Sphere DYOR 101: How to Read a Whitepaper

Sphere
7 min readFeb 6, 2024

Welcome to another article from Sphere. At Sphere, we are on a mission to bring great investment opportunities to our community. We also want to equip investors with the right knowledge so they can make better investing decisions. Today, we are going to talk about whitepapers. What they are, how they came about, and what to look for in a whitepaper. So brace yourselves for a value-packed article…

Let’s dive in:

What is a whitepaper?

A whitepaper is an official document that a project or company shares to the public or potential investors about what their business is all about. In the blockchain world, it is a document that explains why a project is important, how it works, and what makes it different from other projects out there. Usually, after setting up a website and social media, a project releases a whitepaper to get attention from potential contributors and investors.

For projects that may be building something unique from the ground up, the whitepaper gives all the details about how it’s set up for builders who want to make things on its platform.

One of the most famous whitepapers is Bitcoin’s Whitepaper from 2008, written by Satoshi Nakamoto. Titled; “Bitcoin: A Peer-to-Peer Electronic Cash System”. Many crypto projects today used Bitcoin’s Whitepaper as an inspiration to write theirs.

There’s no strict rule about how a Whitepaper should be written, but it should give the reader the important info about what the project is trying to do. Before looking at third-party opinions, it’s a good idea to check out a project’s whitepaper because it’s the direct source that explains what the project is all about.

History of whitepapers in Crypto

Before we explain how to read whitepapers, we would like to give a brief history of how they came about in the crypto space.

Perhaps the most famous whitepaper is that of Bitcoin, the world’s first cryptocurrency. Bitcoin’s whitepaper dates back to 2008 when its Author, Satoshi Nakamoto wrote about how Bitcoin functioned.

This whitepaper was written around the same period as the 2008 financial crisis and bitcoin was created as an alternative to the then flawed financial system. This whitepaper detailed how Bitcoin used blockchain technology as its core technology and how its future was optimistic.

Bitcoin’s whitepaper however was very complex and had terminologies and diagrams only tech-savvy people could understand.

In 2013, a smart contract cryptocurrency; “Ethereum” emerged, and Vitalik Buterin Authored its whitepaper. This whitepaper was a detailed document showing all the intricacies of the Ethereum network. The whitepaper highlighted the advantages of the network over other traditional computing systems.

According to the Whitepaper, Bitcoin was used for mainly payments and the industry needed a more versatile blockchain platform. The solution presented was of course Ethereum which had many plans to make it the go-to platform for developers to build Dapps. The whitepaper went ahead to describe the Ether token and its use cases within the Ethereum network.

Many whitepapers today follow Ethereum’s format and many modifications have been made over the years.

Components of a whitepaper — what you should look for

Although each project is unique, every whitepaper should have some foundational parts in place. During the ICO boom of 2017, many projects with poorly written whitepapers emerged and ended up being rug pulls. Here are some basic things a whitepaper should have. Take note that this is not a one-size-fits-all all format as the cryptocurrency industry changes rapidly.

1. Project details

This part of the white paper tells everyone why the project was made. If the project was created to fix a problem, this section of the Whitepaper talks about that problem and what might happen if it doesn’t get fixed. For example, Bitcoin was made because it wanted to get rid of the middleman in transactions between people. The white paper explains how Bitcoin lets people pay each other directly.

In this part, the white paper also talks about how the project plans to fix the problem. If there are other projects trying to solve the same issue, the white paper says what makes this project special and why it thinks its way will work better.

2. Architecture

The Architecture is a detailed breakdown of how this project works. This is usually the technical side of a whitepaper and it explains the complex parts of the project. Consider the technical structure of the Polygon (Matic) network in the image below;

Also, if you were to observe the Whitepaper of the Fantom network, you would come across the section where Fantom introduced the opera chain which was a component of its architecture that solved the issues of scalability.

The architecture of a blockchain is a vital component that investors need to consider because it determines if a project can solve the problems it claims to solve.

3. Tokenomics

Not all blockchain projects have their own coins or tokens. Some projects work fine without having their token. Before you decide to buy a project’s cryptocurrency, make sure you know what the token or coin is used for.

For example, Ethereum has its coin called ETH, which you use to pay for fees called Gas. Some of these fees go to the validators who help keep the network safe and decentralized.

Even if a project doesn’t need a token, most white papers still talk about tokenomics. Tokenomics is basically how the economics of that token work. It includes things like:

  • Token supply and distribution: This talks about how many coins were made, how they’ll be introduced, and how they’ll be shared among the project team, advisors, and investors. It also talks about how the team plans to use the funds for development.
  • Vesting schedules: Vesting schedules talk about how tokens will be released over time after the project starts. If the release happens too quickly, it can put pressure on selling and make the token price go down.
  • Utility: This talks about what the token is used for and how it gets people interested. The utility of the token explains what gives the token value. It details the importance of the token and why it is important.

4. Team and advisors Information

The whitepaper gives information about the people working on the project. This part indicates that the team trying to solve the problem is skilled and trustworthy. It’s important because the experiences of the team can impact what happens next and who they partner with in the future..

Below is an image from the Polygon (Matic) Whitepaper, showing the 3 core founders of polygon network, alongside links to their LinkedIn profiles;

5. The Roadmap: Visions and Goals

The roadmap is a brief or detailed summary of the plans a project has for the future. A business should have a goal it is trying to reach at any given time and that goal should be clear and concise.

A business without a clear plan and strategy to execute it will likely be outperformed by its competitors. That is why a roadmap is essential. A roadmap can include technology upgrades, future partnerships, and new integrations. Below is a snippet of the roadmap of a Polygon a few years ago briefly outlined in its whitepaper.

Red flags in a Whitepaper

Although there is no one-size-fits-all for whitepapers, there are some things that if you spot in a whitepaper, you should proceed with your investment with caution. Here are a few of them:

Plagiarism

Some whitepapers are just copy and paste of documents from legitimate projects. If you notice the words on a whitepaper are generic and similar to an already known project, you might be witnessing a potential scam. A project you invest in should be genuinely unique and innovative as they claim to be.

Unverifiable team members

If a crypto project gives the details of their team members and there is no solid information about these people anywhere online, then this should be a red flag. There have been cases in the past where projects will use random names and pictures online and claim that these non-existent individuals are the ones involved in the project. Always verify team members and advisors.

Catchy promises

Some whitepapers promise unrealistic and unachievable feats to set the hopes of investors high and excite them. A project that promises outrageous feats should be watched closely. There have been projects that have over-promised and over-delivered but this is in rare cases. Quality projects take time to build. Any project that claims to “take over the banking system in under a year’’ or onboard 500M people in 3 months is probably trying to sell investors.

Conclusion

Whitepapers aren’t the only things needed for research but they are a great start. There are many crypto projects out there and spotting the gold from the sand is getting harder and harder by the day. That is why doing due diligence before investing in a project is important.

If you found this article helpful, make sure you react and follow this medium page. If you would like to know more about due diligence, check out this article.

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