How to Read a Crypto Whitepaper? Hristina Vasileva | usagoldmines.com

This guide will go through the steps on how to read a crypto whitepaper, its key sections, and ways to discover the most relevant points about a project. Reading a crypto whitepaper with the right approach can help in finding the most relevant information about a project, while discovering warning signs of potential risk.

What Is a Crypto Whitepaper?

A crypto whitepaper is a brief description of a new blockchain project, setting up the main points of the technical and economic side for a new chain. The whitepaper approach follows the tradition of Bitcoin, mixing a technical document with elements of a philosophical rationale.

A Brief History: From Bitcoin to ICOs

The whitepaper format for crypto projects emerged in response to Bitcoin’s own original document. The Bitcoin: A Peer-to-Peer Electronic Cash System whitepaper was first published in a cryptographic message board, later uploaded to bitcoin.org, where it can be found ever since.

A few years later, the boom of Initial Coin Offerings (ICOs) boosted the idea of a crypto whitepaper. In those documents, new projects gave the rationale behind their token supply, utility, and blockchain features. It became customary for all crypto projects to produce a whitepaper, often abridged to a litepaper or even a one-page executive summary.

Purpose of a Whitepaper in the Crypto World

A crypto whitepaper has two main functions: to educate and to serve as a marketing tool for promoting a token project. For that reason, most modern whitepapers contain a mix of technical features and promises on the project’s potential. This guide will also look through the pitfalls of this approach, letting users debunk unnecessary details or hype.

The whitepaper also served to differentiate the new crypto project and present its unique promises and capabilities.

Why Reading a Whitepaper Matters

Getting familiar with a crypto whitepaper before investing in a project is one of the best practices in the space. With a structured approach, a reader can quickly find the relevant information to vet a project’s potential.

Avoiding Scams and Rug Pulls

Reading a whitepaper does not guarantee protection against scams, but it can serve to discover red flags. An inconsistent, shoddily written whitepaper with typos may signal that a project may lack the resources or the willingness to produce a quality document.

Making Informed Investment Decisions

Reading a crypto whitepaper will show the main points of investment decisions. The most important part would be the tokenomics, or the ways the project will secure revenues. A whitepaper will hold information on the token supply, inflation, fees, and incentives.

Some projects will also go into details about the team and even potential budgets and revenue streams. While some whitepapers may overstate the future potential, they are giving a glimpse into the potential for the chain’s success or failure.

Identifying a Project’s Long-Term Potential

A crypto whitepaper can contain hints on the long-term development of a project. Just like Bitcoin’s whitepaper mentioned potential pitfalls and incentives for miners, token and other coin whitepapers contain hints on the future supply, mining rewards and operations, token burns, or other changes.

Structure of a Typical Crypto Whitepaper

Executive Summary

Modern whitepapers, aimed at investors or busy traders, will often start with an executive summary, a few paragraphs with the project’s main points. The summary will describe the project’s goal, a brief outline of the technology and network type, and a short summary of the business model. Reading the executive summary of a crypto whitepaper can also help compare the project to other competitors.

Problem Statement and Proposed Solution

Crypto projects will single out a problem that has not been solved by existing competitors, and offer their own solution. Problem statements deal with issues like network speed, decentralization, anonymous or veiled transactions. Some chains propose niche problems, such as the handling of images or media.

Crypto whitepapers often point out problems that are inherent to blockchains or target existing Internet infrastructure. The problem statement may refer to a decentralized solution for an existing app, social media, or another platform.

Technology and Architecture

This section will contain the details of what a project’s team wants to launch. It will spell out the type of chain that the team wants to build.

In addition, the section will explain whether the project will rely on proof-of-work (PoW) or some form of proof-of-stake (PoS). The project’s team will also explain whether their chain is independent and newly created, or a Layer 2 of an already existing base chain.

