What Is a Whitepaper? How to Read Them and Identify a Scam Crypto Project

As an investor, the last thing you’d want to do is dedicate your time, effort and precious money to a crypto project that ends up being bunk or unreliable. 

Thankfully, whitepapers mean that the crypto community can always get a good idea of what sorts of exciting and unique projects are cropping up in the ecosystem. Reading a whitepaper is easy enough, but investors need to be aware that not all of them are honest or authentic. 

Today, we’ll discuss what should be in a whitepaper, its purpose, and how you can discern the bad from the good during your own research. 

What Is a Crypto Whitepaper?

A whitepaper in crypto is a document that sets out all the important information and finer details about a platform, token, or blockchain project. 

While they can act as a basis for developers to build on, the main purpose of whitepapers is to provide potential investors with a preview of what the project is designed to do and why it exists in the first place. 

Though these papers contain plenty of technical language and complex ideas, the developers should always strive to simplify these concepts when writing. 

After all, whitepapers are publicly available for everyone on the Internet to see, so rather than skewing them towards one demographic, many will try to speak to as broad an audience as possible to gain supporters. 

The First Cryptocurrency Whitepaper

The very first whitepaper that kicked off the trend within the crypto industry was the Bitcoin (BTC) whitepaper in 2008, with the full title being “Bitcoin: A Peer-to-Peer Electronic Cash System”, written by Satoshi Nakamoto .

Though the notion of crypto as an idea had been floating around since the 90s, Nakamoto proved that it could work in practicality through his own whitepaper. So, while there were theories surrounding cryptography , financial freedom, and blockchains, for example, this long-admired document brought all of this into one clear and concise project.

Despite being full of highly complex ideas and systems, Nakamoto made his 11-page whitepaper easy to read and understand, a great introduction to the modern digital currency world.

What Must a Whitepaper Include?

When it comes to structure and formatting, though there’s no set precedent on how a whitepaper must look, there are still a handful of topics that it should always include. Many of these aspects provide transparency and honesty to the reader, which is incredibly important in trying to win over investors. 

Use Case 

Most new projects in the crypto world are created to resolve an existing issue, meaning most blockchains or tokens will be designed for a particular use case. 

For example, the Bitcoin whitepaper makes its use case clear from the first line when it describes itself as “A Peer-to-Peer version of electronic cash”. Similarly, the Polkadot (DOT) whitepaper emphasizes its intention to connect blockchains as part of a singular network, negating issues of isolation that have limited cross-chain capabilities. 

Sometimes, the use case can be explained in depth, and other times, it’s a little more subtle, but it should always be there to make readers aware of why the project exists in the first place. 

Technical Specifications 

Regardless of how grand and ambitious a project might be, it will always be grounded by the core technical aspects of crypto. I’m talking about blockchains, consensus algorithms, and cryptographic methods that keep user information private and secure. 

All of these can take many different forms. For example, consensus algorithms, which are needed for verifying transactions in a blockchain, can either use the more energy intensive Proof-of-Work , or the more modernized Proof-of-Stake .

Both will greatly impact how users on the blockchain interact with their crypto and as such, it’s worth paying close attention to this technical information to understand what the project’s bedrock will look like. An omission of such details or a vague description of how they work in practice is never a good sign. 

Tokenomics 

Mentioning the existence of a native token is one thing, but a good whitepaper should also be able to spell out other aspects of the currency so that readers understand how it works and how it will fare in the long term. 

It is important to consider how the token will be distributed, for example, as part of an ICO (Initial Coin Offering) fundraising event, alongside how the token can actually be used. For example, is there a chance to stake the token? And can it be used to help govern the network and keep it secure?

One of the most important points for this whitepaper section is the token supply. A high number of tokens can mean less value, while less can create more value due to scarcity, so identifying this and comparing it with other popular cryptos is far from a bad idea. 

Roadmap 

There’s no point in creating a whitepaper if the project doesn’t seem feasible or realistic.

The roadmap is for setting out a rough plan for future updates and implementations that will see the cryptocurrency project evolve and grow throughout its lifespan. 

It can be worth paying close attention to how honest and authentic these plans seem and whether they appear too ambitious for the scale of the project. 

Developer Information 

Similarly to the roadmap, this is an aspect of a whitepaper that is honest and gives readers an insight into the individuals taking up key roles. 

Seeing well-known developers, or those with prestigious backgrounds in the Web3 and tech industry, is always a promising sign and a great way to earn the trust of interested investors. 

Whitepaper Red Flags 

Whitepapers are designed to provide clarity, but the truth is, not all of them are honest, which can imply that the people behind it aren’t as authentic a they claim to be. 

Sometimes, developers refuse to include whitepapers in their projects, which should already set off alarm bells. However, some publish whitepapers to mislead readers and disguise their malicious intent. 

When reading through a whitepaper, these are the major red flags that the technical document in question isn’t being fully truthful. 

• Vague Information: A lack of details or omission of key information implies that the developers don’t have everything they need to pull off a successful launch or are simply hiding their incompetence. 
• Lofty Promises: A whitepaper has every right to be ambitious, but be careful if it tries to give numerous hefty promises that seem unrealistic. This is especially concerning if it sounds like advertising, such as promising to send tokens to someone through an airdrop multiple times over. 
• No Developer Details: There is never a reason to hide the identity of the developers, even if they have little experience in the field of crypto. Doing so raises suspicion that the group behind the whitepaper is untrustworthy. 
• Grammatical Errors: Whitepapers are the shining introduction to a project, and they’re a document that people will return to again and again. Most developers know this and will, therefore, try to ensure the document is error-free. 

