By Larry Wright
Financial investment is a tricky business; you might get into an asset for the sake of making some money or a handsome return on your investment, only to learn at a later date that this was not the right asset to begin with. Many people with little to no knowledge have approached stock, forex, and crypto markets in their own capacities to learn and explore the opportunities these markets present.
Some have fallen to the ground with their faces kissing the dirt, while some have bounced on an elevator that only goes up. It is all a matter of knowing that you have against the financial asset you want to invest your money into. To make things simpler and to make your stand clear, let’s take an example here. Have you ever bought something without first investigating its features, costs, or maintenance-related elements?
If you are a smart person and you really care about your money and have a clear-cut idea about all the tedious exercises you have to perform to get that kind of money, then most probably not. You might perform extensive research before buying something to get to know it a little bit better and how it is going to transform your life. The same is true with cryptocurrencies.
There are literally thousands of them out there, and without careful analysis of what these cryptocurrencies back, how they are different from the top tier ones, and what kind of benefits you would be able to crave out of these cryptocurrencies, it might be foolish to get ahold of particular crypto and then to continue investing in it.
You don’t have to fall for a certain cryptocurrency just because the market is hinting that it is the right cryptocurrency for you and it is going to provide you with significant returns in the future; believe it or not, there is a proper guide out there for every cryptocurrency ever launched. It will help you, the trader, to better understand the crypto you want to invest in and what kind of securities or assets this crypto is backing; it is known as the whitepaper.
It is a key document that is released for every digital currency out there and not only for cryptocurrencies but also for stocks and other tradeable entities out there. It helps you to analyze what this specific financial asset stands for, the elements that it backs in real-time, and what kind of exposure it would allow you to have. All of this and more could be analyzed by reading the whitepaper for a dedicated project in question.
What is a Whitepaper?
Whitepaper essentially is the 1st and primary gateway of information for a dedicated crypto project out there. It is an official document that is released by the developers and creators of that specific project explaining the true potential and value of the project, the very problems that it seeks to solve, and the solutions to do so, such as how it originally plans to do just that.
So in a way, you are not only getting a sneak peek into the financial asset that you want to invest in but also what kind of problems it seeks to solve and what specific solutions this financial asset has in mind when it comes to the execution of that very element.
A whitepaper that is written absolutely is going to answer all of these questions in a proper fashion along with technical specifications that are like ‘stats for nerds’, performing extensive market research and risk analysis to back its claims. It is not an easy thing to do, coming up with a financial asset and then having to write a whitepaper around its technical specifications and whatnot which would eventually be backing the play of the whitepaper in the first place.
Most of the time, whitepapers would contain the same key alliance as the financial asset itself, and this thing has a particular correlation with the rest of the whitepapers that have been written because the technical specifications and the criteria on which these papers are written might be the same for a wide variety of cryptocurrencies out there.
So at the end of the day, do you know what kind of technical specifications you want to discover or explore about a certain cryptocurrency? So the only thing that you want to learn is how to read them and how to make sense of these various technical sections. This is for your own safety that you get initial exposure for those specific references and whitepapers that back down their play.
Most of the crypto projects out there might turn out to be a scam which means that they would have an elaborative approach to their own financial asset, which is the cryptocurrency they are developing, and with that being said, they might have also developed the whitepaper so if you are a beginner and have no exposure to whitepapers, how they’re written and what kind of technical analysis you should be reading on them then eventually it seems like you would have to be falling for that elaborate scam.
You would presume that this project is legit, and it offers a seemingly accurate depiction of whatever cryptocurrency they have developed or developing, and you would eventually make your mindset towards giving them your money.
Whitepaper and, more appropriately, a method to read and explore the whitepaper would be helping you big time here because not only you would be able to dissect that very project in its entirety but at the same time be able to learn the intricate values for that specific project.
It doesn’t only save you from the scam, but it also provides you with enough insights to go further down that line should you want to pour your money into this specific asset based on the technical assumptions and varieties discussed in the whitepaper or should you just back off and try another cryptocurrency or financial asset out there.
There is a proper list of key elements that you should be investigating within a whitepaper, and for your ease moving ahead, we will be putting the list of those key elements down here.
What is the Purpose of the Project?
This is the very first thing that you would bump into while trying to read a whitepaper in question. This particular beginner section of the whitepaper is going to provide you with insights into the very purpose of the project in question and the very function of the digital asset that is being created here.
What does this project entail? Is it just a different approach to blockchain technology in general? Does it provide solutions to tackle the non-fungible tokens, or does it cover the problems associated with developing within the crypto market for a new crypto project?
Is it going to award the artists who are going to flood the network with their own artwork and artistic approach? Or is it going to be a decentralized approach to web 3.0 and the Internet that we connect with on a daily basis in general?
This is the section that needs to be transparent about the working of the project in question, the delicacies that are involved within the project along with various other attributes, but in all transparency and ingenuity, the whitepaper must answer all of these questions.
Whitepapers are the stepping stones for any dedicated crypto project out there as these use solid and legitimate terms to explain the working of the digital asset in question, why it was created in the first place, and what is the purpose of the project moving forward.
