What is whitepaper

We recently wrote how to recognize a fraudulent crypto project. One of the important points we mentioned was White Paper. We will tell you what it is and how to analyze it correctly further.

In 2017, ICOs were extremely common and were happening almost daily. Published in the journal Finance Research Letters, the study analyzed the white papers of 1,258 cryptocurrencies to identify patterns. From the results of the study it follows that the volume and complexity of the whitepaper had a correlation with the success of the ICO: the more detailed and technically complex the whitepaper, the more investors were attracted to the cryptocurrency.

To simplify, a crypto investor urgently needs 2 skills:

The term has political roots; it was first mentioned by Churchill in 1922 in his White Paper. In this format he presented his idea, which later became a bill. In the 1990s, whitepapers began to be widely used not only in politics, but also in marketing and sales, turning into tools for attracting attention to products. In the blockchain world, these documents work in a similar way.

Cryptocurrency whitepapers can have different purposes depending on the audience. For example, the Bitcoin white paper informs about a new technology for sending money without intermediaries. Modern white papers are often created to attract investment for the implementation of a project or for its marketing.

Nowadays, most whitepapers have a similar structure and sections:

Let's go through each point.

This section describes the main problem that the project seeks to solve, and also proposes a new solution that can change the current situation.

The size of this part may vary depending on the specific project. Some choose to describe the issue in detail, while others only briefly touch on the topic, focusing more on the cryptocurrency's value proposition.

This paragraph describes the solution to the problem from the previous one. It also talks about the uniqueness of the project in comparison with competitors, describes innovations, their use and justification for the need. This is usually a key part of a whitepaper that helps identify quality projects.

It’s good if this section lists, for example, competitors of the project from the classical world (not blockchain) and describes in detail the need for such competition. It’s bad for example, if the document contains only promises of fun or earnings and there are no details - casinos or meme coins often sin with this.

If the project is based on blockchain technology, then a high-quality whitepaper should contain an explanation of how this network functions and what its advantage over competitors is. It should describe the consensus mechanism and competitive advantages. If this is a dApp or GameFi (games on the blockchain), the whitepaper should explain which blockchain the product runs on and why this particular one was chosen by the team. It would also be good form to point out the presence of off-chain components in the code or the introduction of innovative technologies.

A critical part of a whitepaper and another way to spot a good project. A correct whitepaper directly discloses information about the distribution of tokens, the timing of blocking rights to them, and the conditions for private (closed) sales. Alarm bell - some or even all of this information may be missed. It is also necessary to explain to users what the value of the token is and whether there are mechanisms that can limit its growth or even lead to the burning of issued tokens.

But even large blockchain projects sometimes provide insufficient detailed information about tokenomics. We wrote more in this article.

Most whitepapers contain roadmaps in various forms. In good documents, they detail achievable goals that will drive the project forward. Weaker documents may contain clauses on stock exchange listings, advertising campaigns and updating information on the website. This may benefit the project, but raises doubts about the team's long-term plans. In bad road map documents, they contain vague or randomly selected goals that are suitable for any business.

Of course, it is important to include the project team in the whitepaper. For example, Bitcoin was created without mentioning the authors, hiding under the pseudonym Satoshi Nakamoto. However, Bitcoin, as a pioneer, has become rather an exception to the rule. Regardless of whether the developers are anonymous, finding information about them is an important step. Even if developers prefer to remain anonymous, providing some information about their professional experience can help establish trust. There are rare examples where the team may not be as widely represented, for example from the security field as we are.

With experience and studying a large number of whitepapers, you will be able to notice similar patterns. To simplify greatly, we can distinguish three types of documents:

The whitepaper format depends on its goals and audience. The same Bitcoin white paper was not created with the aim of attracting investments. It was a description of the cryptographic revolution and the peer-to-peer payment system and, therefore, addressed a limited audience. While first-level (L1) blockchains, such as Ethereum, published documentation for developers first and only then for investors.

Modern whitepapers are more focused on market strategies than on describing technology. They have a sales tone and are often presented as presentations with graphics. A bad whitepaper provides less information about the project than a good one, which can raise questions among readers.

Modern whitepapers are designed so that they can be understood even by me, who has no home theater experience. Cryptocurrency companies are aware that many investors do not apply the requirements to household technology or do not have an interest in its details. Their main goal is to draw attention to the guaranteed profit, and for this the project must offer an interesting and promising use case in the document.

In conclusion, let's highlight some telling signs of a low-quality whitepaper. If you find at least one of them, this may be a signal for you to think about whether it is worth investing your money and effort in this project.