How To Read and Understand a White Paper in Crypto

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Last updated May 18, 2023 | 05:49 PM UTC
By Alyx T.

White papers are integral to understanding crypto, especially if you are considering investing in a new project, NFT, or coin. 

Here we'll look into some of the most important aspects of how to read a crypto whitepaper and understand it. We'll also break down the white paper cryptocurrency meaning, as well as tell you what makes a white paper good or bad.

So if you've searched “crypto white paper explained”, this is the only guide on how to read crypto whitepaper you’ll ever need. 
 
 

What Is White Paper Crypto?

A basic white paper crypto definition is an informational document that aims to promote a company’s new project, or highlight the features of a service or product. 

Similar to a business plan, a crypto white paper compiles all the details and information about a project, so that investors and other interested parties can learn more about the item. 

A white paper in crypto is usually a document created by a company that wants to introduce a project, such as a new coin, token, or NFT

The white paper will outline important aspects, such as the project's goals, objectives, and timelines. It will also give details of the team members involved. 

Finally, it provides information about the product’s value and other USPs that the project will create. 

What is White Paper?
All of this information is curated to get potential investors interested in the product. Just like you wouldn’t invest in a business that didn’t have a thorough business plan, investors aren’t likely to approach a new crypto project without a solid white paper in place. 

So when it comes to how to read a crypto white paper, the answer is simple. You read it like you would a CV or business plan. 

But understanding what is contained in a crypto white paper is a little more complex, as we’re about to see. 
 
 

How To Understand a White Paper

A white paper in crypto will be full of useful information for investors and other interested parties to learn more about a particular project. 

More specifically, a white paper will include details on the following aspects of the project:

  • Goals: what is the overall purpose of the project, and what does it hope to accomplish?
  • Timeline: logical and realistic timelines that detail when various stages of the project will be completed

Understanding White Paper

  • Strategies: how does the company plan to complete its goals? What strategies are in place to fulfill targets and reach goals on the timeline?
  • Tokenomics: an integral part of the project. How does the coin/NFT etc., work? How is it issued, and how does it create value?
  • Value proposition (USP): what makes this project special? How will it generate value and, most importantly, why should you invest in it?

 

What Makes a Good White Paper?

What, exactly, makes a good white paper is a little subjective. It will depend on what type of investor you are and what type of projects you're interested in. 

However, there are some essential elements that make up what we would call a “good” white paper. 

So let's dive in and see exactly what you should look for in a good white paper. 
 

Details, Details, Details 

As a general rule of thumb, the more details in a white paper, the better. 

Whether you're a potential investor looking for a great new project or simply someone who likes to keep their hand in developments in the crypto industry, a detailed white paper should give you a great overview of a project. 

Not only do details let you get a good look at what the project hopes to achieve, but they’re also a great indication of how serious a company is about the success of its new venture. 

A detailed white paper gives anyone looking in a good first impression. It also shows that the company in question has done its research, thought long and hard about the given project, and made the necessary effort to create a solid foundation. 

Therefore, if you find a well-organized, detailed white paper, this could be the start of an excellent project and could present an exciting new investment opportunity.
 

Realistic Goals and Timelines 

It's all very well for a company to bring out a white paper that says they're going to release the best thing since sliced bread a week from tomorrow. However, we don’t have to tell you that this is simply not feasible. 

Regardless of the project, a company needs to display a logical timeline with realistic goals that can be achieved. Depending on the size of the project, this may entail many small objectives and lengthy timelines.  

As long as the white paper logically outlines these goals, however, you should be able to get a good idea of when this project will probably reach its end result.

Realistic goals and timelines are another indication of the seriousness of a company and  its new project. 

A white paper that is full of details that have been logically organized into a reasonable timeline suggests that the project is one to keep an eye on.

Good White Paper
 

Transparency 

Transparency goes hand-in-hand with trust. A white paper that clearly lists the team members and any relevant details about them shows transparency from the company in question. In turn, this instills an element of trust, especially if this company is new to you. 

A transparent white paper will contain many details about the project, its goals and timelines, and all the people who are involved. 

We would advise extreme caution around a white paper that doesn't give any information about the people involved in the project. 

Transparency in any industry is simply good business, as you only want to work with companies that are upfront with their potential investors about their brand, project, and team members. 
 

Tokenomics

Tokenomics is a blanket term used to describe everything that makes a crypto coin valuable and interesting to investors. 

A combination of the words “token” and “economics,” tokenomics comprise a coin’s ecosystem and fundamental structure, which makes it an essential part of any white paper. 

By looking at the structure surrounding a cryptocurrency, potential investors can get a feel for a project's potential value and longevity. 

Historically, coins with stronger tokenomics tend to stand the test of time. The strong ecosystem surrounding a new coin increases the likelihood of a new currency going up in value in the future.

This means that  when it comes to how to read a crypto white paper and understand it, tokenomics is one of the most essential elements.  
 

USP and Potential Value 

According to the UK site The Motley Fool, there are more than 12,000 cryptocurrencies in the world, and this number is on the rise. In fact, cryptocurrencies more than doubled between 2021 and 2022, with about 1,000 new coins added to the market every month. 

