Step-by-step guide on how to read whitepapers
4 min read
We all know that the best place to DYOR is in the project’s whitepaper, but how do we actually read it ? Do we need to have a computer science background ? Not at all.So i’ve decided to create a step-by-step guide on how to read crypto whitepapers being an average crypto investors.
First off, you’ll need to know a few basic crypto concepts – if you don’t, learn about them first, which are:
Blockchain Consensus mechanism Proof of Work Proof of Stake Nodes Mempool Soft-fork and hard-fork Governance Smart contracts Byzantine general problem https://en.wikipedia.org/wiki/Byzantine_fault
If you know what all of these concepts are, we shall proceed.
I’m going to link in here a few good whitepapers that you guys can check to get an example of how a whitepaper is supposed to be:
https://bitcoin.org/bitcoin.pdf
https://solana.com/solana-whitepaper.pdf
https://whitepaper.io/document/581/cardano-whitepaper
https://whitepaper.io/document/587/terra-whitepaper
https://whitepaper.io/document/582/cosmos-whitepaper
https://whitepaper.io/document/1/ripple-whitepaper
*I must say that there are bad projects with good whitepapers. I’m not shilling any of these blockchains. I solely listed their whitepapers because they are well-written and solid.
*As you may notice. whitepaper.io is a good source to research them.
Now, let me present a small step-by-step guide to analyze whitepapers! I’m also going to be posting screenshots of the bitcoin whitepaper as examples.
1) Why the project was created ?
Basic starting point. What is the motivation behind the creation ? What problem does it aim to solve ? How different is it from our current solutions ?
2) What real world utility does it have ?
Nowadays there are a bunch of crypto projects that are a solution looking for a problem. Not everything is supposed to be in the blockchain, guys. Not everything will benefit for being in the blockchain.
3) How does it achieve consensus in the network ?
This is a very important point. Its not just about being proof-of-stake, proof-of-work, proof-of-whatever. To achieve consensus means solving the byzantine general problem somehow – it means how the different nodes on a network enter in a consensus if a transaction is true or false without direct communicating with each other. That’s what make it possible to create decentralization.
4) How was the initial coins distributed ?
In bitcoin, obviously there was no pre-mined coins. The first coin ever mined was by Satoshi Nakamoto himself. But on some blockchains, there are initial tokens distributions through pre-mined coins, specially in proof-of-stake ones. It doesn’t make it bad, it’s just different and you should look for it in the whitepaper or other sources. I would consider anything over 10% to devs/venture capitalists a bad project.
5) How does it actually work ?
Many whitepapers are going to have a simplificed mechanism of how the network actually functions, like a summary/graph. If not, you can usually understand it just by reading it. You don’t need to udnerstand everything and all the technicalities, just the main picture – just like it is in the bitcoin whitepaper.
6) What are the potential weaknesses of the network and how they are adressed ?
Not all whitepapers are going to have this one, but I highly value when its present, since it shows that the devs are actually worried about the network security and not only interested in marketing/profit.
7) Does it have some math stuff you don’t understand ?
Great, now you can ask around at reddit/telegram/etc if this stuff is legit to people that actually understand it! No need to stress over it.
And that’s it! That’s basically the main things you should be looking for in the whitepaper. Of course, there are going to be much more to read and analyze – this is definitely an oversimplification, only meant to work as a starting point.
I must say that there’s so many more important things that aren’t exactly in the whitepaper most of the time. It’s extremely important to consider, for instance, the tokenomics and the background of the dev team, amongst other things.
*Sorry for any english mistakes, it’s not my first language.
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