Reading a white paper is a daunting prospect. No one wants to take the time and read through a 30+ page, technical description of a complicated piece of technology. However, being able to read and comprehend a whitepaper will give you a huge advantage over other investors. Most investors are too lazy to read the whitepaper, because it is long and a lot of work. Before we get into tips on how to read a whitepaper, let’s start by defining what it is, and why a project needs to have one:
What Is A White Paper?
A white paper is an informational document issued by a business to promote or emphasize the qualities of service, product or solution. White papers persuade or are marketing and sales records used to entice customers buy token, technology or methodology or to find out more about it. White papers are used to outline a cryptocurrency’s protocol and purpose in detail. They are a crucial part of an ICO’s process.
A paper’s objective would be to promote a item, service, technology or methodology, and also to affect prospective and current clients’ decisions. The white paper is utilized to inform and convince someone that a “specific offering is exceptional for solving a specific business issue or addressing a specific obstacle.” Any project that doesn’t have a whitepaper is almost a 100% chance going to be a scam.
What You Should Find In A WhitePaper
A white paper should answer all the big questions an investor would have before handing them over a big sum of money. If you are looking for an example of what a great whitepaper looks like, check out Ethereum’s whitepaper here.
Below are all the elements a whitepaper should include. Be very suspicious of any project that does not cover any one of these issues in their whitepaper.
A Legitimate, Defined Problem
The project should be addressing a real world problem. A cryptocurrency token earlier this year was made to be used at a strip club chain in Las Vegas. This is not a problem that needs a cryptocurrency to resolve it. A project should define exactly what the issue they are looking to solve, and why it is a pressing issue that needs an urgent solution.
Current Solutions Available
A whitepaper should always acknowledge what other solutions are out there. In order for a project to differentiate themselves, they have to describe what the current market is like which they are looking to enter. You need to know what competitors are out there to know if an ICO is offering a truly unique product or solution. Failure to address this is a major red flag.
This is where you get a basic overview of the cryptocurrency project. This is where the project should get into the “why us”. This is where they should start to explain the solution they have created to the problem they outlined earlier in the whitepaper.
This section is one of the most important parts of the white paper. This is where they get into the nitty gritty details of their product, and how it will resolve the problem they are looking to address. They should also explain why the other products/solutions out there at the moment are inferior to their solution, and why their token is necessary.
You should get an overview of the team behind the project at some point in a whitepaper. You need to know who you are giving your hard earned money to. There should be a description of each team member, what their background is in the field, and why they are qualified to raise funds for this ICO. Do extensive research (AKA a Google search) on all the members of the team. Make sure they are worthy of your money.
This is an important part of the ICO process: How are tokens being distributed? Pay attention to the token distribution, and evaluate if it is fair or not. It is very suspicious if a high proportion of the tokens in circulation, say 50% or more, are being held by insiders.
There should be a rough timeline of when the project expects to complete their token sale, when the token will start trading live, when they expect to get onto major exchanges ect. They need to provide evidence of some sort of plan for the future of their project, and concrete plan to reach these landmarks.
At the end of the day, a lot of common sense goes into evaluating whether a project is legitimate or not. One of the best ways to see if a whitepaper is legitimate or not is to compare it to a reputable project. We recommend comparing it to a project like the Ethereum whitepaper above.
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