A whitepaper is a piece of information or a guide crafted in an academic layout to inform the readers about some specific issue. For instance, marketers use whitepapers to promote their products. Developers use whitepapers to elaborate on their project's new improvements and technologies.
Another major use for whitepapers can be seen in the government sector, where authorities publish legislation and policies to gauge public opinion.
Crypto companies have also started using whitepapers to promote their crypto projects. Let us discover what a crypto whitepaper is and its importance in the world of blockchain.
What is a cryptocurrency whitepaper?
Crypto whitepapers are basically a user’s guide that aims to attract investors for the currency. When a new crypto is released, the launching company publishes the details about the currency in the form of a whitepaper. The paper aims to explain commercial, technical, and financial information about the currency.
The companies include facts, statistics, formulas and diagrams about the currency to emphasize the importance of buying this currency. Although writing a whitepaper is not necessary for every company that intends to launch a cryptocurrency, a whitepaper gives a sense of professionalism and legitimacy to the company and the new currency.
A legitimate and professional business allows investors to understand better how and why this new currency is better or different from its rivals.
A white paper usually follows very moderate and plain language that every potential investor can understand. Even a common man with basic knowledge about blockchain who reads it just for information can grasp the fundamentals.
7 questions every whitepaper should answer about a crypto project
There are some questions that a good whitepaper must answer.
Concept: What is the project about?
The concept of a whitepaper refers to the introduction of the crypto project that is being launched. This section is a quick summary of the program and gives a general idea of what problems the cryptocurrency aims to address.
Operations: How does it work?
A major part of a well-written white paper discusses the working and operation of the new cryptocurrency. Two main themes covered under this vast umbrella are “what will be the project's goals?” and “how will it accomplish its goals?”
Validation: Why do people need this project?
Investors and interested parties are keen to know how a new project would fulfill their needs. It must be able to clearly convey why someone would want to invest in or use that program.
Technology: Why is this project on the blockchain?
The new advancements in terms of technology in the crypto project should be clearly stated in the white paper. The publication must be able to defend how it is relevant to the current blockchain world and user needs.
Tokenomics: How does the token fit into the picture?
Supply and demand play key roles in the success and failure of a crypto project. It should be able to justify that the currency is relevant to the needs and fits perfectly in the law of supply and demand.
Team: Who’s behind the project?
Crypto whitepapers should include a section dedicated to introducing the employees, funders, advisors, and founders of the cryptocurrency. The section aims to inform the readers about the team's expertise, skills, and relevance to the program.
Roadmap: What are the project’s plans?
A roadmap gives the reader an idea of the project timeline as well as the authenticity of a crypto whitepaper. Usually, it is a good practice to devise monthly or quarterly goals for the cryptocurrency project and add them to the whitepaper.
Why are whitepapers important?
Whitepapers hold critical value in cryptocurrencies as they aim to introduce a new cryptographic project to the world. This document contains the most in-depth information about the functionality and creation of a cryptocurrency: hence researchers and developers looking for a detailed understanding of a project use whitepapers as the main resource.
A whitepaper publicly states every nitty-gritty detail about the cryptocurrency. This ensures that there is no hidden information or motive behind a crypto project. Additionally, investors can compare the attributes with pre-established cryptocurrencies and decide whether it is a good investment opportunity or not.
Useful concepts to understand a crypto whitepaper
Understanding crypto whitepapers can be very tough for someone new to this field. Thus, it is recommendable to gain familiarity with the following basic concepts:
Blockchain
Blockchain is basically a decentralized, distributed digital ledger made to store and secure data. It can include information regarding Decentralized Finance smart contracts, crypto transactions or NFTs (non-fungible tokens). The difference between conventional data storage and blockchain is the decentralization of authority. It has four types based on the level of permissions each is controlled with. The types are Public, Private, Hybrid, and Consortium blockchains.
Consensus mechanism
A consensus mechanism is set in place to build trust, integrate security and achieve an agreement across network. A consensus mechanism is very useful in keeping precise records of transactions made on the network. In the world of crypto, Proof of Work and Proof of Stake are the two most frequently used consensus mechanisms.