When reading the technology side of a crypto whitepaper, take note of things like nodes, staking, the rate of token issuance, and the incentives. Usually, the technology of a crypto project is closely connected to the economic side and the investment requirements. You will get an idea of the role of the token you are buying — a means of payment, a utility asset, or a staking asset. The technical section of a whitepaper can also give an idea of which wallets will support the new token, and whether its network is compatible with existing crypto infrastructure.

Tokenomics and Token Utility

The tokenomics section will move beyond the technical side and explain how the project will generate value. It is important to understand the token supply, how the asset is issued, and if there are incentives like rewards, token burns, or vesting schedules with locked tokens.

Some projects will have a more complex tokenomics, with two or three assets. The tokenomics section will usually explain how these tokens interact and what roles they play.

Roadmap and Development Timeline

The roadmap of a project gives a glimpse into the growth potential, while also raising sketchy signs for potential delays. The project’s main features and promises may take years to materialize, leaving holders with their investment locked. When reading a crypto whitepaper, make sure the roadmap looks viable, and possibly compare it to other similar projects.

Team and Advisors

A fully doxxed team is usually a positive sign for a project. The lack of a team section, or a pseudonymous team, may be a red flag, especially if the paper includes a high-stakes value proposition and a call to investments. The Satoshi Nakamoto Bitcoin whitepaper was, of course, anonymous. However, newer projects resemble traditional startups, and their teams are a part of the overall credibility.

A pseudonymous team is the second-best, especially if it has other channels for communication through social media. However, pseudonymous teams have been known to disappear overnight. At the same time, some projects with pseudonymous founders have delivered excellent results.

When reviewing the team section of the whitepaper, make sure the pictures and identities are verifiable. Check if the team or advisors are related to other projects and if those projects are still viable.

Legal and Regulatory Disclosures

Whitepapers have no geographical restrictions and may belong to a team based in several regions. Make sure the whitepaper explicitly states its main jurisdiction or any restricted regions.

Some whitepapers will have explicit exclusionary lists, often affecting potential investors from the USA, Canada, or other restricted markets. This assures that the project will not be subjected to regulatory requirements in those countries.

While many projects exist outside the reach of regulators, this may be a red flag. Make sure you understand the regulatory implications of holding tokens. Regulatory conditions may also change based on previous cases with crypto projects.

Use of Funds and ICO/IDO Details

A whitepaper will often contain the parameters of a token sale if this is the preferred mode of distribution. In this section, the project will share the percentage of the supply that will be available for sale. Other details may be added, such as the stages of the ICO or IDO, the platform on which it will happen, and when the tokens will be distributed and become tradable.

This section may also contain the fundraising goals and the intended usage of the proceeds. The sale page may also contain the assets that will be used for the sale, whether BTC, ETH, stablecoins, or even fiat currencies.

Step-by-Step Guide: How to Read a Crypto Whitepaper

Step 1 – Start with the Executive Summary

Get acquainted with the executive summary. Recall the basics of the project’s proposition, and continue to check the details in other relevant sections. Watch out for hype or over-promises in this part.

Step 2 – Assess the Problem and Solution

Carefully read what the main goal of the project is, and assess its viability. For instance, is the platform trying to add more transactions per second? Does it target scalability, or does it offer a better decentralization structure?

Is the project targeting a market outside crypto, aiming to bring it on the blockchain? This section will help you evaluate whether the project is viable and whether adding a blockchain is really necessary. Can the project deliver on its promise of rivaling established projects, with added tokens?

This section will also help you compare the project and see if it was created independently, or if it was built to follow a trend, or compete against other projects. Is another Layer-2 chain truly needed? Is transaction speed really the problem, or is it just used as a selling point?

Step 3 – Evaluate the Technology

The more crypto projects are launched, the more similarities there are. Some whitepapers will go into detail on their proprietary chains. Others will downplay this part, as on-chain activity is already common. Make sure you understand how the technology fits into existing infrastructure, and if it is compatible with some of the major chains. The choice of technology may give a hint of the project’s economic potential. Is the platform targeting miners, or is it tailored to the needs of traders?

