Cryptocurrency has been described as the "Wild West" which means that although there are a lot of good projects out there, there are also a lot of duds out there. So, how is one to know what projects to support? Although it is not a definitive answer, reading a crypto project's "whitepaper" is a good place to start. In this article, I'll briefly describe what a whitepaper is and some of the benefits of reading one.
A whitepaper is nothing more than a formal declaration of a crypto project's goals. Think of it as the road map for a project. The whitepaper is usually a fairly lengthy document that will contain the goals of the project, the timeline for achieving those goals, and some of the strategies that will be used to implement those goals. It will also normally include the "tokenomics" and describe how the project will bring value to investors. Lastly, the whitepaper will give a bit of info on the founding team and the value proposition of the project. In other words, the whitepaper is a document that provides a general overview of the project.
I like to say that reading a whitepaper is a "necessary, but not sufficient" step when I am considering investing in a coin. A whitepaper is like reading a prospectus for mutual funds or a letter to shareholders for a traditional stock. It helps the reader get a general overview of the goals of the crypto project and determine if it is a project that aligns with their crypto philosophy. A whitepaper can be a great screening tool because it allows investors to disqualify coins/projects that they don't feel have a compelling value case. Even the production quality of the whitepaper can be a "sanity check" on the coin. For example, a whitepaper that gives conflicting claims or unreasonable expectations is a sure warning sign. At the same time, a well written whitepaper with a strong mission statement usually pushes me to dig deeper into the project.
Unfortunately, people lie, and there are many examples of stellar whitepapers that have served as nothing more than a cover to extract funds from unwary investors during an ICO. For that reason, I like to think of the whitepaper as the INITIAL evaluation of a project. If I like what I see in the whitepaper, I will do a bit more digging and try to verify / cross-check the info in the whitepaper, but if I find something off in the whitepaper, I can avoid wasting further time on the project.
In summary, a whitepaper is nothing more than a document that presents a general overview of a cryptocurrency project. It can be a useful tool for evaluating a cryptocurrency project, but I believe it is always important to do additional research and make your own decisions before deciding to invest in anything, especially crypto.
Thanks for reading!
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