Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $2,17 trillion. Bitcoin continues to trade at around $62,300. Ethereum experiences no changes and stagnates at around $2,400. XRP is down by 2%, Solana by 1%, and Dogecoin by 3%. Almost all altcoins are trading in the red, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
What Is A Cryptocurrency Whitepaper?
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If you’ve been reading beneath the surface on anything cryptocurrency-related, you’ve probably encountered the term “whitepaper” before. Though it existed long before cryptocurrency, it became popular during the digital asset boom this year. So what does it mean?
What’s a Crypto Whitepaper?
A crypto whitepaper is a document explaining a blockchain project, the problem it solves, and how it works. These documents are essential for anybody looking at cryptocurrencies as anything beyond speculative instruments.
Whitepapers allow different coin, blockchain, token, and protocol projects to differentiate themselves from others, justifying their use cases. They are the foundation of an investor’s faith in any of the almost 22 000 coins currently listed on CoinMarketCap. Whitepapers are, fundamentally, marketing material.
Reading a whitepaper can help people distinguish innovation from redundancy, a joke, or a scam. For example, the notorious Squid Game token’s whitepaper explicitly stated that users couldn’t sell their tokens after buying them. This – alongside its numerous spelling errors – could have alerted victims had they read the whitepaper in advance.
It is professional and commonplace for cryptocurrencies to come with whitepapers to have some air of legitimacy. Their function within crypto is much like websites for standard businesses today. However, they are far more meticulous, detailed, and often technical than typical marketing copy.
Components of a Whitepaper
Now that you know what a whitepaper is, it’s time to learn to navigate one. Most whitepapers feature a similar primary structure, which is essential to keep in mind when reading or creating them.
The Outline (Introduction)
An outline distills the premise of a project into one or two short paragraphs. As an investor, you’ll likely use the abstract as a litmus test before studying other projects. Therefore, authors must sell this section as best they can with their technology’s core value proposition.
Key questions to ask when creating an outline:
- What problem is your token, crypto, or network trying to solve?
- How does your technology help solve that problem in an innovative and groundbreaking way in a few sentences?
The Bitcoin whitepaper’s outline establishes the problem plaguing legacy e-commerce: the need for trusted intermediaries to mediate transactions. It explains why this creates added transaction costs, makes irreversible transactions impossible, and makes some degree of fraud unavoidable.
Satoshi starts discussing his solution to the problem: a peer-to-peer payment network based on cryptographic proof.
The Solution
With the reader’s attention seized, the whitepaper should explain why a given project is an adequate solution. This is where things can get technical, explaining consensus mechanisms, incentive systems, block sizes, governance, tokenomics, etc.
Most crypto white papers make distributed ledger or “blockchain” technology the solution’s foundation.
Key questions to ask when drafting the solution:
- How does my project solve the problem mentioned in the outline?
- How can I assure investors/ buyers of my token that this project will work?
- What market niche does this project fill?
Bitcoin’s whitepaper explains the technical elements of the network’s operations almost in its entirety. For example, it details the processes of a timestamp server (now called “blockchain”). Also, it talks about proof-of-work and network nodes, which form a digital payment solution. Lastly, it includes visuals and charts to help readers struggling to understand these novel concepts.
Bitcoin is the first cryptocurrency ever. So, it requires more time to explain some of these mechanisms. However, today, the crypto community understands concepts like proof-of-work, blockchain, and node operation. So, up-and-coming projects do not have to go into detail about them when developing their white papers.
Instead, authors may focus on providing their ICO project budget breakdowns. This practice would reassure investors that their money will be spent wisely. It may also be used to create a project roadmap, indicating a team’s scheduled plans and growth targets going forwards.
Team Overview
Any team that cares about establishing trust and transparency will include a list of its members profiles at the end of its white paper. Ideally, one would like to leave references to the team’s social media profiles to verify real people. This was another giveaway within the Squid Game scam. For example, the whitepaper included fake profiles of untraceable people online.
Conclusion
A cryptocurrency white paper is crucial for any business launching a blockchain token or project.
The document helps establish trust in a space otherwise rife with scams and hacks. When writing a whitepaper, showing the problem a project solves is critical before diving into technical details. In addition, authors should drive a project’s usefulness and trustworthiness home at every opportunity. Finally, could you be fully transparent with your team members’ names, roles, and social profiles in the whitepaper?
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