Finding the right cryptocurrency to Invest in can be challenging there are Thousands of coins out there and many of Them yeah are probably gonna fail but it Stand what a project is all about it Will help you make better financial Decisions one of the easiest ways to Separate a good project from a bad one Is by researching its white paper in This video we'll take you through some Of the most important steps on how to Read and analyze a white paper so that You won't end up losing your investment But first what is a white paper a white Paper is a summary of a crypto project Explaining the reasoning behind a Project along with important details Such as the roadmap funding and the team Behind it unfortunately most people Don't bother to read white papers Because they think they're too complex Or maybe it's just out of negligence so Let's make it very simple here are the Things you need to know if you want to Read and analyze a white paper most Modern white papers follow a common Pattern the reasoning behind the project The utility and use case the blockchain Architecture behind it the token Distribution and utility of the token The roadmap and finally the team behind It so let's start with the first section Which is the reasoning behind the Project every white paper must clearly
State the reason why they started the Project usually a white paper introduces A problem the project wants to solve and Describes how it's going to be the Solution for example Bitcoin introduces The problem of centralization in online Payment and presents the solution of a Peer-to-peer payment system that does Not need to go through a middleman the Next section is the utility and use case Where the white paper discusses the Solution in detail this solution can be Anything like a new blockchain that Improves on weaknesses of older chains a D5 protocol that does something better Than its numerous predecessors a new Blockchain with faster transactions and Lesser fees and many more this is where The white paper explains how the new Project differs from its competitors but Take note if a white paper dedicates This entire section to describing how They are better than their competitors And not how they plan to solve the Problem then it's probably not the right Project for you further or more a white Paper talks about the blockchain Architecture behind a project this is Also one of the most important sections Where you can tell whether a project is Worth investing in or not it outlines The consensus mechanism why the project Should be on the blockchain and not Anywhere else and why the team chose a
Particular chain the consensus mechanism Is simply the algorithm that ensures That a blockchain works properly and the Two most prevalent types used in the Blockchain space are proof of work and Proof of stake consensus algorithms if At this point you still can't find any Useful information about the purpose of The project or the utility and use case Then it's it's probably another Worthless project out to take your money Another important section you should Look out for in a white paper is token Distribution and utility token Distribution is an integral part of Tokenomics and it is key to a Project's Future success every project has initial Token distributions where they decide How many tokens will be distributed and How they will be distributed take note That if a small group of people would Control a large portion of the token it Will go against the key principle of Blockchain which is decentralization Another thing to look out for in this Section is whether there are mechanics That cap its growth or even burn issued Tokens for example there will only ever Be 21 million Bitcoin while ethereum has An unlimited Supply but excess coins can Be removed from circulation by burning Finally a white paper should provide Information about the team behind the Project scan the credentials of the team
And verify whether they have worked on Any successful projects in the past of Course Bitcoin is an exception to this Rule but if there is very little or no Information about the team this is Probably a huge red flag so now that you Know what information to expect from a Good white paper let's talk about some Of the other common red flags of a poor White paper first they're difficult to Get if a team does not have a link to Its white paper or a link to any other Relevant documentation on their website They probably don't want you to see it Second the length of the white paper now You're probably wondering what the Length of a white paper has to do with The authenticity but it actually has a Lot to do with it a shady crypto project Will probably just create a white paper As an afterthought to entice investors Hence such white papers will usually Lack useful information that correlates With the project in addition such white Papers often contain several Typographical errors and spelling Mistakes third vagueness and vain Promises you know if a project sounds Too good to be true then it probably is A poor white paper will often use vague Statements to conceal their incompetence Since they can't really explain what They do for example you might see Statements like revolutionize payment
The next Bitcoin or ethereum killer Fourth references this is an important Part of a white paper that most people Don't really pay attention to the Reference section gives you a clue of Where the authors got their information From if the authors did not cite Specific journals or other reputable Sources then it's probably a sales Letter disguised as a white paper so in Conclusion a good white paper should Contain enough information that Addresses most of the questions that you Might have if the tone has become more Is salesy and less academic then the Only goal is to attract investors and Not really solve any problem and now you Know how to read a crypto white paper Thank you for watching
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