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If you’ve been reading beneath the surface on anything cryptocurrency-related, you’ve probably encountered the term “whitepaper” before. Though it existed long before cryptocurrency, it has become popular during the digital asset boom this year. So what does it mean?
What’s a Crypto Whitepaper?
A crypto whitepaper is a document explaining a blockchain project, the problem it solves, and how it works. These documents are essential for anybody looking at cryptocurrencies as anything beyond speculative instruments.
Whitepapers allow different coin, blockchain, token, and protocol projects to differentiate themselves from others, justifying their use cases. They are the foundation of an investor’s faith in any of the almost 14 000 coins currently listed on CoinMarketCap. Whitepapers are, fundamentally, marketing material.
Reading a whitepaper can help people distinguish innovation from a redundancy, a joke, or a scam. For example, the notorious Squid Game token’s whitepaper explicitly stated that users couldn’t sell their tokens after buying them. This – alongside its numerous spelling errors – could have alerted victims had they read the whitepaper in advance.
It is professional and commonplace for cryptocurrencies to come with whitepapers to have some air of legitimacy. Their function within the crypto space is much like that of websites for standard businesses today. However, they are far more meticulous, detailed and often technical compared to typical marketing copy.
Components of a Whitepaper
Now that you know what a whitepaper is, it’s time to learn to navigate one. Most whitepapers feature a similar, primary structure, which is essential to keep in mind when reading or creating them.
The Outline (Introduction)
An outline distills the premise of a project down into one or two short paragraphs. As an investor, you’ll likely be using the abstract as a litmus test before moving on to study other projects. Therefore, authors must make sure to sell this section as best they can with their technology’s core value proposition.
Key questions to ask when creating an outline:
- What problem is your token, crypto, or network trying to solve?
- How does your technology help solve that problem in an innovative and groundbreaking way in a few sentences?
The Bitcoin whitepaper’s outline establishes the problem plaguing legacy e-commerce: the need for trusted intermediaries to mediate transactions. It explains why this creates added transaction costs, makes irreversible transactions impossible, and makes some degree of fraud unavoidable.
Satoshi starts discussing his solution with the problem laid out: a peer-to-peer payment network based on cryptographic proof.
With the reader’s attention seized, the whitepaper should explain why a given project is an adequate solution. This is where things can get technical, explaining consensus mechanisms, incentive systems, block sizes, governance, tokenomics, and the like.
Most crypto white papers make distributed ledger or “blockchain” technology the foundation of their solution.
Key questions to ask when drafting the solution:
- How does my project solve the problem mentioned in the outline?
- How can I assure investors/ buyers of my token that this project will work?
- What market niche does this project fill?
Bitcoin’s whitepaper explains the technical elements of the network’s operations almost in its entirety. For example, it details the processes of a timestamp server (now called “blockchain”). Also, it talks about proof-of-work and network nodes, which form a digital payments solution. Lastly, it includes visuals and charts to help readers struggling to understand these novel concepts.
Bitcoin is the first cryptocurrency ever. So, it requires more time to explain some of these mechanisms. However, today, the crypto community understands concepts like proof-of-work, blockchain, and node operation. So, up-and-coming projects do not have to go into detail about them when developing their white papers.
Instead, authors may focus on providing their ICO project budget breakdowns. This practice would reassure investors that their money will be spent wisely. It may also be used to create a project roadmap, indicating a team’s scheduled plans and growth targets going forwards.
Any team that cares about establishing trust and transparency will include a list of its team member’s profiles at the end of their white paper. Ideally, one should leave references to the team’s social media profiles to verify real people. This was another giveaway within the Squid Game scam. For example, the whitepaper included fake profiles of people that were untraceable online.
A cryptocurrency white paper is a crucial document for any business launching a blockchain token or project.
The document helps establish trust in a space otherwise rife with scams and hacks. If writing a whitepaper, showing the problem a project solves is critical from the outset before diving into technical details. Authors should be sure to drive a project’s usefulness and trustworthiness home at every opportunity. Finally, be fully transparent with your team members’ names, roles, and social profiles in the whitepaper.