What is a Whitepaper? The Significance of a Project's Whitepaper
A Whitepaper is a type of document commonly used in the technology field to provide technical information to potential customers about a particular product or service.
Hello everyone,
If you're interested in blockchain and the cryptocurrency space, especially in new projects being deployed, then there's something you must know about – Whitepaper.
The Whitepaper is recognized as an essential component of a project or a new cryptocurrency. Both investors and developers look forward to examining a document that explains the issue the project aims to address and how to achieve it. So, more precisely, what is a Whitepaper and what role does it play? Let's explore this in this article.
It’s me again, Neo — Admin — Community Manager of Optimus Finance and Growth Marketing of LECLE Vietnam. Let's get started!
1. What is Whitepaper?
A Whitepaper is a type of document commonly used in the technology field to provide technical information to potential customers about a particular product or service. Additionally, it often includes statistical data, diagrams, and evidence to convince interested investors to use the product/service.
Therefore, a Whitepaper serves a dual function of providing information while also acting as a marketing document.
The term 'White Paper' originated before its use in the crypto context. White Papers have roots dating back about a century, referring to reports issued by various departments of the British government. As for the crypto space, Whitepapers are perhaps most well-known from the era of Initial Coin Offerings (ICOs).
In cryptocurrency, when a development team plans to introduce a new project or a new coin to the community, they often present a Whitepaper containing preliminary information about the issue the project aims to address, the solution to that problem, as well as a detailed description of the product or service the project offers, its user interactions, and more.
This helps investors gain an overall view of the project and make decisions on whether to invest in it.
A Whitepaper is usually accompanied by a One Pager - a project summary on a single page, and a Position Paper, which outlines details about competitors and their positioning relative to those competitors.
The two most famous examples of Whitepapers are the Bitcoin Whitepaper and the Ethereum Whitepaper - two cryptocurrencies that currently lead the market in terms of market capitalization.
Whitepaper of Bitcoin isn't exactly in the traditional sense of a 'Whitepaper'. What the anonymous author Satoshi Nakamoto wrote resembles more of an academic paper. On the contrary, Ethereum's Whitepaper is more akin to a user manual or technical document that has been iteratively refined and improved over time, parallel to the development of the entire ecosystem.
2. The significance of the whitepaper
As the number of tokens in the cryptocurrency market continues to increase, investors and even project developers are beginning to regard the Whitepaper as a document of significant importance.
2.1. For Project Developers
Firstly, the Whitepaper serves as a tool for projects to attract and persuade potential investors. Typically, the Whitepaper is employed by new projects, often at a stage where there might not even be a product or service, but just an idea. At this time, in order to capture community attention and achieve successful fundraising, it's crucial for the project development team to convince people and make them see why the project is worth investing in.
If the Whitepaper is written hastily, unappealing, and presents a roadmap that is largely unrealistic and difficult to achieve, investors, and even the entire community, are likely to overlook the project, leading to its failure right from the start.
Additionally, the Whitepaper also serves as a means to provide information to the community. We often observe that Whitepapers are publicly available and widely distributed for a period before the project's official launch. The purpose is to inform investors about important details regarding upcoming events such as the timing and location of token sales, the publicly listed token price, how to participate in various sale rounds or events like airdrops, etc., to help investors prepare better mentally.
2.2. For Investors
Firstly, the Whitepaper enables investors to understand what the project is about, its underlying technology, the problems it aims to solve, the feasibility of its proposed solutions, and more. This allows investors to assess the potential of the project.
Moreover, the Whitepaper serves as a consolidated version of all the information investors need to know about the project, saving them the effort of searching for investment-related data and information.
Lastly, the Whitepaper helps investors form projections about the project's operational mechanisms. If you've been in the cryptocurrency market long enough, you'll recognize that there are many similar projects addressing the same issues, sometimes even utilizing the same technology. For example:
In the Layer-2: Polygon, Arbitrum, Optimism, Zk-Rollups,...
In the Cross-chain: Solana, Anyswap, Kylin, Cosmos,...
Therefore, when you read the Whitepaper of a certain project and notice its resemblance to a few preceding projects, you can immediately predict whether the operational mechanisms of this project are genuinely effective or not.
3. Contents of the whitepaper
While there is no strict rule about what a standard Whitepaper must contain, they typically include the following content:
Introduction: A concise summary outlining the purpose of the Whitepaper, the problem the project aims to address, and how the product relates to solving the issue.
Problem Description and Project Solution: This section should provide a more detailed description of the problems the project aims to solve, existing projects with products or services attempting to address the issue, and the gaps these projects have left; what sets the project's product or service apart. In essence, this part must answer the question: 'Why do users need the project's product/service?'
Token: Details on how the token operates, its use cases, the number of tokens to be issued, token allocation, different sale phases, payment methods, ownership rights, and more.
Team: Introduction of each team member and their roles within the project. This section often includes real photos of team members, short biographies, and links to their LinkedIn or Twitter profiles.
Roadmap: Plans and tasks that the development team intends to accomplish in the future. These objectives should be aligned with the issues to be solved and the solutions the project aims to provide. Through the roadmap, potential investors can better visualize the project's tangible state. Furthermore, after the project's launch, investors can use the roadmap to track whether the development team achieves the declared goals.
However, the information above is provided for reference purposes only, as it can be easily modified based on the market's actual demands, the specific characteristics of each project, or the development progress in different stages.
4. Writing a Whitepaper
4.1. Emphasizing the project introduction and table of contents
One of the most crucial steps in writing any document is crafting an engaging introduction to capture the reader's attention. A dull and lengthy opening can deter potential investors from continuing to read further.
