- A business or non-profit organisation can draft a white paper to explain a product or service they are offering or planning to offer in the future.
- Based on the intentions they have in mind, they can either talk heavily about technical details or highlight the features of their service/product on a higher level to convince potential customers to buy or invest in their business.
- Crypto and blockchain businesses use whitepapers to provide commercial and technical details of their projects to the community.
- A white paper isn’t a sales pitch, however, by detailing the technical and commercial parts and proving the robustness of the idea behind the project, it can convince investors of the potential benefits of investing in the project.
- You should always do proper due diligence and do not rely on only one document even if it is quite convincing and robust. Always look into different aspects of a crypto project, specifically the team behind it, and Do Your Own Research.
Table of Contents
What is a White Paper?
A white paper is generally used for two main purposes: marketing, education, or a combination of both. Sometimes, a white paper may even be used in politics as well!
A business or non-profit organisation can draft a white paper to explain a product or service they are offering or planning to offer in the future.
Now, based on the intentions they have in mind, they can either talk heavily about technical details or highlight the features of their service/product on a higher level to convince potential customers to buy or invest in their business.
Interestingly, most white papers in the crypto and blockchain space have adopted a balanced approach.
On the technical side, they try to explain the fundamental details of their project as it proves the robustness of their idea and its implementation. On the marketing side, they highlight the key features and applications of their project in a clear way to turn interested readers into investors.
The term white paper dates back to Britain and how the government color-coded the documents at that time. White documents were accessible to the public and available to all.
White Papers in the Crypto and Web 3.0 Space
Crypto and blockchain businesses use whitepapers to provide commercial and technical details of their projects to the community.
Today, a crypto white paper is mainly used for marketing and sales purposes and is usually published before the launch of the project to attract investors and raise the required funds for the project’s operations.
The Bitcoin white paper, for instance, was published in October 2008 while the mainnet went live with the Genesis Block at the beginning of January 2009.
The “Bitcoin: A Peer-to-Peer Electronic Cash System” article follows the structure of an academic paper and is quite technical. It explains the different components of the system in 10 major sections.
You can access the Bitcoin white paper from here and take a look at its content.
But, what does a crypto white paper generally tell you about the project? Let’s discuss this in the following section.
Goal Behind a White Paper
First, the white paper will tell you about the main goal of the crypto project. We mentioned the title of the Bitcoin white paper in the previous section: “Bitcoin: A Peer-to-Peer Electronic Cash System.”
The title alone tells you that Bitcoin is a financial system that operates without intermediaries in a P2P setup. The white paper starts with this line:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Now, if you head over to the Introduction section, you can see that Satoshi, the creator of Bitcoin, explains the issues of the current financial system and why a P2P cash system is needed. Satoshi is trying to lay the foundation for the idea behind Bitcoin here, something you will see in the most robust crypto white papers.
After that, he moves forward to the technical details, explaining how the system is actually going to work and implement their proposed idea.
Tokenomics is the next subject that is included in a crypto white paper. The details of the token supply and its nature, token allocation, distribution schedule like the vesting period, and token supply management like burning mechanisms will be included in this section.
The tokenomcis section will give you a good overview of the token’s economy and how the project is planning to keep its value in the long run.
Now, take a look at the “Ethereum: A Next-Generation Smart Contract and Decentralised Application Platform” article. This is the Ethereum white paper that was published by Vitalik Buterin in 2014, before the launch of the project.
You can tell by the title that Ethereum was created as an improved version of Bitcoin, offering “Next-Generation” applications on a blockchain system. You can also tell that “Smart Contract” and “Decentralised Application” are the two new features Ethereum will be offering on its blockchain system.
Why are White Papers Important?
Businesses mainly use white papers in the crypto and web 3.0 space to provide a comprehensive report of different aspects of their project to potential clients and investors.
A white paper isn’t a sales pitch, however, by detailing the technical and commercial parts and proving the robustness of the idea behind the project, it can convince investors of the potential benefits of investing in the project.
This is specifically true for the young crypto space where understanding the project itself can be a bit challenging for traditional investors.
Actually, the innovative nature of the crypto space has caused many investors to invest in projects without actually understanding them because a proper-looking white paper has convinced them that the project is legit.
What they’re overlooking is the fact that creating a shiny white paper isn’t that hard. In 2017, the whopping profitability of some crypto projects led many scammers to create nice websites with neat white papers to attract investors for a project that in some cases didn’t even exist.
They would offer some tokens in exchange for the funds they received (Initial Coin Offering), promising high returns as the tokens would increase in value in no time. As most of these projects lacked the proper team, roadmap, and idea, they started to fail shortly after, leaving investors with a heavy losing bag.
The ICO boom in 2017 and the drama that followed led many to be more cautious with crypto projects and look deeper into white papers to properly understand the technical and commercial parts of a project. Crypto and web 3.0 enthusiasts realised that a white paper isn’t solely enough and other aspects, such as the team behind the project, can even overweight the main idea of the project.
You should always do proper due diligence and do not rely on only one document even if it is quite convincing and robust. Always look into different aspects of a crypto project, specifically the team behind it, and Do Your Own Research. This rule is actually applicable to any investment and isn’t only limited to the crypto space.