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Read a White Paper Like a Pro: The Only Guide You’ll Ever Need

Investing in blockchain projects can be a bit of a gamble. Especially in the early stages, most projects are nothing more than an idea. The vast majority of the time, the company hasn’t yet built anything when they announce an ICO or list their token on an exchange.

In the absence of a product, the only thing investors have to analyze is the documentation the team provides. Cryptocurrency founders often use a white paper to explain their ideas in detail. It is the guiding vision for the company and its token, moving forward. Most importantly, the white paper is the one opportunity potential investors have to understand, judge, and decide on backing a project.

In this beast of an article, we’ll learn how to dissect a white paper, analyze all its parts, and be sure it holds up under scrutiny. Remember, the white paper is a technical, financial, marketing, administrative, and executive document all-in-one. There are many angles and lenses you’ll need to use to fully understand and evaluate a white paper. This article will show you how.

Why the Work Is Worth It

Some investors follow the hype. They’d rather just move with the crowd and buy what everybody else is buying. That’s a mistake. We’ve seen millions of dollars go down the drain to fraudulent ICOs and upstart blockchain projects that ended up going nowhere.

It always surprises me when I talk to crypto investors how little they know about the projects they’re backing. This fundamental disconnect between dollars and common sense is why so many investors have fallen victim to scams or dud projects.

If there’s one thing you should learn from this guide, it’s don’t trust the crowd.

Do your own research and put in the work to learn about the projects you back. Thoroughly reading the white paper is the first and biggest test in the due diligence process. Don’t take it lightly.

The solution is simple. Read the white paper. Thoroughly. Use the questions in this article (and the checklist at the end of this article) to evaluate the project from all sides, truly understand what you’re buying when you invest in a token, and make smart decisions with your funds.

White Papers Are Like Snowflakes

At this point, it’s worth noting that each white paper is unique (unless the team plagiarized it).

Some projects have highly technical white papers written in a very research-oriented, academic style. Others have white papers that read more like marketing documents with clean layouts and slick graphics.

That said, you may not find the same types of information in every white paper. For instance, information about the team members and token distribution might live on the project’s website, instead of inside the white paper.

This article assumes you’re willing to do a little digging to find all the answers. For the purposes of this article, any time I refer to “white paper,” it’s safe to assume that I mean any and all official documentation from the founding team, including the website.

Consider this white paper tutorial a very thorough look at basic due diligence on a project. Of course, there are other factors you need to consider before making an investment decision. But if a project passes all of the criteria laid out below, you have a very strong candidate for investment.

What’s the Problem?

Every company is trying to solve a problem. That’s true whether it’s a blockchain company or not.

  • Google started because people had a problem finding things on the internet.
  • Southwest Airlines started because people had a problem buying affordable regional airfare in the United States.
  • Bitcoin started because people had a problem trusting banks and exchanging value across borders.

Now, you might point out that Bitcoin isn’t a company. And you’d be right. It’s an open-source platform. But the fact that Bitcoin has so many users and has grown over time illustrates that it addresses a very real need in the world.

Notice that the examples above have clearly defined problems they want to solve. They don’t claim to be an all-purpose solution. Instead, they have a reasonable scope to the types of problems they’re trying to address. This goes to the extent of ruling out other possible problems they could work on. For instance, there are certainly many problems in the airline industry that Southwest could try to address. However, they’ve focused on the problem of pricing of regional flights to the exclusion of all other projects.

This kind of focus is key, especially for startups. When you read a white paper, it should be immediately clear what the problem is, and that problem should be limited in scope.

It should also be a real problem with a real need. You wouldn’t invest in a project that promises underwater fire protection, would you? There’s no need–no demand– for that service. More on assessing demand below.

Takeaway: If you don’t understand what problem a project solves within two minutes of starting to read a white paper, that’s a bad sign.

What’s the Proposed Solution?

Once the white paper identifies a problem, the next step is for the white paper to propose a solution to that specific problem.

Just as you quickly identified the problem, you should also be able to simply and quickly grasp the basic anatomy of the project’s proposed solution. If you don’t understand a project in the first few paragraphs of the white paper, that’s a red flag.

