New companies always present their idea to investors using a compact business plan. Most often, that is a paper that explains the idea in detail and gives information regarding their future plans. So, what is a whitepaper and how is it similar to this?
What is a whitepaper?
In the context of cryptocurrency, a whitepaper is a business document that contains all the important information that potential investors should know about. This helps readers get a clear overview of the cryptocurrency startup behind the whitepaper and consecutively gives a good idea on whether or not a financial investment in the project is in their best interest.
Whitepapers usually start by explaining a current, pressing problem and continue by introducing their project as the solution. They also offer a roadmap for their long-term plans (for those who plan to HODL), as well as a detailed breakdown for the distribution of the funds they hope to raise.
Why new projects need a whitepaper
With more than 2300 cryptocurrencies, new crypto-projects are struggling to get the attention they are hoping for. Aside from that, many new cryptocurrencies are not trying to solve any existing problems and have weak business models that raise red flags or, at least, many question marks. As such, and in order for a new cryptocurrency to receive backing, following their marketing efforts, they need to present valid reasons behind the creation of their coin or token. And this is why such new projects need a whitepaper.