technical jargon and intricacy of whitepapers might be confusing, concentrating on and critically examining the fundamental principles can reveal a lot about a project. Credible teams should be able to explain their issues, their blockchain solutions, their tokenomics, and how funding will be used. 

Whitepapers tend to describe a project's initial vision and intentions. Aside from the core technology, additional features such as token omics, team members, and the overall project vision might change over time and may not be represented in the whitepaper. Investors should check out the Project's official website and news feed, as well as crypto news sites and centralized exchange (CEX) listings. 

Many new crypto projects rely on significant projects like Bitcoin, Ethereum, and Tether for functionality. As a result, their whitepapers can help prospective investors better comprehend topics like stablecoins, proof of work, staking, and more. While whitepapers do not define a blockchain project, reading them provides a good framework for future decisions. 

Disclaimer 

The information provided on this blog is for educational and informational purposes only. It is not intended to be a substitute for professional financial advice, investment recommendations, or individualized guidance. We encourage readers to conduct their own research and consult with qualified financial advisors before making any investment or financial decisions. The author and publisher are not responsible for any financial losses, risks, or damages incurred because of the information presented here. Investing and financial decisions involve risk, and past performance does not guarantee future results.