Step 4 – Dive Into Tokenomics

While reading the whitepaper, take note of the token supply, issuance schedule, token burns, staking, and incentives. How is the token used? Is it just an idle asset, or will it have utility? Tokenomics will also offer an idea of how the asset may trade in the future. Make sure you understand the potential of the asset to find representation on exchanges. For instance, anonymous coins and tokens are no longer easily listed on major crypto exchanges.

Step 5 – Examine the Roadmap

Check the project’s launch schedule and make sure you will not be left waiting for years for the platform to deliver on its promises. Compare similar projects, and estimate if the team can perform fast enough. Market conditions may change and cause delays in the roadmap.

Step 6 – Verify Team Credentials

Verify the team’s social media, if available. Totally anonymous teams are rare in whitepapers and may be a red flag. Check the founder’s LinkedIn profile for previous crypto projects, and examine their success or failure.

Crypto teams have faced multiple risks, including infiltration by DPRK hackers. Pay attention to the developer team and check their code repositories where applicable.

Step 7 – Check for Legal Disclaimers

Check if the project is available in your jurisdiction and if there is an exclusion risk. Preview the project’s legal disclaimers and check for potential security law violations. Crypto tokens, even though digital and permissionless, have often been labeled as unregistered securities.

Step 8 – Look for Red Flags

Evaluate the crypto whitepaper in its entirety to identify red flags. Is the presentation, language, and even spelling too unusual? It may be a warning sign or suggest machine translation and potential language barriers with the team. Evaluate the project’s location and make sure you have some resort to legal representation in case of failure.

If the entire whitepaper is mostly focusing on the marketing side or the project’s potential value, this may be a bad sign. Also, be wary if a whitepaper explicitly predicts the token’s price growth over time. Ambitious promises, such as rivaling established projects within a few years, are red flags.

Evaluate the team section for warning signs such as lack of information and incomplete profiles.

Red Flags to Watch Out For in a Whitepaper

Overpromising Without Substance

Some whitepapers focus on potential earnings or the future growth of their tokens. While some cryptocurrencies do achieve rapid growth, be wary of whitepapers with unrealistic promises, especially with a vague roadmap.

Anonymous Team or Fake Advisors

Be wary of anonymous teams, mostly for the risk of disappearance or insider selling. Teams may also be infiltrated by hackers. Look for a full list of social media with complete history, and examine each profile.

Poor Tokenomics or Unlimited Supply

Tokens with unlimited minting or an extremely large supply may be a bad sign. Tokenomics may also skew the supply to the team or investors, leaving retail buyers with minimal influence. Poor tokenomics may also lead to insider trading.

Copy-Paste or Plagiarized Sections

Some whitepapers are made in haste to tap into a trend or copy another successful project. Look out for plagiarized sections, outright copy-paste, or possible AI-generated content.

Tools and Tips for Analyzing Whitepapers

Community and Developer Feedback

High-profile crypto projects are closely watched on social media, and some of the analysis may be skeptical or critical. Use social media as a resource for community feedback. Seek out the project’s developers and see how they interact with the community and solve issues.

Use Tools like Messari and Whitepaper Databases

Check if the whitepaper is included in a reliable database for crypto whitepapers. Are other users reading and understanding the whitepaper? If the project is already launched, use tracking tools to make sure the tokenomics are correct. Check for price performance and results of the token sale.

Cross-check Roadmap Milestones

For launched projects, check if they have completed their milestones. Use market tracking tools to check for progress during bull or bear markets.

This articles is written by : Nermeen Nabil Khear Abdelmalak

You can Enjoy surfing our website categories and read more content in many fields you may like .

Why USAGoldMines ?

USAGoldMines is a comprehensive website offering the latest in financial, crypto, and technical news. With specialized sections for each category, it provides readers with up-to-date market insights, investment trends, and technological advancements, making it a valuable resource for investors and enthusiasts in the fast-paced financial world.