The whitepaper is the core foundation of an ICO and it is not unusual for a company to present little else than a single document before initiating their ICO. In this segment we will examine whitepaper in detail, how to best analyze one to get as much information out of it as possible, and how to write one.
By definition, a whitepaper is an authoritative guide informing readers about complex issues and presenting an idea about how to resolve the matter. Whitepapers are created to help readers understand an issue, resolve a problem or make a decision. Within a business context whitepapers are generally similar to a marketing presentation in that they are a tool designed to persuade investors or customers of the viewpoint of the writer.
Variants of whitepapers
- A green paper is a proposal or consultative document rather than being authoritative or final.
- A blue paper sets out technical specifications of a technology or item of equipment.
- A yellow paper is a document containing research that has not yet been formally accepted or published in an academic journal. It is synonymous to the more widely used term preprint.
In regard to cryptocurrencies and ICOs within the blockchain space, a whitepaper is a document that details what problem the project is aiming to address and how it intends to utilise blockchain technology to do so. The document will usually contain the following:
- A problem and detailed solution that the project is providing.
- A detailed description of the product and the system architecture upon which it is built.
- Details of the team behind the idea.
- Comprehensive information on the ICO: how much funding will be raised, the roadmap etc.
The potential and perspective of the token, how it will distributed if the ICO is successful. The language used in whitepapers can sometimes be highly technical, however it is important not to be put off by this and dedicate a sufficient amount of time to analysing the project. When examining an ICOs whitepaper there are a few key questions a potential investor should ask:
The Use Case
- Is there a real use case?
- Is this a large problem or issue that a lot of people have?
- Is the project solving it with a unique solution?
- What does the competitor landscape look like inside and outside of digital assets?
- Is using blockchain technology necessary to solve the problem?
- Is the timeline realistic?
- Does it accomodate for the expected delays that come with developing a software?
- How will the funds be distributed in developing the project?
- Is the value of the project realistic?
It is always worth working out the market cap (market capitalisation) of a budding ICO project. This is done by multiplying the circulating supply of tokens by the value of one token.
Market Cap = Price of a Token x Circulating Supply.
After doing so, compare the market cap of the ICO to other established cryptocurrencies and blockchain projects. Is the ICO valuing itself too highly?
- How many tokens are being released?
- How many does the team keep for itself? Is the balance acceptable?
- How large is the supply of tokens?
- When will the token be released?
- Will the token have value?
- When will it be tradeable on exchanges?
- Who does the team behind the ICO consist of?
- Who are the advisors on the project? What are their track records like? Do they really support it across their social channels?
- Does their track record suggest that they capable of delivering on their ambitions?
- Do they have any prior blockchain experience?
- Have any established companies expressed a firm interest in working with the project once the product is released?
- Can these claims be proven to be true?
If you have a technical understanding of the technology, dig deeper to validate claims the team makes.
It’s vital that the whitepaper includes a detailed technical description of the project and future development plans (development roadmap). If some tasks of the roadmap have already been performed, that may be regarded as a huge advantage for the project.
An added bonus for any ICO project, although this won’t necessarily be detailed in the whitepaper, would be the ability to market themselves and the professionalism of their website. It is especially important for projects to stand out in such a congested space. Secondly, a positive social media presence of an ICO is always a bonus and allows potential investors to interact directly with the team. The most commonly used social media platforms in the blockchain and cryptocurrency space are:
- Rocket Chat
The messaging application Telegram tends to be the most direct route to interact with a project’s team as it is popular form of contact in the blockchain space. It is not unusual to have the projects team or even founders as admins for the group who answer any questions directly.
It is important to ensure that only official accounts are followed to avoid potential scams. It is best to follow the links to social media platforms from the official website and always be cautious, the threat of phishing sites is still commonplace in the ICO space.
To summarise, the whitepaper is the focal and most important aspect of any ICO and as a potential investor it is absolutely paramount to read it carefully and arrive at an informed decision before investing. There are several key factors to consider, such as the product, the team and the roadmap of the product development. However, if analysed properly, the whitepaper in combination with external research can help minimise the risk of ill-judged investments.
Before participating in an ICO
Once a potential investor feels confident about an ICO, having read the whitepaper, carried out due diligence and joined the relevant social media channels, it can still be somewhat challenging process to participate. In this segment of Blockchain Business we will explain the required steps to carry out before participating in an ICO, some of which are mandatory.