Even the most technical projects should have a way to summarize what they’re doing. For example:

  • IBM’s quantum computing research lab
    • Problem: It’s difficult to model the real world with classical computers using only 1s and 0s (binary).
    • Solution: We’re trying to develop something between 1 and 0 that would allow computers to do much more complicated calculations.
    • There’s obviously more technical detail to what IBM is doing, but I understand the basic gist of their project in less than thirty seconds.
  • SpaceX
    • Problem: It’s expensive to build and launch rockets – so expensive that a lot of deserving companies and research projects can’t afford to get their payloads to orbit.
    • Solution: We can build and launch a rocket much cheaper if we manufacture the entire thing in-house. Cheaper still if we can reuse components from previous launches.
    • Building a rocket is very complicated, and there’s still plenty of room for technical details in SpaceX’s (imaginary) white paper. But in just a few sentences you understand the basic idea.
  • Ethereum
    • Problem: The blockchain could help businesses and people in so many different ways, but it’s really complicated to create a blockchain, difficult to get miners for the network effects of security, and even harder to program your blockchain to do stuff.
    • Solution: We’ll build the blockchain, recruit the miners, and a provide a way that anyone can use it to build applications. All you have to do is pay us a fee based on how much network capacity your application uses.
    • Again, Ethereum’s work is much more complicated than that, but I understand it immediately.

When you’re reading a white paper, it should be easy to understand the problem and its solution. If not, you’ve either got a problem that’s too niche to have any demand or a solution that’s more complicated than it needs to be.

Often, blockchain projects fall victim to the latter. The proposed solution is a convoluted way to address the problem. If the solution doesn’t make intuitive sense when you’re reading the white paper, then you’ve probably got a bad project on your hands.

Takeaway: If you don’t understand how a project solves a problem, or if the solution seems unnecessarily complicated, then that’s a bad sign.

How Big is the Market for the Solution?

Pomeranians and other Nordic breeds of dogs can develop a skin condition known as Alopecia X where they lose their hair and their skin turns black.

If I developed a cure for Alopecia X, that would be a clearly defined problem and a straightforward solution. But you’d be crazy to think I’d hit upon the next multi-billion dollar idea.

Pomeranians make up a small fraction of the total number of dogs in the world. Moreover, only a tiny percentage of Pomeranians ever develop Alopecia X. It’s a very rare disease. The market for my problem and solution is tiny.

Obviously, this is an extreme example, but it bears some important lessons for evaluating white papers. Once you’ve got a grasp on the problem the project is trying to solve and its proposed solution, stop reading. Take a moment to consider whether the problem is a valuable one to solve in the first place.

A real example might be a project like Lisk. Lisk is one of many competitors in the marketplace of dapp development. There’s nothing to indicate that Lisk could compete with Ethereum, EOS, Cardano, NEO, or even QTUM. Lisk’s only major selling point is that developers can use JavaScript (a language that’s not designed for security) to build smart contracts. There’s no reason to believe that JavaScript alone will make smart contract development massively accessible. In fact, other dapp platforms support different popular (and more secure) languages like Java and C++ for smart contract development. It’s hard to see how Lisk justifies its $377 million market cap in such a crowded market against superior competitors.

For any investment to appreciate significantly, it needs to be currently undervalued compared to its potential. Most white papers will help you do a little bit of this research. They’ll tell you how big the global industry is for the product. Then, you’ll have to make your own educated guesses about how large of a percentage of that global industry the project could feasibly capture over its lifetime.

Projects that are only slightly undervalued don’t have a big enough payoff to warrant the risk of investment. Ideally, the market for the solution should be 10x, 100x, or more than the project’s current value.

Takeaway: If you want an investment that will appreciate in value any significant percentage, then you’ll want a project in a large market with a lot of room to grow. Preferably, there should be little competition as well.

Why Does the Solution Need Blockchain?

Blockchain has become a buzzword for companies to use in their marketing to raise money. Perhaps the most famous, and most ridiculous, example of this is the tea company who decided to change their name to Long Blockchain. Shares in that company rose dramatically after the name change and announcement of a blockchain-first strategy. However, earlier this year they announced they wouldn’t be doing any Bitcoin mining after all. They’ve become another BINO company. Blockchain in name only.

When you’re reading a white paper, it’s important to consider how and why the solution needs a blockchain. It turns out blockchains aren’t good for a lot of applications. They’re resource intensive, require network effects to be successful, are difficult to update, and have all kinds of usability and scalability challenges.

