Blockchain & Crypto

How to read a cryptocurrency white paper

One of the main criteria for the viability of a white paper is its ability to answer four questions

white paper

How to read a cryptocurrency white paper. Source: shutterstock.com

No matter who you are, developer, businessman, crypto enthusiast, or investor, you have most probably heard of cryptocurrency and blockchain. It has become a kind of axiom nowadays. Most of those who are aware of crypto and blockchain have even heard a “white paper” term. However, not all understand what it is and why such projects usually need this document.

Cryptocurrency White Papers

So, the question is, what is a white paper in terms of a cryptocurrency white paper? It is a vital part of creating a new blосkсhаіn project or сrуptосurrеnсу. Technically speaking, it is a document that explains what problem the project solves and how it does so.

Thus, knowing the right way to read a white paper is an essential issue for anyone who is in some way connected to the сrурtо industry. The right understanding of how the white paper should be read will help you to separate the truths from the falsehoods, a decent project from a scam scheme, a viable, innovative solution from buzzwords and marketing tricks, hidden behind deliberately complicated unnecessary terms.

What is a white paper in terms of a cryptocurrency white paper? Source: shutterstock.com

Introduction to White Papers

Crypto and blockchain professionals used to say “Just because it’s called a “white paper” doesn’t mean that it’s special or different from any other marketing document”. Thus, it would be really wise of you to read any white paper you come across properly and carefully. Moreover, one of the main criteria for the viability of a white paper is its ability to answer the following questions:

  1. What does this project do?
  2. How does it work?
  3. Why do we need this project?
  4. Why do this on blockchain?

So, you have to question the white paper you read, and it should contain meaningful answers.

This doesn’t mean that any white paper you’ve ever seen is a useless marketing trick. For example, let’s consider Satoshi’s Bitcoin protocol. It was developed based on the original white paper.

Now, let’s get back to the essential questions we’ve mentioned above.

You have to question the white paper you read. Source: shutterstock.com

1. What does this project do?

This question is straightforward, really blunt, but it is fundamental. Many white papers can’t answer this question properly. It’s far more likely to find a compilation of buzzwords and complicated tech terms instead of a direct answer. This makes a white paper, in short, difficult-to-decipher pointless writing.

If you are not certain what the project actually does, there can be two possible scenarios. The first scenario assumes that the project is so advanced that you merely can’t understand it, thus you’ll need more knowledge of recent crypto and blockchain advances. The second one is clear as day – the project does not do anything useful and can barely address any real issue. If you face such a situation (either of the two scenarios), it would not be the best idea to invest in the project.

If you don’t understand a project, don’t invest in it.

If you don’t understand a project, don’t invest in it. Source: shutterstock.com

2. How does it work?

Let us suppose you figured out the project’s major objectives. The next question is “How?”

A good cryptocurrency white paper should explain how the technology will work, and the best white papers do so with varying levels of complexity and technical knowledge required.

The principle is simple: the more readable and understandable a white paper is – the more useful and viable it will be. A professional who is rather well thought of in their field can explain complicated things in simple words. This principle also works vice versa, one who is not good in their field attempts to use complicated terms to explain even the simplest things and definitions.

3. Why do we need this project?

The name says everything. What is the real value of the project? You can develop a blосkсhаіn project that specializes in, let’s say, underwater fire protection. But what is the purpose of this project? Do we need it?

If the white paper gives a solid answer to who needs this project and why, then you’re onto a good idea. Source: shutterstock.com

Of course, this is not an actual project, it’s more like a joke. However, it raises an interesting question. Do we need to consider the project in the context of how workable it is in practice in the real world? The answer is yes, apparently. Who needs an unworkable and inapplicable useless project?

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.

Many project developers used to play with the “blockchain” word to confuse users and inflate their project’s value through this definition. Most of the current blockchain ICOs could really manage without a “blockchain”.

Decent white papers are able to explain why their solutions need blосkсhаin. If a project admits that it will only be using this technology for token generation/smart contracts management, that’s perfectly normal. It will be a lot worse if a project claims to have an innovative idea for a blосkсhаіn-based car wash concept or anything like this.

SEE ALSO: EXPLAINED: How to create a bitcoin wallet

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