Good Whitepaper Example 

Polkadot (DOT) Whitepaper

Despite how ambitious of a project Polkadot is in its attempt to ‘connect’ blockchains to one another, the whitepaper does an excellent job at portraying it as an easy-to-understand, and more importantly, a much-needed introduction to the world of crypto. 

This is made clear from the very first paragraph, where the whitepaper announces Polkadot as a “Next-generation blockchain” that aims to “Unite an entire network of purpose-built blockchains, allowing them to operate seamlessly.” 

After setting out Polkadot’s goal and unique purpose, the paper then covers the lingering issues it hopes to resolve within the crypto world. Forking, for example, a method of upgrading a blockchain, often takes a lot of time and effort, but Polkadot’s infrastructure negates these issues entirely, and this is just one of several examples the paper gives. 

Additionally, the paper itself isn’t just one long page of words. Instead, it splits the information up into small bite-size paragraphs, making it easy to digest and understand, no matter how complex things get. 

There’s even a whole page dedicated to the DOT token itself, including the three different ways it can be used: staking , governance, and bonding. 

The Polkadot whitepaper is interesting, informative, and extremely accessible. It is a good example of what a good whitepaper should be. 

Bad Whitepaper Example

Bitcoiin2Gen

Bitcoin copycats aren’t exactly new in cryptocurrency, but Bitcoiin2Gen is the most devious and malicious. 

Though the whole project turned out to be a scam, the group behind the token decided to rush out a whitepaper in the hopes of covering their tracks so that they could seem legitimate. 

However, the document itself is littered with issues. For one, despite being touted as a “Revolutionary” step forward in blockchain technology, the whitepaper barely even goes into the technical details and, instead, remains extremely vague. 

There’s also no structure to the paper as it just reads like a bunch of ideas and concepts all thrown into one mixing pot, implying the developers didn’t really have a real goal in mind. 

What’s more worrying is that some readers discovered that large chunks of the paper had been ripped straight out of Ethereum’s whitepaper, raising even more skepticism about the project’s nature. 

Since it eventually turned out to be a scam, those who decided to skip the whitepaper and give into the hype lost a lot of money, which shows why checking these documents beforehand is so important. 

A New Format? Ethereum’s ‘Living’ Whitepaper

While the Ethereum (ETH) whitepaper contains all of the key elements we’ve already discussed, it also introduces a unique structure that could become the precedent going forward. 

While the whitepaper itself was written in 2014, the team behind the world’s second-largest cryptocurrency has continued to update and amend it to fit their present project aims and ambitions. 

As a result, the ‘living’ whitepaper, as many have called it, has morphed into somewhat of a user manual. Ethereum has evolved numerous times since the original version, so this technique has ensured it doesn’t become obsolete. Instead, it is designed to introduce newcomers to the blockchain by providing them with accurate and relevant details on the state of Ethereum there and then. 

Pros and Cons of Whitepapers

The emergence and adoption of whitepapers have proven extremely beneficial in providing more transparency and honesty in an industry that has long been met with skepticism by outsiders. 

However, this isn’t to say that these documents are perfect, as they also have a few drawbacks that people should be aware of. 

Whitepaper Pros

• Provides Investor Insight: Whitepapers can give potential investors a taste of what’s to come, and as a result, they can act as a precautionary safety net that allows investors to know what they’re getting into and what’s being promised rather than going in blindly.
• Word of Mouth: Since a white paper makes it clear what a project is going to be doing, it allows people to spread the word much more easily since they have been given a sneak peek into what it will eventually become.
• Holds Developers Accountable: If a developer decides to stray far from what they said they were going to do, they can be criticized by going back to the white paper, which would be impossible to do if they hadn’t made the project known beforehand. 
• Industry Recognition: Any methods of bringing more authenticity to the crypto industry can incentivise those who might have hesitated to start interacting with the ecosystem. 

Whitepaper Cons

• Not Always Honest: Though writing a white paper requires a lot of details and information, this can easily be copied from other white papers. Sometimes, the dates on roadmaps are unrealistic, which can create some issues in the actual management and evolution of the project. 
• Overcomplexity: Keeping the writing simple and easy to understand in a white paper is crucially important, but developers will be writing about very complex ideas and features at the end of the day. This can sometimes cause them to go overboard with technical jargon and lingo, making the document confusing and quite uninteresting to read.
• Length: There’s no way around it: Whitepapers are long and sometimes uninteresting to read despite their importance. There hasn’t yet been a way to minimize this information or make it more digestible, which means many people may skip over them just to avoid reading pages upon pages of text. 

On the Flipside 

• Whitepapers released since the BTC paper have become increasingly complex in their language and ideas.
• As a result, most people now require at least a decent understanding of crypto and Web3 to understand them, while others choose to avoid them for this reason.

Why This Matters

Rumors and heresy can spread quickly in the crypto world, but the best way to learn about a project’s background, goals, and reasons for existence is to hear it from the developers themselves.

Of course, not all of them are honest or truthful, but if you know how to make the distinction while reading, you can easily seek out blockchains and coins that seem promising. 

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