A whitepaper is a document released by developers that outlines the technology, purpose, conception, and data of a cryptocurrency project. It includes data such as statistics, diagrams, and formulas to provide an in-depth look into the project for potential investors. ^[2]​

The release of a whitepaper is often seen as a way for crypto start-ups to appear professional and legitimate, as it gives investors an insight into the distinctiveness of the project within the crypto space.

History

The term 'white paper' was first used in the early 1920s to describe an official government report that's authoritative in nature. 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. ^[1]​

How to Read a White Paper

1. Understand why the project was created: The motivation behind the creation of every project whitepaper is generally outlined in the beginning. It provides an overview of the issue the project seeks to address and how its solution differs from existing ones. The whitepaper's market analysis then illustrates the necessity for the product and its place in the current market.^[2]
2. Utility: It is essential to assess the real-world utility of a crypto token or project to determine its potential value. Different utility tokens have different purposes, and it is important to understand their practical applications.^[2]
3. Project consensus: The consensus mechanism is an integral part of the whitepaper. There are multiple consensus mechanisms available, such as proof of work, proof of stake, and variations of these. Consensus allows nodes in the network to validate transactions without direct communication, forming the basis of decentralized technology.^[2]
4. Initial coin distribution - Tokenomics: Crypto projects may use pre-mined coins for their initial token distributions, particularly in proof of stake projects. It is important to investigate the distribution of these coins; there are instances in which a large percentage of the initial coins is allocated to venture capitalists and project creators, which may indicate a pump-and-dump scheme and a limitation on the project's expansion.^[2]
5. Technical explanation of the project: Projects typically aim to simplify the functioning of the network by using graphs and summaries. To gain an understanding of the project, it is important to focus on the bigger picture rather than the technical details of the whitepaper.
6. Project timeline: A detailed timeline for a project can provide insight into the working plan for the next few months, including when sales will start and when the token will be launched. This can provide an indication of the developer’s competence and foresight.^[2]
7. The Team: The white paper should include information about the team behind the project, including their identities and backgrounds. The absence of such information, particularly if the creators are anonymous, increases the risk associated with the token. ^[1]

White Paper vs Litepaper vs Gitbook

Litepapers are a condensed version of white papers that have become popular for blockchain projects as a means to provide investors with more reader-friendly information than in traditional white papers. ^[1]​

Gitbook has become the primary platform for documentation, resulting in a decline in litepaper usage. Nevertheless, some projects still employ them as an investor resource. ^[1]​