When it comes to evaluating the potential of a cryptocurrency project, especially one at initial coin offering (ICO) stage, the first place to start your analysis is always the project’s whitepaper.
The purpose of a whitepaper in the cryptocurrency space is to explain in detail what a project entails. This includes an explanation of the product and the technology behind it, the problem the product will solve, details about its digital token, as well as information on the project’s founding team and its roadmap for the platform.
The most famous cryptocurrency paper is the Bitcoin whitepaper titled ‘Bitcoin: A Peer-to-Peer Electronic Cash Payment System’, which was published by Satoshi Nakamoto, the mysterious creator of Bitcoin, in 2008 and led to the creation of the first decentralized digital currency.
In this guide, you will learn how to read a whitepaper so that you are off to a good start when it comes to analyzing your next potential cryptocurrency or ICO investment.
Why Read the Whitepaper?
The three main reasons to read a cryptocurrency whitepaper is to understand the project, to discover whether the issue that the project aims to tackle can be solved using this blockchain solution and whether this project’s digital token makes sense as an investment.
The information contained in the whitepaper should answer all of these three key questions.
What to Expect in a Whitepaper
A whitepaper’s abstract is there to give you a quick overview of the project and to lure you in to read the entire paper to find out more about the project and its cryptocurrency.
The introduction often introduces basic concepts such as the blockchain and the benefits of cryptocurrencies and discusses the market that this specific blockchain project aims to enter.
The problem definition digs a little deeper into the market the project is targeting and highlights the challenges found in this industry that need to be solved. The challenges can be technological or business-related. It may also include a current solution that is not sufficient enough to fully address the problem at hand.
Next, you will find the project’s product description, which will detail what the platform, product or service does, how it will function, and why it provides an excellent solution to the before-mentioned problem.
This will be followed up by the technical details of the blockchain project, which will be an in-depth technical explanation of how the product is being developed, what technological specification it has and how its coin or digital token will come into play.
The Digital Token
The next section goes deeper into how the digital tokens or new coin will function, what kind of money supply management will be put in place, and how it will benefit the users of the new platform and/or the cryptocurrency community at large.
If the whitepaper has been published as part of a token sale, then you will find details about the crowdsale next. This will include all relevant launch dates, any bonus schemes, details about who can and who cannot invest, how the raised funds will be used, the project’s roadmap, etc.
Towards the end of the whitepaper, you will usually also find a presentation of the project’s founding members and lead developers. This is important as a strong experienced team is an integral part of a successful cryptocurrency project. Hence, you will find the professional experience of each team member and the role they will play in the project in this section.
Finally, the whitepaper will end with a conclusion, which summaries the project’s key points and usually also acts as call-to-action to get involved in the case of an upcoming token sale.
Scan for the Important
If you are looking at several new projects to potentially invest in and want to get a quick overall impression of a project before digging deeper, you can also scan the whitepaper to find the answer to the most pressing questions you should ask yourself before investing in a cryptocurrency project.
These questions include: Is the project legitimate? Is the team experienced enough that it delivers? Is there a market for the proposed product or service? Who are the competitors? What function will the token have? Could this token be replaced by an existing cryptocurrency? Etc.
Conduct Further Research
While a project’s whitepaper should cover all important aspects of a cryptocurrency project, if you are planning on making a sizable investment, your research should not stop there.
Platforms such as Reddit and the BitcoinTalk Forum tend to provide insights from cryptocurrency community members, independent ICO reviews can also provide valuable insight and asking questions directly on their Telegram or Slack channels should also be part of a thorough analysis of a blockchain project before purchasing its token.