What is a whitepaper?
Crypto for Professionals
White Paper is a crypto project's paper that provides technical details on its concept as well as a roadmap for how it aims to develop and thrive.
Whitepapers outline the project's goal and technology. They often use numbers, infographics, and figures to persuade potential investors to buy cryptocurrencies. It is an important step in establishing a crypto startup's legitimacy and professionalism, as it helps investors understand how the company differs from its competitors. Whitepapers are distinct from litepapers, which are often shorter, less complex, and easier to comprehend.
Bitcoin: A Peer-to-Peer Electronic Cash System, written by Satoshi Nakamoto in 2008, is certainly one of the most well-known cryptocurrency whitepapers. It proposed:
- A P2P system for payments on an online network
- To remove the third parties and replace them with decentralization / verification
- Irreversible transactions
- A peer-to-peer distributed timestamp server
Reading a White Paper may be the most effective approach to learn about a crypto project. However, many individuals are unsure how to go about doing so, as whitepapers are not easy to read, especially if you aren't extremely tech-savvy. The good news is that you don't need a computer science expertise to comprehend a whitepaper. Below you can find instructions on how to read them.
First you need to understand, why the project was created in the first place. Every project should have goal, meaning and motivation explained. It will also help you understand what kind of problems they are trying to solve and eventually, if they are worth of investing in.
As second, you need to find out, what is the project’s real-world utility. This is an important feature of any crypto coin or project. Aside from being a money, many crypto currencies will have a utility or function. Some are used for project governance, while others are non-fungible tokens that grant product ownership rights. Utility tokens are a type of cryptocurrency that serves a variety of functions. There will be certain utilities that are more useful than others.
Third, how does the project achieve something in the network. The most important section of the White Paper is this criterion. Proof of work, proof of stake, and variants on these two are among the several consensus procedures to examine. Consensus is important because it explains how various nodes in a network may determine if a transaction is true or untrue without talking directly with one another. This is where decentralized technology begins. Then, find out how the first coins were distributed. Many crypto initiatives, especially proof of stake projects, will use pre-mined coins for their first token distributions. You should look into the distribution of these coins. Venture financiers and project creators are sometimes awarded a large part of the early coins. This is frequently indicative of a pump-and-dump plan and/or limited project expansion.
And as the last point, you should check the technical explanation of a given project as well as its timeline.