As with any saturated industry, it's important that a project stands out from its competitors and has a USP that will add value to it. Therefore, when reading through a white paper, it's important that the project should highlight its USP. 

Having a unique selling point will put the project in better stead for future success. And, of course, if the project fills a gap in the market, you may find yourself as just one of the many investors interested in it.
 

What Makes a Bad White Paper?

You could argue that nothing technically makes a white paper bad. However, in our experience, some elements can make a project seem far less appealing from the information seen in the white paper. 

With that in mind, let's take a look at some red flags that could indicate a white paper is outlining a project that is not worth your investment.
 

Salesy Language 

When trying to grab someone's attention, it is not unusual for a company to use evocative language and calls to action. However, a white paper is not the place to do this. 

So if you see very salesy language encouraging you to “act now” or “don't let this opportunity pass you by,” this could be an indication that its creators haven’t put the project together  professionally. 

A white paper is not an advertisement. Rather, it is a collection of information presented to potential investors. You would not expect to see marketing within a business plan, so the appearance of emotive language in a white paper is, at best, misplaced and, at worst, deceptive.
 

Intentionally Vague 

If detail is the indication of a well-organized and efficient white paper, then a lack of detail can be considered the opposite. 

A company that is intentionally vague and keeps specifics away from its investors should always be viewed with caution. If you feel that after reviewing a white paper, you don't know much more about a project than a quick Google search would bring up, it’s probably not worth your time. 
 

Sloppiness

Similar to being vague, a project with unclear goals and timelines should give out warning signs to potential investors. 

In a good white paper, you'll be able to see a clear and linear time scale, peppered with realistic goals and objectives throughout. However, if a white paper is sloppy and disorganized, this is a clear indication that a project has not been entirely thought through. 

It may also indicate that the project has been rushed, with no clear thought given to how the company intends to reach its goals. 

You wouldn't interview an employee whose CV was incomplete and all over the place, and we would recommend viewing a sloppy white paper with the same skepticism.
 

Unclear USP 

As we've seen, a USP is incredibly important when launching a new cryptocurrency in order to stand out in an already-saturated marketplace. A new coin, token, or NFT with no discernible USP will find it difficult to make its mark and could mean an unsafe investment for you. 

Without identifying or filling a gap in the market, the likelihood of a new coin becoming successful is extremely low. 

Therefore, if you find that a white paper does not pique your interest, or that the project does not stand out in any way, you can take this as a sign that this is not the investment for you.  If you feel that way, chances are that others will share your feelings. 
 

Pros and Cons of White Papers 

There are many aspects to consider before investing in a new project, and a white paper is not necessarily the be-all when it comes to deciding on a new venture. 

While we expect white papers to offer good insight into a company and its goals, they should not be the only things you take into account when looking for investments. 

As we’re about to see, white papers can be both a positive and negative element in the world of crypto investment.
 

Pros of White Papers 

Some of the upsides of white papers include:

  • Solid insight into a company’s goals: a well-organized white paper will outline a company’s new project and give investors a thorough understanding of a new coin, token or NFT
  • Generating excitement: a good white paper should get you excited about a project and its potential value. In turn, this creates a buzz around a new coin or token, which will generate more interest from potential investors
  • Perfect reference material: because a white paper is essentially a summary of all the details of a project, it’s a great thing to keep handy for when you want to look at the details of a specific project again. This also makes it easier to share with others, as well as pick out small details quickly and easily

Pros and Cons of White Paper

Cons

Some downsides to white papers in crypto include:

  • They can be boring: The truth is, sometimes white papers are boring. Because they are so full of information, it can be difficult to get through all of it. Even the most creative and well-organized white papers can be a little ”dry,” as they’re usually densely packed with all the details of a project, which can make them difficult to enjoy. 
  • Sometimes they’re wrong: At the end of the day, a white paper is simply a document. It  is not legally binding, nor can you complain if the project isn't completed exactly as outlined in the white paper. Companies can often over-promise and under-deliver. But sometimes, a white paper is simply untruthful, designed by a shady party in order to extort money. Ultimately, it’s your job to sort the good white papers from the bad.

 

The Importance of White Papers in Crypto 

The importance of white papers in crypto is clear. They offer a clear and direct insight into a company’s project and, at their best, are a fantastic source of information and details. 

A good white paper can be an essential part of choosing your next investment opportunity, but it should not be considered gospel truth. 

Remember, companies can fill white papers with whatever information they choose, and sometimes this info might be completely misguided or intentionally misleading. 

So what is a white paper in crypto? The answer is that it’s a useful tool. But while white papers in crypto are certainly beneficial, you should never rely on them 100% when deciding which new project you invest in. 
 

Written by

Alyx is a sports writer, casino enthusiast and wannabe crypto queen! If she’s not writing about her beloved Arsenal, you’ll find her stalking Lewis Hamilton and other F1 drivers on social media and finding new ways to invest and bet with crypto.