How to Read and Analyze a White Paper?

During the 2017 Bitcoin bull run, ICOs were all the rage.

They became so popular that a study in the Finance Research Letters analyzed 1,258 crypto white papers to identify patterns. According to the study, the length and complexity of a white paper were correlated with the ICO's success - the longer and more complex the white paper, the more money the coin raised.

These two whitepaper-related skills are vital for crypto investors to make good investment decisions:

Being able to read a white paper
Distinguishing good white papers from poor ones

That is why CoinMarketCap Academy put together a comprehensive guide to crypto white papers. You will learn:

How to identify a white paper's objective
The structure most white papers follow
How white papers differ from each other
What you need to know to understand a white paper
Why white papers are becoming less popular
Common red flags in white papers

After this guide, you will easily identify informative and useless white papers.

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What Is a White Paper?

The term white paper (or whitepaper, both styles are acceptable) originates in politics. The first-ever white paper was the Churchill White Paper in 1922, which introduced a policy idea before it became a law. While politicians used them as trial balloons, white papers became more widespread in marketing and sales in the 1990s. These turned into a tool to promote products and raise intrigue among prospects.

Crypto white papers also work like that.

But depending on the target audience, crypto white papers can have different objectives. For instance, the Bitcoin white paper is written to inform people about a technological breakthrough: sending cash from one party to another without a middleman. Most modern white papers are written to market the project or to raise funds for it (these are often synonymous).

The rule of thumb: the simpler a white paper's content and the more colorful its design, the more marketing-oriented it is—the more academic its tone and style, the more informative and technical the white paper.

Bitcoin white paper vs the Enjincoin white paper - can you see the difference?

How Do You Read a White Paper - The Structure

Most modern white papers follow a common pattern. Their backbone consists of the following sections (not necessarily in that order):

The reasoning behind the project.
Its utility and use case.
The blockchain architecture behind it.
The token distribution and utility of the token.
A roadmap.
The team.

Let's address them one by one.

The Reasoning Behind the Project

In this section, a white paper introduces a problem the project wants to solve. Alternatively, it paints a picture of how things are being done now and sets the stage for its solution as the game-changer. Consider the first sentence in the Stellar white paper:

Stellar is a cryptocurrency that offers an alternative to traditional payment systems. Its first sentence immediately addresses the problem:

“Financial infrastructure is currently a mess of closed systems.”

Then Stellar continues to introduce its product as the solution to this. The length of this section varies from white paper to white paper. Some choose to describe the problem in great detail. Others address it only briefly and elaborate more on the value proposition of the cryptocurrency.

Its Utility and Use Case

The next section introduces the solution to the problem. This can be anything in the blockchain space:

A new blockchain that improves on weaknesses of older chains.
A DeFi protocol that does something better than its numerous predecessors.
A blockchain game that allows players to own in-game assets.
A project providing blockchain infrastructure like oracles.

In this section, the white paper explains how the project differs from potential competitors, what innovation it introduces, how it is used, and why we need it in the first place. It is generally the "meaty part" of the white paper and an easy way to differentiate a good paper from a poor one.

A good example is the Presearch white paper. Presearch, a decentralized search engine, explains in great detail how it plans to challenge centralized search engines, like Google, and why this is necessary. It also outlines key challenges and how the community can participate.

One of the countless examples of a bad white paper is Golden Ball. It promises to be a blockchain-based gambling project, but the white paper gives almost no useful information on what and how the project wants to do. Especially memecoins and get-rich-quick projects have almost always poor white papers with no project utility.

The Blockchain Architecture Behind It

If the product is a blockchain, a good white paper explains how the blockchain works and how it differs from its competitors. It outlines the consensus mechanism and the chain's competitive advantage. If it is a dApp or a blockchain game, the white paper should explain which chain it runs on and why the team chooses this particular chain. It should also layout if the project has off-chain computation or introduces innovative technology.

A good example is Verasity, a video marketing analytics platform. Although it is not blockchain-based, the white paper explains in detail how Verasity's technology creates value for its token holders.

The Token Distribution and Utility

This is a key part of the white paper and another way to spot the bad apples. A good white paper transparently explains how the tokens are allocated, what the vesting on the tokens is, and at what price the private sales were conducted. A poor white paper will omit some or all of that information. The white paper should also explain what the token’s utility is and if there are mechanics that cap its growth or even burn issued tokens.

Whether on purpose or not, even major blockchain projects often provide very little detail about their tokenomics. Since the token distribution is key to a token's future success (often more than its utility), you should closely watch how detailed this section is. Most modern white papers understand that investors want to know the token distribution and provide a section on this.

