Reading a cryptocurrency whitepaper can be a daunting task, to say the least, especially if you're new to the world of cryptocurrencies and blockchain technology. At times I find myself struggling to understand some concepts of some of the more advanced whitepapers. However, understanding the details of a whitepaper is important if you want to make informed decisions about investing in a particular cryptocurrency. In this blog post, we'll go over the steps you can take to read and understand a crypto whitepaper.
Step 1: Understand the purpose of the whitepaper
Before you dive into the details, it's important to understand the problems a crypto project is trying to solve and the whitepaper should outline this in simple understandable terms.
A cryptocurrency whitepaper is essentially a document that outlines the key features and technical details of a particular cryptocurrency asset. It explains how the project works, what problems it aims to solve, and how it's different from other cryptocurrencies on the market.
If these details aren't clear, then it's potentially a sign the project doesn't really have a solid use case or a reason to exist. These are potential signs you will need to be aware of before you make your investment decision.
Step 2: Read the executive summary
After you have a general understanding of the purpose of the whitepaper, the next step is to read the executive summary if there is one. This section should provide a high-level overview of the cryptocurrency, including its main features and benefits. It should also explain the problem that the cryptocurrency aims to solve and how it plans to do so.
Step 3: Familiarize yourself with the technical details
Once you have a general understanding of the cryptocurrency from the executive summary, it's time to dive into the technical details. This is where things can get a bit tricky if you're not a blockchain developer. There are terms and concepts we might not understand, and that's okay for the most part. The whitepaper will outline how the cryptocurrency works, including the specific algorithms and protocols, used to secure the network and enable transactions. It's important to pay attention to these details as much as you can, as they could potentially help you to understand the cryptocurrency's strengths and weaknesses, as well as its potential use cases.
Step 4: Consider the team and advisors
It's also important to consider the team and advisors behind the cryptocurrency. A strong team with relevant experience and expertise can give you confidence in the cryptocurrency's ability to deliver on its promises. On the other hand, a team with little experience or a questionable track record can be a red flag. It's also worth checking out the advisors to see if they have a reputable background in the cryptocurrency industry. An area where I like to explore is the investors. Are there big names behind this project? If a company like Samsung is an investor or is on the advisory board, that could be a strong sign this crypto project could be headed somewhere great, Usually, this is displayed on the website.
Step 5: Evaluate the roadmap
Finally, take a look at the roadmap outlined in the whitepaper. Usually, the roadmap is on the website itself as this will give you an idea of the cryptocurrency's long-term vision and what it hopes to achieve in the future. It's important to consider whether the roadmap is realistic and achievable, as well as whether the milestones align with the overall goals of the cryptocurrency. Keep in mind the roadmap is just a general outline of the goals and ambitions of the project. Things can change, so don't be alarmed if you see goals not met, or an adjustment made to the roadmap. Take Ethereum for example, they promised to transition from a Proof of Work model to a Proof of Sake as a method of validating transactions on the blockchain, and that took them almost a decade. There were delays and setbacks which is common when it comes to blockchain development.
Reading a cryptocurrency whitepaper can seem intimidating at first, but with a little bit of effort and understanding, you can gain valuable insights into the inner workings of a particular cryptocurrency. By following these steps, you'll be better equipped to make informed decisions about investing in a particular cryptocurrency and you'll most likely remain invested during the rough times.