Most ICOs should just be web apps. They don’t need the decentralized access, unchangeable ledger security, and anonymity that blockchain brings.

For instance, messaging apps, streaming services, and other types of content distribution are terrible applications of blockchain, unless there’s a serious argument to be made that the content could be subject to censorship. Blockchain doesn’t have the bandwidth to deliver those things effectively. Those projects would be much better off using a centralized server. The same problems apply to a variety of potential industries and use cases.

The truth is that most new blockchain projects end up realizing a centralized database is better for their application. They create a conventional platform that relies on traditional databases and servers. Then, they create a cryptocurrency to pay for access to that centralized system. These are the BINO projects. While they’re not necessarily bad, they’re not truly blockchain-based.

Most projects that promise to revolutionize advertising, music streaming, or content rights are using a thin blockchain ledger on top of a more robust centralized database that actually delivers the content.

Even some projects that are truly built atop a blockchain aren’t worth it. Blockchains are expensive to develop and difficult to manage. A blockchain project needs to be significantly better than the non-blockchain option in order to be worth the investment. We’re talking 10x or 100x better than the conventional solution. Sound familiar? There has to be a compelling argument that blockchain brings massive improvements in security, efficiency, or both.

By that standard, you can eliminate a lot of projects from your list of potential investments.

Takeaway: The project should use blockchain for a massive improvement over current solutions. If it’s not massive, it’s probably not worth it.

Why Does the Solution Need a Token & How Will It Be Used?

You can use the blockchain as a data structure without needing a token. If the white paper proposes a dapp, decentralized organization, smart contracts, or any number of other blockchain applications it may not need a proprietary token. Most blockchain projects could accept ETH or BTC as payment for services.

An important question to consider when reading a white paper is what you’ll get in return for owning a token. You may think of buying a token as an investment, but at the end of the day, the token must derive its value from somewhere. Token value can mean different things for different projects:

  • Equity – This is actually an extremely rare token type. However, it’s often what confused investors think they are buying when they buy a token. Equity refers to partial ownership of a company.

    When you buy stocks, you are buying an ownership share of a traded company. When you buy a cryptocurrency, however, you are almost certainly not buying equity in the project.

    The sale of equity is regulated in every major developed country by a securities & banking regulator. In the United States, it’s the SEC. Offering an equity token would be equivalent to issuing stocks and would require mountains of paperwork and bureaucratic hoop-jumping in order to be legal.
  • Utility – The vast majority of the time, buying a token is simply a promise of future utility. That is to say that you can use the token to purchase goods and services from the blockchain project in the future.

    Think of tokens at an arcade or tickets at a theme park. When you buy these tokens, you can use them to play games and ride rides. If the arcade or amusement park gets super popular and tokens/tickets get scarce, you might be able to sell your tickets to someone who wants to ride the rides for more than what you bought it for.
  • Voting rights – Some tokens guarantee voting rights to the owner in decisions about the blockchain project. This is somewhere between equity and utility. You still don’t own a part of the underlying company, but you do have a say in the company’s decisions.

    Voting tokens are often also utility tokens at the same time. So, you’ll want to vote on decisions that make the blockchain project more valuable. This is about as close as you can get to an equity token without triggering securities regulations and oversight.

Most blockchain projects don’t need a proprietary token. They just want one for fundraising purposes. If the proprietary token could easily be replaced with another payment method, then it’s probably not a good long-term investment. Eventually, a competitor will come along and cut out the middleman token, replacing it with another more widely accepted cryptocurrency or maybe even fiat.

Takeaway: If the token could easily be replaced by another currency, then that’s a bad sign for its long-term value.

Smell Test: Using the First Five Questions

You should be able to answer these first five questions within the first few minutes of reading a white paper. That’s good news, because these questions will immediately weed out 80%-90% of all proposed projects.

Let’s look at a bad example first:

One bad project that comes to mind is TombCare. They proposed using a cryptocurrency to power the tombstone industry, developing an application that’s basically Uber for tombstones.