Enjin provides a decent section on its tokenomics:

A Roadmap

Almost all white papers provide some form of a roadmap. The good ones go into detail and have realistic targets that will increase the project's utility. Poor white papers will list points like exchange listings, marketing campaigns, and website updates. While these can advance a project, they also cast doubt on how long-term-oriented the team really is. A terrible white paper will have vague or non-existent goals in its roadmap.

An example of a bad roadmap is the infamous Pi Network. Its "roadmap" consists of three lazily-written paragraphs that give no substantial information about the project's future.

The Team

Finally, the white paper should contain some information about the team. Arguably, Bitcoin was invented by the pseudonymous Satoshi Nakamoto, who also did not provide any info about himself. However, Bitcoin is the exception to the rule. You should look for information about the people behind the project, whether they are anonymous or not. Even anonymous developers can create trust by providing some info about their backgrounds. Very little or no information about who created a token generally increases its risk.

The Main Differences Between White Papers

After reading a couple of white papers, you will start identifying common patterns. Very roughly speaking, we can distinguish three types of white papers:

The academic ones: examples are Bitcoin, Ethereum, and Solana.
The marketing papers: most DApps nowadays have marketing-heavy papers.
The trash: pretty much all shitcoins and rushed projects go here.

How a white paper looks depends on its objective and its target audience. The Bitcoin white paper was not published with investment purposes in mind. It described a revolution in cryptography and peer-to-peer payments and was thus written for a tiny target audience. Ethereum, Solana, and many other layer-one blockchain papers were written for developers, not for investors.

On the other hand, white papers nowadays often aim to attract investors, both retail and venture capitalists. Therefore, they have become more digestible and lighter. Many projects don't even publish dedicated white papers but have dedicated project documentation.

The difference is in the tone and content. Modern white papers talk more about market strategies and less about the technology behind the project. The tone has become more sales-y and less academic. They also differ in style. They are often presentations or at least contain colored elements and graphs. Many older white papers are like academic articles.

Finally, white papers differ in their information density. Both academic and marketing papers can contain a lot of information. But a poor white paper will always provide the reader with less info about the project than a good one. If you have read a project's documentation and still have questions, it means the white paper is doing a poor job.

What You Need to Know to Read a White Paper

Modern white papers can be read even by blockchain-illiterate people. Crypto companies understand that investors don't necessarily know (or want to know) how blockchains work. They care about potential returns and if a project has an interesting use case, so white papers focus on that.

Therefore, you need only rudimentary knowledge about how cryptocurrencies work. A good place to start is our Intro to Bitcoin and Intro to Ethereum. If you want to dive deep into crypto, the Bitcoin White Paper and the Ethereum White Paper are essential reading.

White Papers vs Litepapers vs Gitbooks

If you have already read a few white papers, you have noticed that many projects don't publish dedicated white paper PDFs anymore. Instead, teams publish and update their project information in Gitbook silos. Another tip to identify a good white paper: it is a good sign if a team updates its Gitbook documentation often and thoroughly.

Litepapers are the lean version of white papers. Because many white papers used to be heavy reading and uninteresting to investors, blockchain projects started publishing litepapers. They contain "lighter" and more investor-friendly information compared to academic-sounding white papers. With the emergence of Gitbook as the go-to solution for documentation, litepapers have become less widespread. Still, some projects continue to use them for investors.

Polkadot’s white paper versus Polkadot’s litepaper

Common Red Flags of a Poor White Paper

To conclude, you should know the most obvious red flags of poor white papers. If you spot any of these, it is time to reconsider your investment decision:

Typos and Poor Language

Some white papers are not written by and for English native speakers. Still, a competent team should at least be able to hire a native speaker as an editor.

Vagueness

Many bad white papers make vague claims like "revolutionize payments" or "be part of the web3 movement." If a project cannot precisely explain what it does, it is probably throwing sand in your eyes.

Too Grandiose Promises

On the flip side, if a project promises to upend the entire blockchain space and become "the next Bitcoin," be careful! Crypto companies are experts at overpromising and underdelivering. Therefore, expect unrealistic promises to be a marketing ploy.

Sections Are Omitted or Don't Contain Useful Information

The rule of thumb is more info = better. If a project doesn't provide enough information, it is highly speculative and should be treated as such.

The White Paper is Hidden Somewhere

Nowadays, most projects have a link to the Documentation on the site. If you have to search for decent information, it is probably a sign the team doesn't want you to find it.

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