This is where you need to outline the issue the project aims to address, provide an explanation of why this problem is significant, and even touch upon the potential consequences of not resolving it.
The introduction of the Whitepaper is also a good place to include a legal notice or disclaimer, any limitations or important notices. It could be about residents of certain countries not being able to purchase the project's tokens due to local regulations or simply informing future investors that the investment itself doesn't guarantee profits.
Additionally, you should also bear in mind that the Whitepaper is primarily a technical document and can extend to around 25 pages. Hence, making your Whitepaper more accessible is extremely crucial. A comprehensive table of contents will undoubtedly be very helpful for future investors.
4.2. Mentioning project
Allocate as much space as possible to delve into your project and precisely explain its position within the current market to potential investors. Most importantly, ensure that you elucidate what your project is and what it encompasses in terms of products and services. Below are some points you should consider when discussing your project:
Project Status: This section should offer detailed descriptions of the current state of the project, such as the initial user community (if any), prototype data, development strategy, and overall objectives.
Most serious investors will greatly appreciate and support projects that have something tangible to offer users, as this increases the likelihood of the project's token surviving in the market. If your project has any of the aforementioned elements, ensure that readers are well-informed about them.
Token: If your project intends to issue tokens, dedicate a significant portion of the Whitepaper to this section. You can explain why your project needs its own token, what its utility is, how and when exactly they will be distributed, whether there are any limitations on token issuance and more.
Budget Allocation Plan: Potential investors will want to know exactly where their funds are going and how much money the project needs to complete certain essential tasks.
Importantly, the Whitepaper should avoid mentioning vague expenses like 'networking events,' 'media development,' 'miscellaneous,' and the like. This might raise concerns among potential investors. Your Whitepaper should explicitly state that all funds raised will be allocated solely to technology development and nothing else.
Development Roadmap: Typically, the development roadmap is broken down into quarterly objectives. Ideally, it should present a detailed plan for the next 12-24 months, including at least one beta launch phase. If some tasks mentioned in the roadmap have already been completed, make sure to highlight this in the Whitepaper, as it can be considered a significant advantage.
4.3. Mentioning the Team
The team or development group is an essential and integral part of every project. For some projects, developers often remain anonymous, which can sometimes give rise to unreliable signals, suggesting that the project might have something to hide.
Make sure that the Whitepaper not only describes who the individuals behind the project are but also explains why they are significant for this project and what their contributions to the project are.
Furthermore, listing their previous experiences and education can be helpful to enhance the project's credibility. If any team members have experience with blockchain or cryptocurrency-related projects, ensure that you highlight that in the Whitepaper.
Lastly, you could also mention a few words about the project's advisors. However, avoid merely listing their names, as advisors are generally expected to be experts in the field relevant to the project.
4.4. Style, Language, and Layout
When writing a Whitepaper, ensure that you employ a formal writing style, akin to academic writing. Additionally, the document needs to be described in a professional tone. Focus on the main content and avoid unnecessary digressions.
Given that cryptocurrencies are gaining attention from new investors, you should also consider these potential audiences. People new to the cryptocurrency market may not be familiar with common industry jargon. Therefore, strive to use simple and understandable language, and consider including a glossary for readers' convenience.
Furthermore, make sure to thoroughly proofread your Whitepaper for grammar and spelling errors. It should also be properly formatted to appear professional.
5. How to read and analyze the fundamental whitepaper of a project
To determine the potential of a project, reading the Whitepaper is a crucial step. Below are some questions you should consider when analyzing a project through its Whitepaper.
5.1. What does this project do?
The first question is relatively simple yet highly crucial, as it helps you grasp the essence of the project and the problem it aims to solve. Some may find the project explanation in the Whitepaper somewhat challenging to comprehend. The amalgamation of industry terminology, technical jargon, and the names you encounter in the Whitepaper can sometimes be perplexing.
If you're unsure about what the project is doing, two scenarios might arise: either the project is fairly complex and specific, requiring a deeper understanding of the field, or it might not really be accomplishing much.
5.2. Is the Project's Idea Feasible?
A problem might have various possible solutions, and not all solutions are practical, feasible, or worthy of your investment. Just because a project claims to synchronize seasoning your food with your smartphone doesn't mean it can actually achieve it. Moreover, do you really need such a tool?
5.3. How will the project solve the problem it addresses?
Through dreams and hopes? No. The Whitepaper needs to elucidate in detail and specificity how the project development team intends to address the problem they've identified. Additionally, they should provide a clear roadmap indicating how they will execute this solution over a defined period.
5.4. Does the development team have the capability to execute the idea?
If you find individuals in the development team list who possess knowledge and experience in the field they are targeting, it's a positive signal. On the other hand, if there are inexperienced or even completely unrelated individuals within the core team roster who lack practical expertise on the project's presented challenges, you need to reevaluate the feasibility of this project.
5.5. How will your investment be utilized?
If the project doesn't issue tokens, how will they raise funds and what will the raised funds be used for? For projects that fundraise through token issuance, pay special attention to tokenomics and the roadmap to understand where your funds will be directed. Be cautious of projects that lack any information on the utilization of raised funds or allocate a significant portion to activities like marketing, AMA sessions, advertising campaigns, etc.
6. Closing thoughts
The White Paper is one of the fundamental criteria a project needs to have. It not only helps the community have a more favorable impression as the project is diligent in preparing documentation, but it also serves as a guiding light for everyone to know the path to investment.
With the evolution of ICOs, IDOs, IEOs, and so on, people are paying more attention to Whitepapers. Whether you're an investor or a developer, understanding the White Paper and its significance for a cryptocurrency project will also help you know what you need and make appropriate decisions."
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