What is a White Paper?
October 31, 2008, is one of the most important days for the cryptocurrency industry. That’s when a certain Satoshi Nakamoto, whose identity has not been confirmed to this day, published the first nine-page white paper in the history of the blockchain, titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” In this article, you will learn what a white paper is, why it is needed, and what it describes.
What is a White Paper (aka Whitepaper)
A white paper, or WP for short, is an official white paper from a company or non-profit organization that describes a product or service that is being offered or will be offered to users.
In other words, in a White Paper, you will find all the necessary information about the product: how it works, marketing strategy, economic model, details about the team, etc.
The white paper can be published both before and after the launch of the product; this is decided by the team. The protocol was launched a few months after the inventor published the Bitcoin white paper. The published document helps to draw more attention to the project and describe its strengths.
It is important to understand that it is a technical document that describes not only the general provisions and the solution in detail, but also all the necessary aspects of the implementation, up to the algorithms and phases of the project development. For example, the Bitcoin white paper describes how transactions are validated on the blockchain.
Such documents are not intended to be a user manual but serve as a marketing tool used to learn about the product and encourage potential customers to buy or participate in the project.
The term originated with official documents published by government agencies. It was first used over a century ago when the British ministry first issued a government report to draw the attention of citizens to a particular issue. The white paper describes the vision of the organization and its philosophy.
Later, in the 1990s, the term began to be used in business and the term itself is regularly written as one word: Whitepaper.
What a Whitepaper is for
The official document of the project has at least two goals: to present the project and to show how and what problem the presented product or service solves. The more detailed the white paper, the greater a company’s chances of attracting supporters. If the document contains little information and is chaotically presented, such a project could be taken lightly. In fact, this is the first thing that the creators of the project should publish.
Imagine you want to start your own crypto project and inform users about it. One of the first questions will be, “Where can I find the white paper?” Without an official document, it is very difficult to find investors, especially if they are experienced crypto enthusiasts. Some users might even consider such a project a scam, which will have a negative impact on the reputation in the future.
What is included in the white paper?
There are no specific rules for creating this document, but each project must follow the general plans that companies use to create white papers. Let us list the most common points of reference that can be found in detailed reports. You will need them when analyzing the white paper.
General provisions and introduction
Often, technical and marketing documents consist of dozens of pages: The Ethereum whitepaper, for example, has 36 pages. Therefore, it is important to captivate the reader from the first lines so that they want to read the whitepaper until the end.
Description of the problem
Before presenting a solution, the creators of the project introduce the problem and determine how relevant and widespread it is. This way, readers can see the potential of the project and assess the competition. The technical report should reflect the company’s vision and understanding of how to address market problems to show users the value of the project.
Description of the solution
The next step is to describe in detail the concept of the product or service to be implemented. The smallest details are important: users need to see that the project has real potential and will benefit future customers. The more detailed this description is, the more attractive the product will be to the target audience, including investors.
It will state what technologies the team will use to solve the stated problems. And the more innovative it is, the greater the chance that a project will become an important part of the industry. The Etherium platform brought a new concept to the crypto industry with smart contracts. This made it possible to create decentralized applications that operate autonomously without the involvement of intermediaries and human intervention in the transaction process. Today, smart contract applications form the backbone of the DeFi market.
Almost every project has clones in the crypto market:
- Bitcoin Gold, Bitcoin Cash, Litecoin, and Dogecoin from Bitcoin;
- Ethereum Classic from Etherium;
- OKEx Coin from Binance Coin.
Other cryptocurrencies, even lesser-known ones, also have many clones. These include Uniswap (UNI), Yiearn Finance (YFI), and Solana (SOL).
This section describes the details of tokens issued by creators. Tokenomics answers the following questions:
- What is this token?
- What is it intended for and what functions does it perform?
- How will holders use it?
- What value does it carry?
- How does a token differ from those issued by competitors?
The section is also supplemented with token distribution information that shows how many tokens are allocated to the team, community, and other parties. But that’s not the only thing that matters. Not only do the authors need to create a well-thought-out economic model, but they also need to justify why the project should use the blockchain and issue its own token.
In other words, it is necessary to present the advantages of the new system and contrast it with existing traditional solutions.
Information about the team
Reputation plays an important, if not the most important, role in the development of any project. Despite the fact that almost nothing is known about the creators of Bitcoin, this protocol and cryptocurrency have become key figures in the crypto sphere, and the place of the leader is still reserved for them. But this is rather an exception to the rule, considering that the project has become revolutionary for the global financial industry.
It is important that team members speak at meetings or talk about the projects in person on their official sites or video blogs. Often, scammers do not disclose the composition of the team or use fake information. And sometimes the scammers even link to the pages of real people who do not actually know anything about the project.
An abstract description of a project’s milestones can scare off the audience. One of the goals of the blockchain whitepaper is to help a company or organization raise funds to sell tokens via an ICO or other form of cryptocurrency crowdfunding. Investors need to understand what the money invested will be used for and what will contribute to the price growth of the token they have invested in.
Otherwise, backers may ignore the project and consider it unpromising. In the marketing materials, the companies describe when this or that phase of the project will be implemented:
- Launch of social networks;
- Achievement of goals (number of subscribers, wallet downloads, MVP users);
- Beta release and MVP;
- Listing of tokens on exchanges, etc.
The role of the whitepaper in tokens sales
Public sales are one of the goals of a blockchain project. The development of a particular platform requires funding, which is very difficult to obtain without a document detailing the concept of the project.
In the early stages of cryptocurrency development, the Bitcoin whitepaper was only nine pages long. The creators of Litecoin also published a simple description of the blockchain running on a modified protocol of the first cryptocurrency. But these new, previously undiscovered digital currencies had a different goal: to gain the support of miners. There was no need to invest in them, and anyone with a computer could mine coins from the comfort of their own home.
Later, Initial Coin Offering (ICO) became widespread. That is a form of crowdfunding created to raise money for cryptocurrencies. To raise funds, founders had to convince investors of the value of their project.
The unregulated and illegal ICO market caused the development of the sphere, thanks to which IEO and SHO emerged. On the one hand, it has become easier for founders to obtain sufficient funding, but now it is not enough to convince investors: a team of exchange or platform experts must personally convince themselves of the potential of a crypto project before presenting it to the public for a token sale.
A white paper serves as an important guide for users interested in the project. The more detailed information it contains, the greater the chances of the project attracting a large audience and thus raising the required amount of funding.
This document is a powerful marketing tool and source of information that crypto investors use to evaluate projects. Using the whitepaper, you can determine:
- Whether the project is original or if it is another nearly useless clone flooding the digital asset market
- Whether the project has a legal basis or is a plagiarism that violates intellectual property rights;
- What will the investors who fund the project get?
The answers to these questions will help investors make a decision: to participate in the project or flee the sinking ship.