Financial, legal, and other potential teams are bound to work on the whitepaper so that the language that it comes out, in the end, is clear, understandable, and discernible from all other attributes that this whitepaper doesn’t plan on solving or addressing.
What Problem Does It Solve?
After it has been made clear within the whitepaper for a dedicated project concerning why it was created in the first place, the next thing that must be made clear right after its purpose is the problems it was created to solve. Is it a real problem that applies to real-world dynamics or just some kind of fabrication? You might not be able to digest it, but in reality, many crypto whitepapers usually tackle made-up problems and instances that do not happen to be prevailing in the real world; why is it done so then?
Maybe to those crypto leaders delegating the crypto projects, it is all about how much investment they can procure from the investors in the name of solving some mysterious problem that doesn’t even exist in reality, or it might be a foresight on their part looking directly towards the problems of the future, how they can affect their performance and most dynamically what needs to be done today to solve the issues of tomorrow.
While you are reading that whitepaper, you need to ask yourself how this problem is relevant today and what needs to be done but more importantly, what the whitepaper on the project in question is going to do about it.
Is it going to address the issue in great detail and propose solutions to the problems that are prevalent in the present, or is it just going to ramble about possible solutions that might or might not be applicable to this problem and used up as an excuse to gravel up finance and investment from the investors and just stretching the research project thin?
You need to look for global trends that dictate the seriousness of the problem that the paper is discussing, from just how serious this thing is and if it needs to be tackled right away in an urgent sense or is it alright if it can be backed into a corner a bit and some more important problems could take its place.
How Does This Project Give Solutions to Problems?
A whitepaper for a dedicated financial asset is going to state the problems; clearly, it will state them in a way that is understandable for the majority of the audience, and it is done to make sure that the problems are put right out there, and there isn’t any pause or deviation from the central problems that the project is trying to solve.
The next thing that comes after the listing of problems is the possible solutions that the developers have in mind for proceeding further with this project of theirs.
It should be made clear how the project essentially aims to solve these problems, this section is going to be extremely technical than you care to give it some credit for because here, the solutions are discussed for the problem at hand, and therefore you should assume mentioning of numbers, figures of speeches and other proper financial definitions into the mix for this particular section.
These solutions would essentially help in the achievement of primary goals that the project has set for itself here, so if the talk in this section for a dedicated whitepaper is extremely boring, far-fetched, or just doesn’t pinpoint the solution for that particular problem, then you know for sure that the project in question doesn’t have even the faintest idea how to approach this whole thing, they are just bidding time and money from the investors, and in reality, the project doesn’t have any tenacity, to begin with.
This segment should justify what the project requires in a certain fashion for the sake of achieving the primary goals along with the secondary ones, which need to be planned in a consistent fashion once the first ones have been met. Is it really beneficial for the blockchain technology to be used in the context of benefiting the project? Can it benefit from some other technology that is not primarily decentralized? If so, then in what specific way?
Not all crypto projects require the intersection of blockchain technology; for that matter, some can be dealt with a simpler and direct approach; therefore, there is no requirement for decentralized technology to be thrown into the mix, whatever business model the project is depicting at hand it can either require blockchain technology or simply conventional modes of finance or even a hybrid approach which contains a mixture of both.
Token Economics
This part is going to shed some light on the possibility of that project using a dedicated token as a mode of finance for their own operations dedicated to their own platform. You shouldn’t be intimidated running into all those creepy words and definitions within this section because, ultimately, you will be given an insight into how the tokens are going to play their role in sustaining the business applications of the present project and what kind of growth potential we are looking at.
This will allow you to understand not only the future value of the token but also if you should hold your horses and put down your money into this particular project.
The economic section of the whitepaper is actually more lucrative for traders and investors than it is for the normal people because traders and crypto analysts are after the token economics, they don’t care what kind of problems the project is going to solve, and they certainly don’t have many feelings for the solutions presented in there to tackle those problems.
One thing that they are truly interested in is the economic value of the token and the certain financial gonna mix that the whitepaper explains in great detail.
It is going to tell you exactly the utility or use case of the token, such as if it is going to be used on a platform for the sake of paying for transactions or other products or services sold there or if you can only invest in this particular crypto token through decentralized exchanges out there? Is the project going to hold their tokens within their portfolio for the long term, or are they willing to drop the token action as the panic hits the markets, and they just don’t want any affiliations with the token itself?
These questions will help you to truly understand the worth of the project and if it is something that you should put your money into.
The overall supply of the token is also going to be discussed, such as is it going to be limited or infinite? Is the token present in a finite number which means that it is more precious and would have a more applicable intrinsic value within the market, or is it going to be infinite, which means that whenever there is a shortage, you can just print out the new ones right away?
This doesn’t add to the intrinsic value of the token in question, and therefore it is not worth your time as an investor to put down your foot and invest in this particular project.
Last but not least, you will be given an insight into the road map of the project and its summary; it will reveal the long-term plans the developers have in mind for this particular cryptocurrency project they are going to launch; well this is an important feature taken into account when putting your money into a dedicated project.
At the very end, you will be introduced to the team of the project, such as who are the founders, who are some of the employees and advisors along with what particular developers are working on the project at a given time? What is their general reputation in the market? These things will help you to assess just how big or significant that project really is and if you should be interested in it at all or not?