If you’re interested in the blockchain space, whether as an investor, businessperson, or developer, one thing you can’t avoid is white papers. Every week, there is a new blockchain or cryptocurrency white paper touting new technologies that will “revolutionize” the industry.
As a result, white papers have come to be known as an essential part of creating a new blockchain project or cryptocurrency. Investors, businesspeople, and developers expect to see a document that explains what problem the project solves and how it does so.
Consequently, learning how to read a white paper is a critical task for anyone getting involved in crypto. As most investors and observers in the industry know, there are quite a few scams in the space.
Introduction to White Papers
White papers are documents that explore a use case for a product or service. While most blockchain investors think of cryptocurrency white papers, they have a long history in technology and business generally.
Moreover, they’re not limited to technical applications, and there really aren’t any rules for what constitutes a white paper. Anyone can publish one. Ultimately, they’ve become as much about marketing as they are about explaining a problem and a solution.
There are a couple key questions you should ask to determine the legitimacy of a cryptocurrency white paper:
1. What does this project do?
The first question should be fairly straightforward, but quite often you’ll find white papers are confusing. The combination of buzzwords, technical jargon, and made up names that you find in the typical cryptocurrency white paper is frequently difficult to decipher.
If you’re not sure what the project does, there are two likely conclusions. Either the project is so advanced that you’ll need more knowledge before you understand it, or the project doesn’t really do anything.
2. How does it work?
After you find out what a project aims to accomplish, the next question is “How?”
A good cryptocurrency white paper should explain how the technology will work.
By the end of the white paper if you can’t articulate what problem the project solves and how it does so, then the white paper did a poor job. In fact, a well-articulated white paper is a sign of a well-thought out project.
3. Why do we need this project?
It’s critical that you examine the project in the context of the real world. Who will actually use this product, and why is this solution better than anything they currently have? If the cryptocurrency white paper gives a solid answer to who needs this project and why they need it, then you’re onto a good idea.
4. Why do this on the blockchain?
Not every project needs to be built on the blockchain. The best white papers will be honest about why their solution needs the blockchain. Many projects freely admit that they’ll only be using the blockchain for token generation and some smart contracts management, and that’s perfectly okay. But if a startup claims to have some novel idea for blockchain-based carwashes or something like that, beware.
Conclusion
Ultimately, reading a cryptocurrency white paper is about knowing what to look for and then trusting your gut. White papers come from companies that haven’t even launched yet, so there are bound to be a lot of unknowns. If you decide to invest in a project, then follow sound investment philosophy and don’t invest more than you can afford to lose.
Source: Coincentral.com