You can make some short term profit off any cryptocurrency. But for a long term investment, you must consider more than just the media hype or initial activities. This is where a cryptocurrency whitepaper becomes invaluable. You must consider its value proposition, tokennomics, real-life use cases and transparency.
What is a Cryptocurrency Whitepaper
A cryptocurrency whitepaper is a document that details what a crypto project is all about. Though not only applied to crypto, this term has become more popular with the advent of cryptocurrency.
A crypto whitepaper explains the purpose of a crypto project and how it works. In addition, it also provides information about the developers, investors, transparency and plans for the project.
What Makes a Good Whitepaper
Every cryptocurrency comes with a whitepaper. Having a whitepaper alone doesn’t mean a project will do well. There are fundamental points that a good cryptocurrency whitepaper must address to prove its worth.
With over 15,000 whitepapers on CoinMarketCap, you can quickly tell which project has the potential to stand the test of time by looking out for these features.
The first question you must ask yourself when researching a crypto project is “What problem does it solve?’ And “how is it going to solve it?” This is the first selling point of any strong crypto whitepaper. Here, it outlines the problem it intends to solve, the target market and how it will provide this value.
A coin’s tokenomics describes everything about the mechanics of how the asset works and the psychological or behavioural forces that could affect its long-term value.
A crypto project with well-crafted tokenomics has a higher long term survival chance because it has incentivised buying and holding its token.
On the hand, projects with poor tokenomics are bound to fail in the long run, as holders quickly panic-sell their tokens once they sense any troubling sign.
Project Timeline and Roadmap
Investors need to know when the token will be ready; when to expect big announcements. Therefore, the whitepaper must contain the project’s operational plan and other sales and marketing plans.
When you invest in a young crypto project, which is what an ICO (Initial Coin Offering) often represents, you are betting on the team behind the project because there is no working project yet.
If the team is strong, they have a better chance of success, and if the team is weak or comprises inexperienced people, the project is doomed before it even begins.
Before investing your money in any crypto project, thoroughly assess the team behind it.
Cryptocurrencies With the Best Whitepapers
With enough said about the factors that constitute a good whitepaper, here are a few examples of cryptocurrency projects with the best whitepapers.
Everything in cryptocurrency started with bitcoin. Bitcoin has the first crypto whitepaper ever, and other cryptocurrencies drew inspiration from it. What makes the bitcoin whitepaper so special is how it explicitly detailed everything about the project and how it would serve its users both long term and short term.
Ethereum was created as an improvement on Bitcoin. Vitalik Buterin, the creator of Ethereum, released the whitepaper in 2013. The whitepaper called attention to the various applications of blockchain technology.
According to Vitalik Buterin, Ethereum intends to create a blockchain that will allow for the creation of contacts that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.
Solana is another cryptocurrency project with an inch-perfect whitepaper. Anatoly Yakovenko published the Solana whitepaper in 2017 describing Proof of History, a system that helps to keep time between computers that do not trust one another.
The goal of Solana, according to the whitepaper, was to improve blockchain technology security, reliability and speed of transaction. It also allows for creation of contacts.
With more and more crypto projects entering the market daily and lots of media hype backing them up, it’s easy to fall prey to scam projects; that is why a thorough analysis of the whitepaper is critical. If it looks fishy, then it is fishy – stir clear.