Your gut probably tells you this is a bad idea, but let’s go through our questions so far to see why. Sure, buying and paying for a tombstone when somebody dies is a problem. Using a decentralized app to find a tombstone is one potential solution, I guess…

Most people get a tombstone from a company near them or purchase it as part of a package with the funeral home. If TombCare saw even a one percent penetration into the tombstone industry that would be amazing. But that’s still a tiny market share in an already niche market.

It’s not clear how blockchain solves the problem 10x better than current solutions, and I’m not really sure why you’d want to pay in cryptocurrency, especially a proprietary coin.

As we apply our system of questions, it becomes increasingly clear that TombCare is a bad investment. There were more red flags with every question we asked. Even just knowing the basics of the project’s idea, we can rule it out as a poor application of blockchain with low earning potential.

Let’s look at the same five questions, but this time apply them to Stellar:

Stellar proposes a platform for cross-border remittances and interpersonal micropayments. Right now, the problem is that international wire transfers take days and cost a lot. Stellar’s solution can get the cost of transfers down to fractions of a penny by providing a shared ledger for banks, payment systems, and people.

If it works, the blockchain-based solution would cut days of wait time off of transfers in the international economy, facilitating faster and more transactions. In addition, the low fees would save billions of dollars per year in inter-bank transfer fees. This is a major improvement over current systems.

Blockchain security and accessibility are important factors for the project’s success. Stellar also introduces a new cryptocurrency, XLM, as an intermediary between various fiat currencies in cross-border transactions. You can also make micropayments to other people in XLM, and paying fees in XLM limits spam and denial of service attacks.

You could learn all of the above information within five minutes of visiting Stellar’s website and reading the white paper. Using just these five questions we immediately have a smell test for any new crypto we encounter. It doesn’t mean we should automatically invest in Stellar. But it’s worth looking in greater detail and learning more.

Now that we’ve put a potential project through an initial filter, we can do a deep dive into implementation. The questions from here on out require more research in order to see if the proposed solution and timeline are reasonable.

Is the Solution Feasible?

A radical or incredibly imaginative idea might make it through the filter of the first five questions. Now, you have to ask yourself whether or not the proposed project is practical. There are certain things we just can’t do. Even though blockchain solves some problems for structuring, storing, and updating data, it doesn’t solve every technical challenge.

If it sounds like science fiction, it probably is.

The best way to analyze feasibility is to see if the tech behind the solution exists already. If the project you’re evaluating is a blockchain-based, AI, autonomous flying car startup, then you’ve probably got a feasibility issue there. It’s trying to solve too many challenges at once.

IOTA is probably the best-known crypto that pushes the limits of feasibility. They promise a completely new type of decentralized ledger (not a blockchain, but a DAG) that will integrate with Internet of Things devices. They also want to develop a processing chip for those devices so they can compute in trinary.

Successfully implementing a DAG without a coordinator (IOTA currently has a central coordinator that organizes the nodes) is a huge challenge on its own. Connecting that DAG to millions or billions of IoT devices to facilitate micropayments is another major project. Not to mention the cutting edge work that’s going on in trinary computing and quantum resistance. Either IOTA isn’t feasible, or they have a team of super geniuses.

The technical roadmap in most whitepapers will help you evaluate feasibility. Don’t just take it at face value. Consider whether the white paper’s targets for delivery of certain features are feasible. Additionally, keep a mental tally of technologies the team will need to implement from scratch. The higher the tally, the more chances the project won’t succeed.

Takeaway: Be realistic about what’s possible, especially with near-term targets for blockchain projects. Blockchain itself still has issues of usability and scalability. Any project that claims their product will be ready for millions of users in just a few months probably isn’t trustworthy.

Who Is on the Team & Do They Have the Experience to Build the Solution?

Before I get skinned alive by IOTA superfans, hear me out. Nobody would argue that IOTA’s job is an easy one. Ultimately, the long-term feasibility of IOTA or any blockchain project boils down to the people they have working on the solution.

The next step in reading the white paper and website of a potential project is investigating the team. At this point, it’s okay to get a little stalker-y about your approach. Google the key team members. Look at their past jobs on LinkedIn. Visit coders’ GitHub pages to see what they’ve been working on. If you can’t find much about the team, that’s a bad sign.

The number of ICOs and new projects led by amateurs who are making things up as they go is astonishing. The rate of project failure increases dramatically the less experience there is on the team.

