Cryptocurrencies whitepapers can be confusing for the average Joe. How companies in the blockchain/crypto space raise millions in no time unfolds as we delve deeper into the finer details. Terms like ICOs and whitepapers that act as fundraising modes for cryptocurrency agencies are discussed hereunder. To begin with, cryptocurrency projects like an Initial coin offering (ICO) require a potential valuation and a white paper is the chosen instrument for examination. A whitepaper is part of the initial coin offering, where the entire project is explained in detail.
The product’s technology, problems, solutions, digital token, and the founding team are all detailed within a white paper. Bitcoin’s whitepaper is named “Bitcoin – A peer-to-peer electronic cash payment system,” published by Satoshi Nakamoto in 2008. If you are interested in cryptocurrencies — or investing in ICOs — you need to understand what whitepapers are and why they are essential. They’re vital to learning about the tech behind an ICO, its benefits, and risk factors. You can search cryptocurrency whitepapers on Google, but I found they can be quite challenging to understand without some background knowledge in the space. That’s why we created this guide.
Importance of reading a whitepaper
Not one but three reasons together make whitepaper a critical part of an initial coin offering. The purpose behind issuing the whitepaper is to understand the project and discover if it shall tackle and solve problems it aims to. In other words, the whitepaper’s blockchain solution, particularly its intricacies and design, justifies the digital token investment behind a cryptocurrency project. If you look at a whitepaper, it has different segments, thereby listing and defining the purpose of the offering. The official whitepaper has the following sections:
- problem definition
- product description
- technical details
- digital token
- crowdsale details
- team presentation
Please note that the segments of the whitepaper detailed above are not exclusive but inclusive. Whitepaper segments vary accordingly.
What should be included in an ICO whitepaper
A blockchain project constituting the technology’s uses and risks has all of its details in an ICO whitepaper. The whitepaper consists of a technical portion, legal portion, and marketing material. A successful whitepaper will not fail if further technical, legal, and marketing material is available in equal measure. All scrutinized to an extent where both the law and investors cannot deny the facts stated. Token generation events whereby an investor is issued security tokens have an ICO white paper as the most critical document. The whitepaper should have the following under any circumstances:
- description of the system architecture
- plans for the future (roadmap)
- partnership or any existing partnership
- terms and conditions of using the token
- user interaction with the system
- overview of the company in terms of market penetration
- the ethoses that underpin the company
As you can realize, a lot of company information comes under all the above topics. If a whitepaper is incomplete, it damages the reputation of the company. The earliest use of whitepaper back in 1922 was considered a less extensive version of a blue book. Slowly the whitepaper evolved. Crypto business owners became best friends with whitepaper. Cryptocurrency investors are looking for problems that blockchain and crypto developers can resolve.
How does an initial coin offering work
Tokens play a significant role in the initial coin offer. The developer of the ICO begins by issuing a small number of tokens. A limited number of tokens ensure value and the motive of the ICO. The tokens either have a price fixed prior to the ICO or the cost of the token varies depending upon the sale. What are the tokens?
They are native currencies, for example, arcade coins that have value and give the owner multiple rights in a native environment. By token, the transaction becomes simple. The crowd sale address of the initial coin offer is a direct link to purchase. The sum is paid, and a number of tokens are registered in the name of the person paying the amount. A separate contract acknowledging the transaction when done runs parallel to the assigning of tokens. However, most initial coin offers fail because the three most imperative ICO segments are not countered equally – security, utility, and crypto-economics.
How to write a whitepaper
If you doubt your skills, make sure you hire someone to do this job. It is no scrapbook coloring when it comes to writing white paper. Before you begin, make sure you have gathered enough information to win the battle before firing a bullet. All you need is to go through rigorous research, more research, and more research. Every area you cover in a white paper needs to have all the pointers explained in layman terms. If you are curious about a topic, make sure you do not leave the curiosity within the whitepaper, given that the acceptance of your content might backfire.
Investors looking at several projects often prefer to get a quick overall impression. Whitepaper details provide these quick impressions. Instead of digging deeper, you can conduct whitepaper scanning to read the most central questions regarding a project. For example, you can check the legitimacy of a project, the team running behind the ICO, and their efficiency. Apart from such factors, the market research for a product or service, its competitors, a token’s function, and any existing replacement of a digital token taking part in an initial coin offer can be analyzed in a whitepaper. These factors are considered to cover all essential aspects of a cryptocurrency project.
For investors making sizable deals and investments, it’s best to have gone through these details carefully and then invest. Other platforms such as bitcoin talk forums scrutinize details from whitepapers and publish them on the official website. These forums actively invite cryptocurrency community members to produce independent reviews of initial coin offers. All these valuable insights put together can help an investor invest better.