Reading a White Paper: A Beginner’s Guide
“White paper” is a term business-minded individuals will come across at some point in their careers. Whether it’s serious or meme-driven, the white paper has become a staple in the crypto industry.
Even retail investors have grown accustomed to reviewing white papers before investing in a crypto project. For many crypto projects today, the white paper is considered by many to be the most important part of the launch. The paper is the only real requirement, even before launching a website.
But what is a white paper and how do you read and analyze a legit one? We will answer all those questions in this article.
Defining a White Paper
The term white paper (or whitepaper, both styles are acceptable) originates in politics. The first-ever white paper was the Churchill White Paper in 1922, which introduced a policy idea before it became a law. While politicians used them as trial balloons, white papers became more widespread in marketing and sales in the 1990s. These turned into a tool to promote products and raise intrigue among prospects.
Crypto white papers also work like that.
But depending on the target audience, crypto white papers can have different objectives. For instance, the Bitcoin white paper is written to inform people about a technological breakthrough: sending cash from one party to another without a middleman. Most modern white papers are written to market the project or to raise funds for it (these are often synonymous).
The rule of thumb: the simpler a white paper’s content and the more colorful its design, the more marketing-oriented it is — the more academic its tone and style, the more informative and technical the white paper.
What to Look for When Reading White Paper
Here are the key elements you should check when reading a white paper.
1. What Does the Project Do?
The critical section of the white paper reveals the main purpose and function of a particular project.
What is the project about? Does it aim to create a platform for other developers? Or Does it help to reward artists and authors? A transparent document must, and will, answer these questions.
White papers are the face of the project. Those solid, legitimate teams behind them do their best to create clear and understandable documents. If the explanations are vague, or hide behind a ton of technical jargon, treat this as a red flag that the project does not have a specific aim and probably has no real value or purpose.
2. What Problem Does It Aim to Solve?
To build on this, the crypto project must clearly explain why it has been created. What problem does it solve? And most importantly, is it a real problem, or a fabrication? It might sound crazy, but numerous projects are created just for the sake of creation. They solve problems that do not exist or are so niche that they affect only a handful of people.
Next, look for the answer as to why the problem is relevant now. Search for the broader situation or global trend that has generated the urgency to find a solution right now. Check the arguments carefully to understand the real scope of the problem. Do your research and use other resources if needed.
3. How Does This Project Solve the Problem?
When the problem is stated clearly, what should follow is the answer of HOW exactly the project aims to solve it. This section is typically more technical as it explains how the technology behind the project could help to achieve its primary goals.
This segment should also justify why exactly the project needs to be built on blockchain. Does creating an expensive decentralized technology really benefit the project? In what way? Not all solutions require blockchain. Some may only use it as a trendy technology to cover up a regular (or worse, irregular) business model.
4. Token Economics
Don’t be intimidated. This abracadabra of industry buzzwords explains what role tokens play in the business of a given project, and what their growth potential may be. This enables you to understand the future value of the token.
When reading the tokenomics, you should analyze the token utility, supply, allocation, and listing.
5. The Roadmap
In a nutshell, the roadmap is the summary of the project’s development. It reveals short and long-term plans on a timeline of when they can be expected to be achieved. This is an important feature which helps to monitor the evolution of projects, and thus enables one to set realistic expectations.
6. The Team
The final, crucial factor to consider is the people behind the project. Who are the founders, employees and advisors? What skills and experience do they bring to the table? Is it relevant to the project they are working on? What is their general reputation?
The crypto space is full of scammers who use fake “big names” and biographies to promote their projects. This is why it is always worth it to go the extra mile and check their LinkedIn and other social media profiles. How big is their following? How active is the community? A massive but passive following tends to indicate a fake account.
Common Red Flags of a Poor White Paper
Now that you know what to check in a credible white paper, there are red flags that you should look out as well. Knowing these facts will keep you away from scam projects. Here are the most obvious red flags of poor white papers. If you spot any of these, it is time to reconsider your investment decision.
Typos and Poor Language
Some white papers are not written by and for English native speakers. Still, a competent team should at least be able to hire a native speaker as an editor.
Many bad white papers make vague claims like “revolutionize payments” or “be part of the web3 movement.” If a project cannot precisely explain what it does, it is probably throwing sand in your eyes.
Too Grandiose Promises
On the flip side, if a project promises to upend the entire blockchain space and become “the next Bitcoin,” be careful! Crypto companies are experts at overpromising and under delivering. Therefore, expect unrealistic promises to be a marketing ploy.
Sections Are Omitted or Don’t Contain Useful Information
The rule of thumb is more info = better. If a project doesn’t provide enough information, it is highly speculative and should be treated as such.
The White Paper is Hidden Somewhere
Nowadays, most projects have a link to the Documentation on the site. If you have to search for decent information, it is probably a sign the team doesn’t want you to find it.