Abstract

A cryptocurrency whitepaper explains a project's product and goals to its audience. While projects are free to choose the type of information they provide, whitepapers generally outline the project's objectives, tokenomics, product, features, and development team. Thus, a whitepaper can serve as a useful starting point when researching a specific project.

Introduction

Whitepapers consolidate key information about a blockchain or cryptocurrency project into a single document and have become a popular way for projects to explain how they operate and their creation goals.

What Is a Whitepaper?

Generally, a whitepaper is a report or guide designed to provide readers with detailed information on a specific topic or issue. For example, developers may create a whitepaper for their software to introduce its purpose and functionality to users.

In the blockchain space, a whitepaper is a document that outlines the key features and technical specifications of a particular cryptocurrency or blockchain project. While many whitepapers focus on token projects, they can also cover other types of initiatives, such as decentralized finance (DeFi) platforms or play-to-earn gaming projects.

Whitepapers may present foundational data in the form of statistics and diagrams. Additionally, they might detail the project's governance structure, operators, and current and future development plans (i.e., roadmap).

However, there is no official format for creating a whitepaper, and projects can structure theirs as they see fit. Ideally, a whitepaper should be neutral and informative, clearly explaining the project's content and goals. If a whitepaper uses promotional language or makes excessive promises without sufficient supporting information, users should remain cautious.

Cryptocurrency whitepapers provide investors with a comprehensive project overview and are often regarded as the business plans of crypto projects. Unlike traditional business plans, however, whitepapers are typically released before a cryptocurrency's launch. As such, they often serve as the first point of reference for understanding a project's direction and objectives.

What Information Does a Whitepaper Provide?

Project founders use whitepapers to present their goals. For example, Bitcoin's whitepaper states: "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution." Ethereum's whitepaper, on the other hand, explains its objective as: "Ethereum aims to provide an alternative protocol for building decentralized applications."

Whitepapers often describe a cryptocurrency project's real-world utility, such as how it solves a specific problem or improves certain aspects of daily life.

However, users should approach such promises with caution, as creating a whitepaper is not particularly difficult. For instance, the 2017 initial coin offering (ICO) boom spawned thousands of highly "creative" token projects, most of which failed to deliver. As a rule of thumb, users should remember that simply attaching a use case to a cryptocurrency does not guarantee its adoption or success.

Beyond goals and promises, whitepapers can also explain how a cryptocurrency actually functions. For example, they may detail the consensus mechanism used to enable distributed coordination among network participants.

Additionally, whitepapers may delve into the project's tokenomics, covering aspects like token burns, distribution, and incentive mechanisms. Finally, they might include a roadmap to inform users of the project's timeline, including planned product releases.

To ensure accessibility, whitepapers are typically concise and straightforward, allowing readers to gain a basic understanding of the cryptocurrency or blockchain project. That said, a well-crafted whitepaper will also provide technical explanations to demonstrate the project's capabilities.

Why Are Whitepapers Important?

Whitepapers play a crucial role in the cryptocurrency ecosystem. Although there is no standardized format for creating them, they serve as a research framework for crypto projects.

As such, it is generally advisable for users to start their research on a cryptocurrency by reading its whitepaper. By doing so, users can identify potential red flags or assess the project's viability. They can also monitor whether the project adheres to its initial plans and goals.

Whitepapers promote transparency by publicly disclosing key project information. Various stakeholders can benefit from them: investors can make better-informed decisions, developers can evaluate whether to participate in a protocol, and those interested in the project's vision can confidently decide whether to join its community.

Whitepaper Examples

Bitcoin Whitepaper

In 2008, the Bitcoin whitepaper was published by an anonymous individual or group under the name Satoshi Nakamoto. Titled "Bitcoin: A Peer-to-Peer Electronic Cash System," the whitepaper outlined how Bitcoin could serve as a more efficient form of currency outside the traditional banking model. It also explained, from a technical perspective, how users could send digital currency via a peer-to-peer network without intermediaries. Additionally, the whitepaper described how the Bitcoin network resists censorship and double-spending attacks.

Ethereum Whitepaper

In 2014, the Ethereum whitepaper was released by a young programmer named Vitalik Buterin. However, the concept was first introduced in a 2013 blog post titled "Ethereum: The Ultimate Smart Contract and Decentralized Application Platform." The post proposed the idea of a Turing-complete blockchain—a decentralized computer capable of running any application given sufficient time and resources.

The Ethereum whitepaper highlighted its differences from Bitcoin's objectives. While Bitcoin focuses on peer-to-peer digital payments, Ethereum's whitepaper presented a platform for developers to build and deploy various decentralized applications (DApps). For example, it could serve as the foundation for another cryptocurrency or a decentralized lending platform. The whitepaper also introduced key technical solutions, such as smart contracts and the Ethereum Virtual Machine.

Conclusion

Ideally, a cryptocurrency project's whitepaper should provide users with essential information about its goals and implementation path. However, whitepapers are unregulated, and anyone can write one. Therefore, if you are interested in a project, carefully analyze its whitepaper, paying close attention to potential red flags and risks.