Investing in digital assets, like investing in anything, shouldn’t be done without doing research. However, unlike most traditional investment options, cryptocurrencies aren’t the easiest thing to research. There aren’t many reliable investment articles reviewing crypto assets like there are for stocks and larger companies.
Instead, most users have to figure out whether they want to invest in a digital asset by diving deep into the technical and sometimes sensational information they can find on a cryptocurrency. One thing you should certainly read before investing in a digital asset is the project’s white paper.
Why White Papers Are Important
A white paper is a document released by the developers of a blockchain project that usually outlines their vision for the network. This includes its asset(s), how everything works from a technical standpoint, and more. It should be easy to find and fairly thorough if the project is serious about attracting investors.
A project with no whitepaper likely isn’t worth taking seriously, as it means they haven’t really thought it out, or written any of it down if they did. Neither of those things are signs of a good project to invest in.
White Papers vs Technical Documents
Most projects initially launch with a white paper that outlines their vision for the project. This includes various things like presenting the problems seen, the solutions the project provides, ideas for scalability and future direction, and more. While the white paper can, and often does include some technical information such as how certain functions will work, it’s more of a sales brochure than a technical manual. In addition, a white paper is often not updated too often once it’s released, instead the project provides updates through blogs and updates to their technical documents.
Technical documents are what they sound like: documents that describe the technology behind the project. This includes things such as how consensus is reached, algorithms, and how individual components of the blockchain come together and function. Technical documents are often updated throughout the project’s development.
Things to Focus On When Reading Both
Both white papers and technical documents are important to read when doing your due diligence before investing in a project. The white paper should be the bare minimum research you do, with technical documents being useful to look at if you’re more technically inclined. Regardless, there are some things to focus on when reading both for your research.
Roadmap and Development Team
A blockchain project should have a good concept and direction, which means having a roadmap and good development team. Researching the development team behind a project, and the project development itself, is quite important when deciding what to invest in for the long-term. Having big names behind projects makes them instantly attractive to some investors, but it’s also important to see that development is happening, not just that there’s a big name working on it.
Apart from researching the team behind a project, it’s also important to check out how development is progressing compared to the roadmap presented by the team. This can be done by checking a project’s GitHub or similar repository that is used for managing project development. It’s okay for a team to be behind, but if they’re consistently way behind that might be a bad sign.
Use Cases
Digital assets come with a variety of potential use cases. Bitcoin could be a global peer-to-peer, trustless, payment system. Ethereum could be the backbone for a decentralized financial system. Pepe, a memecoin that has made people money in the short-term, has no use case. When you’re assessing assets for long-term investment, the one without a use case should be automatically eliminated.
Assessing a digital assets potential use case(s) is one of the most important things to research when looking at the white paper and technical documents. Even if the use case presented by the project isn’t needed in society right now, that doesn’t mean that it won’t be in the future. Of course, use cases that are necessary in society are attractive and more viable investments. After figuring out whether the asset has a good use case, you can then check out the asset’s tokenomics.
Token Distribution (Tokenomics)
Tokenomics is a specific term for cryptocurrencies. It refers to the economics of the blockchains coin or token and its ecosystem, so, tokenomics. It essentially refers to the role that the cryptocurrency coin or token plays within that blockchain ecosystem.
For example, Ethereum (ETH), is the digital asset required to send any transaction on the Ethereum blockchain network. A tokenomics assessment of ETH would involve looking at ETH’s role within the ecosystem, the supply of ETH that will exist over time, how ETH is distributed over time, and more.
This information should be included in both the white paper and technical documents. Like with use cases, a coin or token’s role within a blockchain ecosystem will have a significant impact on its potential as an investment. If a blockchain has little to no need for its native assets, then that’s not exactly a good thing. Likewise, if the supply is infinite and tons more is released into the market everyday, that’s also bad. Like investing in an asset because it has a good use case, good tokenomics can be a key factor in an asset’s long-term potential, and that’s why you read through the white paper to find out that information.
