By: Laura Marissa Cullell (Senior Blockchain Consultant)
The exponential rise of ICOs has allowed many startups, seasoned companies, and individuals looking to create the next Bitcoin to inundate the web with whitepapers promising everything imaginable. While there have been some wonderful precedents and many successful models (Shoutout to Satoshi Nakamoto’s Bitcoin whitepaper), some of the ones I’ve encountered have been downright laughable.
Here I share what I’ve learned about whitepapers after having read sixty of them (and counting) for a research project I’ve been working on. I share the most comprehensive ones that make for wonderful precedents, and some awful ones that are in desperate need of revision. Whitepapers are meant to be the first point of contact for potential investors, and consumers so it’s imperative that the target audience is catered to as best as possible.
Having a Whitepaper is a MUST
While one would think that this is the obvious starting point for most start-ups, there have been some companies that have fancy websites, internet hype, but no tangible whitepaper. Not having a white paper fails to create trust and fails to add credibility. Unity Ingot is a perfect example of this. Originally touted as the World’s first crypto-mining backed token, their website has been on hiatus since August 2017, but their ads can still be found lurking around the internet. It’s validity has been called into question numerous times by Unity Ingot Exposed, and several other forums.
Whitepapers should be concise and as transparent as possible
If Satoshi Nakamoto was able to explain bitcoin and the ideas for blockchain in 8 pages, there should be little excuse for a whitepaper to be excessively long. Whitepapers should be a happy medium between a business plan and an academic paper, in digestible language. If it takes more than 40 pages to get the main points of the ICO or business venture across, then it’s definitely in need of a rewrite.
Deep Patel wrote an insightful article on the 6 Flags of an ICO. According to him, the following points are red flags:
- Use case does not require blockchain
- Empty Repositories for open-source projects
- Mining structure disproportionately favours development team
- Anonymous team or team with weak experience
- Insufficient information on website/whitepaper
- No Clear roadmap
Here are some I would like to add to this list:
7. No clear addressing of the problem, and proposed solutions
8. Lack of clear potential legal liability issues and risk factors (think international and domestic jurisdictions, development challenges, risks to investors, volatility, etc.)
9. Missing plain English’ descriptions of tokens
Transparency is one of the main points blockchain is built on and not being forthright with investors is a huge red flag. I found myself often e-mailing companies asking for basic information that wasn’t in the whitepaper, like the name of the CEO, or team bios, road maps, or even follow-up information that wasn’t clear on their whitepapers. Even basic IP and ownership of the actual development of the final product, which could possibly extend risk to investors was often missing. Of all of the ones I e-mailed asking for follow-up information, less than 10% actually responded. There were several that didn’t even disclose the origin of the promoters, or what international jurisdiction they fell under.
Several I encountered lacked actual proper explanation of the tokens themselves. Every token has different features and utilities. Lack of clarity of where the proposed token fell in terms of utility often raises red flags creates an element of mistrust without transparency.
Another important point that is often not present in whitepapers is allocation of funds. More specifically, where the money is going and how much is assigned to management/administrative costs. It’s impressive how many whitepapers lack the most basic but relevant information, especially for investors wanting to make informed decisions.
A well-written example of a whitepaper is Kin’s ICO. At 28 pages, it is easy to read for both professionals in the field and individuals who aren’t as familiar with the ICO space. It’s reader friendly, to the point, and very transparent. It is a highly recommended whitepaper to use as a precedent.
Unnecessary Verbosity should not be present and avoided at all costs
One of the most frustrating things I encountered in my research was poorly written sentences explaining so much and saying so little.
Take this for example:
“The Natural Asset Exchange blockchain platform and Earth Token cryptocurrency initial coin offering (ICO) token sale provides a unique opportunity to truly transform the Natural Capital Asset market, by creating a Natural Asset Marketplace that allows all stakeholders in the climate value chain to participate.”
(Courtesy of Earth Token)
And compare it to this:
“The Blackmoon Crypto Platform focuses on all the aspects of tokenized investment vehicles, from technology and infrastructure, to legal compliance and corporate structuring. The Blackmoon Crypto Platform will be the one-stop solution for asset managers to create and manage tokenized funds.”
(Courtesy of Blackmoon Crypto)
One of the two examples above is easier to follow, is straight to the point, whilst the other, is harder to understand. I have found in my research that the more buzzwords and meaningless complex sentences an ICO has, the more likely it is to be fraudulent. Hyperbole about the capabilities of the technology also prevented me from fully trusting the probability of the actual product reaching completion. Clarity is definitely one of the most important aspects of whitepapers and the more difficult it is to understand, the less believable they usually tend to be.
ICO + Whitepaper Hype does not always equal instant success
The hype surrounding ICOs will only continue to increase as more and more ICOs are popping up each day. It is important for whitepapers to reflect a high standard of service, business, and transparency. Although with hype, there oftentimes come more scrutiny creating a greater need for additional information. I believe that whitepapers will need to be more creative and innovative to entice investors especially for ICOs considering how saturated the ICOs have become. Not only will they need to stand out, but they also need to successfully convince investors that the product is a) tangible b) able to be delivered within a reasonable timeframe and c) does not present risk or liability issues, especially with how quickly regulators are cracking down.
Are there some whitepapers that you think stand out more than others? Do you think that the overall concept whitepapers needs to evolve or is it fine as is? Let us know in the comments below or Laura Marissa Cullell at email@example.com.