You need technical leads, but you also need business minds and project managers. Many projects that focus exclusively on tech, to the exclusion of marketing and partnerships, are going to lose in the long run. All of these people contribute to the success of a platform.

Takeaway: The team should have a strong, public history of working in tech, blockchain, and the industry the project is hoping to enter.

Does the White Paper or Website Make Guarantees?

This question is straightforward.

Nobody can guarantee anything. An honest project won’t make any guarantees. They won’t aggressively market to you. They won’t predict the future value of their own coin. Legit projects tell the truth about the risks of the business.

Takeaway: Guaranteed returns are the #1 red flag in an ICO or investment token. If you see marketing copy that guarantees growth, run the other way.

What’s the Token Distribution & Is It Fair?

Most white papers will include a section on the distribution of pre-mined coins. They’ll also tell how new coins are created and distributed. The token distribution is important even after the ICO, as it sets the guidelines for the currency supply for the whole life of the coin.

Many token distributions give funds to the team members in the project. It has become standard as a way to align the interests of the team with the interests of the token holding community at large. However, remember that the project is already getting the funds from the ICO sale. Any tokens that go to the team are just icing on top of the cake. As such, the team shouldn’t get a large cut of the token distribution. More than ten percent is cause for concern. They should also have to vest those coins and have them locked away for a year or more.

Another key factor to look for in token distribution is how much goes to ordinary users/investors. Any amount less than fifty percent of the total token supply is also a cause for concern. Some cryptos give a large portion of funds to whales in a pre-sale. Or, they hold a lot of tokens in reserve for later release. These are all questionable practices that could seriously affect the future value of any token you purchase.

What happens to the money after the ICO is another major concern. There should be a preliminary budget in the white paper or somewhere on the website. Obviously, development of the technology should be the major portion of the potential budget. You’ll also want to see funds dedicated to marketing, sales, and expanding the reach of the new project. Administrative overhead is also a non-negligible expense, but use your best judgment to evaluate when overhead is too expensive. Most projects don’t need fifteen global offices in high-end office buildings with daily international first class flights for executives.

Takeaway: More than fifty percent of the overall supply should go to average users/investors. Less than ten percent should go to the team.

Verify Sources with Outside Information

You’ve now answered a lot of questions from the content in the white paper and website. Next, you’ll want to look for outside sources to back up what the team says. Fact check everything. Don’t take the team’s word.

Do your best to verify the information in the white paper with outside sources. Look for more information on the technical protocols they’ll be using. Verify the team’s credentials on the official websites of universities and corporations.

The number of projects who have outright lied in their white papers is too damn high for you to skip this step.

Read everything you can from outside sources about the project you’re considering investing in. If you’ve got friends who are familiar with blockchain, ask them for their thoughts as well. Forums can also be great places to learn the truth about a project and its claims. Of course, take every random forum comment with a heavy dose of skepticism as well.

Successful projects will also have other companies and organizations they’re working with. Research those companies to learn more. See if the project’s technology is already in action and whether it’s proving successful.

If the project has already launched to the public, see what information you can gather on the number of users who interact with the project daily.

The information you can gather about the project’s popularity or potential use cases will give you insights into the project’s future and whether it’s a practical long-term solution.


Whew. That was a doozy of a post, and I don’t blame you if you skimmed through it. Don’t worry, it’ll always be here for you to reference in the future.

Here are the key points:

  • Ask the first five questions to immediately filter out potential projects:
    • What’s the problem?
    • What’s the solution?
    • How big is the market for the solution?
    • Why does the solution need blockchain?
    • Why does the solution need a token?
  • For those projects that pass the first five, dig deeper into implementation questions:
    • Is the solution feasible?
    • What’s the technical roadmap?
    • Who is on the team?
    • Does the marketing material make any guarantees?
    • What’s the token distribution?
    • How will they spend the money?
  • Verify information with outside sources.

If you follow the guidance in this article, you’ll gain a deeper understanding of the blockchain projects you encounter. You’ll be better equipped to make smart investment decisions, and more importantly, you can be confident in those decisions because you covered all the angles and verified your sources.

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Bennett Garner

Bennett is an editor at Coin Central and freelance technology writer specializing in blockchain, software development, and AI writing. Visit Bennett's personal website to learn more about him and read more of his writing.

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