What Is A Cryptocurrency White Paper?
When The Founders Of An Alternate Currency Or Cryptocurrency Are Seeking Out Investors, They Are At The Ico Stage. Essentially, They Are Trying To Get The Funding They Need To Launch Their Cryptocurrency.
One Of The Documents That Are Used To Convince Potential Investors To Put Their Money In The Pot Is The Cryptocurrency White Paper. This Is A Document That Explains The Purpose, Value, And Other Details Relating To The Cryptocurrency In Question. Ideally, It Answers Any Questions That Investors Might Have.
Now The Challenge. Because There Are Little To No Regulations In Place Regarding Crypto Startups, And Because Cryptocurrencies Are Relatively New, There Are No Hard And Fast Rules Regarding These White Papers. There Is No Standard Structure For White Papers, And No Validation Methodology In Place To Ensure That What Is Claimed Within A Cryptocurrency White Paper Is Actually True.
What Does This Mean For Investors?
If You Plan To Invest In A Cryptocurrency Startup, The Concept Of Buyer Beware Applies. Do Your Research. Read The White Paper That Is Provided To Potential Investors. Most Importantly, Check Out These Thirteen Tips To Help You Understand And Verify The Contents Of The White Paper.
1. Determine The Proposed Product Or Service
There’s More To Crypto Than Simply Creating A Digital Currency. There Should Be A Clear Product Or Service Defined In The White Paper. Be Wary If This Is Too Vague. Knowing The Product Or Service Can Also Help You Determine If The Cryptocurrency Is Being Based On Something That You Believe To Be Ethical And Beneficial.
2. Identify The Problem Being Solved And The Competition
In Addition To Offering A Product Or Service, The White Paper Should Describe The ‘why’. In Other Words, What Problem Is Being Solved? Once That Question Is Answered, You Can Move On To Another Important Concern. What Other Companies Are Out There That Are Also Offering A Solution To These Problems? Who Is The Competition?
3. Identify The Company Behind The Ico
Does The White Paper Clearly Identify The Company Behind The Ico? Is That Company A Registered Entity? Are You Able To Find Information About The Company That Provides You With Reassurance About Its Validity.
4. Read The Fine Print
It’s Tedious And Time-consuming, But You Should Absolutely Read Any Terms And Conditions In The White Paper. There Are Often Important Details That You Should Be Careful Not To Miss.
5. Learn About The Founders
It’s Important To Know Who The Leadership Team Is. They Should Be Clearly Named In The White Paper As Stakeholders. This Will Give You The Information You Need To Further Research The Leadership Team On Linkedin Or Other Platforms. If You Don’t Trust The Team Behind The Ico, That Should Give You Pause.
You Could Even Reach Out To The Principals For More Information. Most Should Be Willing To Respond To A Well-written Inquiry From A Potential Investor. You Can Ensure That Your Correspondence Is On Point By Using One Or More Of The Following Tools; Grammarly, Trust My Paper, Whitesmoke, Grabmyessay, Hemingway.
6. Is There A Prototype Currently Available?
If There Is A Prototype Available, That Should Be A Bit Of A Confidence Booster. If Not, Is There A Date By Which The Prototype Will Be Available?
7. What About Product/service Availability Or Other Deadlines?
In Addition To There Being A Prototype Available Or Upcoming, What About Product Or Service Availability? The White Paper Should Clear About These Things If The Team Behind The Ico Expects People To Have Confidence In Their Offering.
8. Determine If There Are Noteworthy Investors/endorsers
Is There Any Person Or Group That You Trust Giving Their Endorsement? This Isn’t Something That Should Be A Deciding Factor, But It Is Definitely Something To Add To Your List Of Reasons To Trust The Ico.
9. Has The Token Symbol Been Finalized And Registered?
The White Paper Should Indicate That The Token Symbol Has Been Finalized. More Importantly, It Should Be Registered To The Underlying Blockchain.
10. What Is The Underlying Blockchain?
According To Devin Green, A Writer At Pickthewriter With A Background In Fintech, You Should Have A Few Questions. For Example, “what Is The Blockchain That Will Be Driving This New Currency? Is It An Existing One Such As Blockchain Or Ethereum? Is There A New Blockchain That Has Been Created Just For This Currency?” If There Is A New Blockchain Ecosystem, There Should Be Detailed Information About That, Ideally A Link To More Details About This.
11. Which Crypto Exchanges Will Be Used?
There Are No Official Exchanges For Buying And Selling Cryptocurrency Like There Are For Stocks Or Other Financial. So, There’s No Way To Tell That One Is Officially Sanctioned. Still, You Should Verify That The Crypto Exchanges Being Used Are Known To You, And That They Are Reputable.
12. What Is The Predicted Buying Pressure?
Buying Pressure Is The Demand For Buying A Financial Instrument, In This Case, A Cryptocurrency In Comparison With The Demand For Selling It. Knowing This Will Help You To Predict The Coin’s Growth Potential In Dollars.
13. Determine The Token Distribution
The White Paper Should Clearly State How The Token Will Ultimately Be Distributed. In Most Cases, There Will Be A Total Number Of Tokens Made Available For The Ico, And A Total Number Available For The Entire Project. You Should Be Able To Determine From The White Paper How Those Tokens Will Be Distributed Between The Ownership Team And Initial Investors.
Final Thoughts
As You Read A White Paper To Determine If You Are Interested In Investing In A New Cryptocurrency In Mind, Keep In Mind That These White Papers Are Not Accompanied By Any Legal Or Regulatory Endorsement. Further, They Are Written By A Private Entity That Has A Vested Interest In Your Investment.
This Doesn’t Mean That The White Paper Is In Any Way Dishonest, Just That It Is Up To You To Read Carefully, And Use Your Analytical Skills To Make That Determination. Finally, Take A Look At Some Successful Icos. Read Through Their White Papers To Get An Idea Of What You Should Expect Out Of A Successful Ico.
Author Bio: Angela Baker Is A Highly Motivated Entrepreneur Who Is Currently A Freelance Writer At Studicus, A Professional Copywriting Service. She Is On A Constant, Near-obsessive Quest For Self-improvement. Angela Is Always Interested In Finding New Ways To Grow Both Personally And Professionally. She Also Hopes To Inspire Others Along The Way. Angela Also Contributes To Liveinspired Magazine. When She’s Not Writing, She Enjoys Watching Movies, And Going To The Beach.