Nodes
In blockchain and cryptocurrency, a node refers to the devices of individual network stakeholders authorized to facilitate communication for network processes and to keep track of the blockchain ledger. The main purpose of a node is to validate and verify every incoming transaction and continue adding new blocks to the main chain. There are two main categories in which nodes are classified: Full nodes and Lightweight nodes.
Mempool
Mempool is a portmanteau of two concepts: transaction pool and memory. When network nodes are assigned a new transaction, they run several verification checks to ensure the transaction is valid. This process is often quite time-consuming. During this process, a mempool mechanism offers a place for the suspended transaction to stay.
Soft-forks and Hard-forks
A Soft-fork is fundamentally a new change that is added, or an existing function is modified without bringing about any change in the blockchain structure.
A Hard-fork refers to a change in the blockchain protocol that changes the status of a transaction from invalid to valid.
Governance
In blockchain terminology, governance involves the concepts of control and decision-making power. Maintaining decentralization in a project also requires some level of governance to tackle uncertainty, cost issues and delays in network processes. Methods and the level of governance vary along different types of blockchain projects.
Smart contracts
These are automated programs in a blockchain whose conditions are predetermined by the transacting parties. The purpose of a smart contract is twofold. First, to build trust between the participants of the transaction and second, to automate the process flow and automatically trigger the next action in line once the necessary conditions are fulfilled.
NFTs
Crypto assets that are identified with unique codes are known as Non-fungible tokens (NFTs). Additionally, the unique metadata assigned to each asset makes them distinguishable from other NFTs. Music, real estate, artwork and any other real-world assets that one can think of can be represented as NFTs.
DeFi
DeFi is a shorter version of the term “Decentralized Finance”, DeFi refers to fairly distributing authority and decision-making power among all stakeholders. This system aims to inject authority and trust among individual P2P digital exchanges and challenge the traditional centralized banking system. DeFi provides individuals with their own digital wallets, allowing them to hold or transact their assets as per their requirements.
Staking
Staking allows stakeholders to earn a passive income by holding a certain amount of cryptocurrency in their accounts. The staker (validator) is assigned a transaction to be verified. Upon correct validation, the network rewards the validator with more crypto. The amount of crypto held determines the chances of a node being selected as a validator. The more crypto held in a wallet, the more chances of selection.
GameFi
GameFi is an amalgamation of Gaming and Finance; this concept brings together advanced gaming and blockchain technologies, such as cryptocurrency and NFTs. GameFi allows the players to earn crypto for the time and effort spent in a game. The players can monetize and shift their progress and rewards earned in a game to other games as well.
Examples of cryptocurrency whitepapers
Bitcoin whitepaper
Bitcoin is the most popular cryptocurrency of all time. Satoshi Nakamoto published the well-known Bitcoin whitepaper in 2008. The paper was named “Bitcoin: A Peer-to-Peer Electronic Cash System”.
Ethereum whitepaper
The whitepaper for one of the most successful cryptocurrencies was written by the 20-year-old Vitalik Buterin in 2014. The idea for the paper “Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform” was proposed in 2013.
Solana whitepaper
Solana's paper describes Proof-of-History and highlights its current plans. Anatoly Yakovnko published “Solana: A new architecture for a high performance blockchain v0.8.13” in 2017.
Polkadot whitepaper
Polkadot paper and the respective open-source cryptocurrency were both released in 2020. The author of the paper “Polkadot: Vision For a Heterogeneous Multi-chain Framework” was Dr Gavin Wood.
Decentraland whitepaper
This paper focuses on the economical and technical approaches and motivation behind the project “Decentraland.” The paper was published in 2017 by Esteban Ordano, Ariel Meilich, Yemel Jardi, and Manuel Araoz.
Sandbox whitepaper
Although Sandbox was launched in 2011 by Pixowl, its latest version was released in 2021 under the name “The Sandbox.”
SENSO whitepaper
This crypto whitepaper details the use cases of SENSO, the in-platform currency of Sensorium Galaxy, as well as revealing a number of features and future plans attached to the project.
Conclusion
A whitepaper is a document that provides the reader with the necessary information required to learn about a crypto project and gives the investors an idea about whether the project is worth investing in or not. Crypto companies mostly publish whitepapers to catch the attention of potential investors and users. The papers are usually in simple and understandable language; however, a reader needs to have some basic knowledge of the fundamentals of blockchain and crypto to understand a crypto whitepaper fully.
