A Guide to Understanding Cryptocurrency White Papers
Anyone looking to invest in bitcoin or any other form of cryptocurrency has surely spent some time researching and reading about it. Entering the crypto world without any knowledge would be a crazy and reckless thing to do, especially if you are planning to invest money into it. While blogs, forums, and the many available cryptocurrency websites put no limit to the amount of information available for anyone looking for help, there is no denying that the best way to understand a cryptocurrency would be to read its white paper. A white paper is like a blueprint to a building, the syllabus to a class or, more literally, the proposal to a project.
Cryptocurrencies are generally just online digital projects which are carried out through blockchain technology. A white paper provides a written document for business people, investors, and even developers to help them understand what the project is about. For anyone planning to get into the crypto world, understanding a white paper is not just an advantage but should be considered an essential skill.
Getting into it, here are a few things you should know about:
There are No Official Rules or Standards for White Papers
White papers have no set format but a majority of them contain an Abstract and Introduction, Discussion on Technology, Emission Plan, Incentives, and finally, a Conclusion. Basically, these parts aim to inform people on what the main purpose of the new blockchain is, how it would work, how people would be able to benefit from it, and the general processes involved in its development.
The things that you do need to look for when reading a white paper, are these things:
The main vision or goal of the new project should be a concern. Why should this be created? What purpose does it serve? What will it do? These are the questions that you should ask and that should be answered. It is highly likely that new cryptocurrencies that aim to serve a purpose or fill a niche that has already been filled by an existing currency would not be able to succeed in the market.
Although not everyone may be able to fully comprehend the technicalities and processes that serve as the basis for blockchains, having a general understanding of how it works would definitely be better than not knowing anything about it at all. Oftentimes, processes may involve a lot of technical jargon but their definitions can easily be looked up online. Equipping yourself with the knowledge of how a cryptocurrency works will help you to assess whether it would have an actual role and be able to fulfill its role or whether it’s another online scam.
Quite similar to finding a crypto’s purpose, knowing whether its purpose would actually be applicable to today’s society would also ascertain whether a currency will become successful. More simply, you need to ask why we need this new cryptocurrency? What niche does it fill? An invention may be entirely new but it may not always fit into the community.
Finally, does this project have to use blockchain? There is a need to identify whether the purpose is truly attainable through blockchain technology or whether this can be done through other methods. If other methods can be applied, then you can go and ask why should we use blockchain instead? More specifically, what is the benefits of blockchain use to this particular project?
2. You do not need to have a degree in computer science to understand them
As said earlier, many white papers may contain technical jargon and some terms that are not easily understood. However, with a bit of research, more reading and experience, a better comprehension is easily developed over time. The complexity that a white paper presents its cryptocurrency is not an indication of its legitimacy and it is definitely not a sign that it would become successful in the market. There are many which are very well presented and contain several technical terms that only serve to confuse readers, impress people and scam them out of their investments. The Bitcoin was presented in a very simple and short white paper by Satoshi Nakamoto and is the number one cryptocurrency today.
3. White papers will not assure you whether it is a legitimate new cryptocurrency
There is no official body to review and check the plans presented in a white paper. It is entirely up to the investors and developers to decide whether a new cryptocurrency would become successful or would end up as a bad investment. That is why it is important to develop the necessary skill of learning to understand what a cryptocurrency is about, how it works, and what it plans to do in order to protect yourself from being scammed. This guide provides no sure proof method of keeping your investments safe but only aims to help inform and enlighten people on the main purpose of crypto white papers.
Crypto Business World
CBW - External Analyst