What is a cryptocurrency white paper?

A cryptocurrency white paper explains the project's products and goals to its audience. Projects are free to choose the type of information they wish to provide, but generally, a white paper outlines the project's goals, token economics, product, features, and development team information. Therefore, white papers can be a good entry point when doing research on a particular project.

A white paper, which summarizes important information about a blockchain or cryptocurrency project into one document, has become a popular way for projects to explain how they operate and what they were created to do.

What is a white paper?

Generally speaking, a white paper is a report or guide designed to provide readers with detailed information on a particular topic or issue. For example, a developer could create a white paper on their software to explain to users what the software is about and what it does.

In the blockchain space, a white paper is a document outlining the main features and technical specifications of a particular cryptocurrency or blockchain project. Although many white papers are aimed at token projects, they can also be based on other projects of different types, such as decentralized finance (DeFi) platforms or earn-as-you-go game projects.

White papers may outline basic data in the form of statistics and charts. In addition, the white paper may also introduce the project's governance structure, operators, and current and future development plans (ie roadmap).

However, there is no official format that must be followed for making white papers, and all projects can make their own white papers according to their own specific conditions. Ideally, a white paper should be neutral and informative, clearly explaining the project and its goals to the audience. Users should always be cautious if a project white paper uses inductive language that promises too much without providing sufficient information.

A cryptocurrency white paper provides investors with a comprehensive overview of the project and is therefore often considered a business plan for a cryptocurrency project. But unlike business plans, white papers tend to be released before cryptocurrencies are launched. Therefore, white papers are often the entry point for people to understand the direction and goals of a cryptocurrency project.

What information will the white paper provide?

Project founders will present their project goals in a white paper. For example, Bitcoin’s white paper states: “An electronic cash system implemented entirely through peer-to-peer technology, enabling online payments to be initiated directly by one party and paid to another without going through a financial institution.” The Ethereum white paper explains that Its goal: "Ethereum aims to create an alternative protocol capable of developing decentralized applications."

White papers usually introduce the practical utility of a cryptocurrency project in the real world, such as describing how the project can solve a specific problem, or improve some aspect of our real life, etc.

However, users must be cautious about these promises, because it is not difficult to make a white paper. For example, the initial coin offering (ICO) boom of 2017 spawned thousands of highly “creative” token projects, but most of them failed to materialize. From experience, users need to keep in mind that a cryptocurrency with a certain use case attached to it will not necessarily be accepted and used by people.

Therefore, besides the goals and promises, the white paper can also show the real working mechanism of the relevant cryptocurrency. For example, it could shed light on what consensus mechanism a project employs to enable network participants to coordinate in a distributed fashion.

In addition, the white paper can also provide an in-depth introduction to the token economics part of the project, such as token burning, token distribution and incentive mechanism, etc. Finally, the white paper may include a roadmap to inform users of the project timeline so that users know when the product will be released.

To make it easy for everyone to read and to ensure that users have at least a basic understanding of the cryptocurrency or blockchain project in question, white papers are usually very concise. However, a good white paper will also provide relevant technical explanations to prove the project's capabilities to users.

Why is the white paper so important?

White papers are very important to the cryptocurrency ecosystem. Although there is no uniform standard for the production of white papers, they have become a research framework for cryptocurrency projects.

Therefore, in general, users are advised to read the project white paper as an entry point for researching this cryptocurrency. With the help of a project white paper, users can identify potential red flags or determine whether a project is promising, and can also monitor whether a project is following its initial plans and goals.

The white paper ensures fair and transparent project operation by disclosing key project information. All parties can benefit from the white paper. For example, investors can use white papers to make better investment decisions, while developers can decide whether they want to participate in a protocol. Similarly, those who are interested in project ideas can more confidently decide whether to join a particular community after reading the white paper.

White paper example

Bitcoin White Paper

In 2008, the Bitcoin white paper was released by an anonymous individual or team named Satoshi Nakamoto. The Bitcoin white paper is titled "Bitcoin: A Peer-to-Peer Electronic Cash System".

The white paper outlines how Bitcoin can be used as a more efficient form of currency outside of the traditional banking model, while also explaining technically how users can use the Bitcoin peer-to-peer network to send digital currency without the involvement of intermediaries. Additionally, the white paper describes how the Bitcoin network is protected against censorship and double spending attacks.

Ethereum White Paper

In 2014, the Ethereum white paper was released by a young programmer named Vitalik Buterin. But as early as 2013, Vitalik proposed the idea of the white paper in a blog post "Ethereum: The Ultimate Smart Contract and Decentralized Application Platform". The blog post presents the idea of a Turing-complete blockchain, a decentralized computer that can run any application given enough time and resources.

The Ethereum white paper explains how it differs from Bitcoin's goals. The specific function of Bitcoin is to provide peer-to-peer digital payments, while the Ethereum white paper provides a platform for developers to develop and deploy various decentralized applications (DApps). For example, it could become another cryptocurrency or a decentralized lending platform. In addition, the Ethereum white paper also introduces key technical solutions used by Ethereum, such as smart contracts and the Ethereum Virtual Machine.

Summarize

Ideally, a cryptocurrency project white paper should provide users with the necessary information about its goals and implementation path. In fact, however, white papers are not regulated and anyone can write them. Therefore, if you are interested in a project, be sure to carefully analyze its white paper and pay attention to potential red flags and risks.