Youtube millions of fans encrypted KOL teach you how to find GEMS by reading encrypted white paper?

This article is compiled from the video "Reading Crypto White Papers: How To Find GEMS" by Coin Bureau, an encrypted blogger with millions of fans on Youtube. However, it is a pity and regret that more and more projects do not even have white papers, but this also makes those Projects that write white papers very seriously have room for different values ​​to be discovered.

By far the most important step in getting to know a project is to read its white paper.

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white paper explanation

First, what is a white paper? In short, a white paper is a summary of a crypto project. It includes things like the purpose of the project, its design, the team behind it, its funding sources, and its roadmap.

A white paper is usually the first thing a crypto project does after its website and social media accounts. Because of this, many believe that white papers exist primarily for marketing purposes, as they are usually aimed at attracting investors. This ultimately depends on the crypto project being analyzed, but it is definitely something to keep in mind when analyzing white papers.

White papers come in all shapes and sizes, some have lots of images and some don't. Also, some white papers are very long, which is due to the complexity of the project. Obviously, more complex projects require longer white papers. White papers can also come in different colors.

Yellow Papers provide the technical details behind crypto projects, perhaps the most famous of which is the Ethereum Yellow Paper written by Ethereum co-founder and Polkadot founder Dr. Gavin Wood. There are also beige ones, which are essentially simplified versions of the Yellow Book that can be understood by ordinary people. Another function is to allow you to read quickly. It is a summary of encrypted projects, which can be one page long or several pages long.

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Who wrote it and when was it written?

The first thing to look for in a white paper is when and who wrote it. Because crypto projects tend to change over time, some of them have published multiple white papers since their inception. Therefore, it is very important to ensure that the white papers you are reading are up to date.

Typically, white papers are published on crypto project websites or in their documentation. If you can't find the white paper on the crypto project's website or documentation, you can go to whitepaper.io.

Another feature of this website is that you can browse all the white papers published by the project. This feature is very useful if you want to know how a project has changed over time.

What I personally look for in previous white papers is whether crypto projects have used the same script over the years, or have been changing to keep up with competitors. I also focus on differences between previous and current authors, as a different team could mean a different future for the project, it could also mean that there are some issues behind the scenes, which is bad news for any business, no matter what its nature . The members of the team should almost all be the authors of the white paper; if they are not, then this is also a huge red flag.

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Project locations and partners

The second thing that should be concerned in the white paper is the address of the project and who its partners and supporters are. There are several important reasons. As it stands, many crypto projects located in countries like the US are more difficult to get off the ground than those located in more crypto-friendly jurisdictions. As we’ve seen with crypto projects like Stacks, being located in an unfriendly jurisdiction often jeopardizes the project’s issuance and listing, even if the team does everything according to the white paper.

Fortunately for Stacks, it has significant institutional support, meaning the project has enough money to meet any legal requirements it must, so STC can be listed on Coinbase.

In this regard, it is in the interests of investors that STX be listed on a US exchange, which is another reason why it is of particular importance to investors, especially venture capital or venture capital firms.

Contrary to popular belief, I think the involvement of VCs can be a good thing because many VCs are involved in the long run, especially those who invest heavily after the project is launched. Not only that, but some of the largest crypto VCs are subsidiaries of cryptocurrency exchanges, such as Coinbase Ventures. If you see such VCs in cryptocurrency white papers, you can assume that the token may be listed on the relevant exchange sometime in the future.

For the same reason partnerships are important, you may see some crypto project partners in white papers. Of course, these partnerships are only as good as the quality of other crypto projects they work with, which may take some time to evaluate.

If you have time, you can also dig into the white papers of the projects they have worked with, or you can check if other projects’ tokens are still active and if they are on reputable cryptocurrency exchanges, such as Binance, Coinbase, FTX Or exchanges like KuCoin.

While traditional institutional partnerships are rarely mentioned in cryptocurrency white papers because they are published so early, future partnerships can sometimes be predicted by looking at the backgrounds of team members and their affiliates.

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The project is different

The third thing to look for in a white paper is the specific purpose of a crypto project and how it differs from its competitors. This information is usually given at the beginning of the white paper, and if the white paper starts with some long story about the creation of Bitcoin in 2009, then it is a bad sign.

Evidence suggests that this white paper is intended to attract inexperienced cryptocurrency investors and is therefore not a very high-quality project.

Ideally, the white paper should be straight forward, kind of like we're making a smart contract cryptocurrency like ethereum, but faster, and that's how it works. A good example is the Terra whitepaper, which starts with a short background on the problem it's trying to solve, details three things needed to solve it, and then explains how the project achieves those three things.

It would be even better if the authors could define the purpose of their project without mentioning competitors. Spending too much time talking about other crypto projects on the same track is a bad sign.

Conversely, if you come across a project that sounds like you've never heard of it before, you've either found the next good thing or the next shitcoin. A simple rule of thumb I use is to check if the cryptocurrency was built from the ground up, or if it is a fork.

How does it work?

How does it work?

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The architecture of a cryptocurrency currency consists of three parts:

1- A consensus mechanism to ensure transaction security.

2- Validators or miners participating in this consensus mechanism.

3- Any additional technology, such as a virtual machine for smart contracts.

Starting with consensus mechanisms, the two most common are Proof of Work (PoW) and Proof of Stake (PoS), the latter of which has been particularly popular recently. Once you figure out what consensus mechanism a cryptocurrency blockchain uses, try to figure out if there is a limit to the number of validators that can be part of the blockchain.

This is because validator limits mean that cryptocurrency blockchains are likely to be centralized, especially if validators are required to submit KYC to the company that created the cryptocurrency.

Centralized cryptocurrency blockchains are likely to be faster unless decentralized crypto projects use better technology. This has to do with additional technical components, which can get very technical.

What I'm looking for on the technical side is mostly whether a cryptocurrency blockchain utilizes an existing virtual machine (such as Ethereum's EVM) to implement smart contracts, or uses an entirely new virtual machine. This is again a trade-off, because if a cryptocurrency blockchain just leverages the EVM, not only is it replicating another cryptocurrency project, but its smart contracts may also be limited by the amount of transactions it can process per second.

On the other hand, if a cryptocurrency blockchain is utilizing a new virtual machine, its smart contract functionality may not be as good as its competitors, which is a very big deal in a competitive industry like cryptocurrency. risks of.

Other additional techniques include sharding, which involves breaking the blockchain into multiple parts called shards to increase speed. This is done by assigning certain transactions to certain groups of validators. Beware of this technique, which is also popular recently.

As far as cryptocurrency tokens are concerned, their architecture is not that standardized to say the least.

Token Economics

Token Economics

The fifth thing to look for in a cryptocurrency white paper is token economics, specific sources of supply and drivers of demand.Sources of supply include:

1- Annual inflation of the currency or token.

2- Its initial allocation.

3- Its distribution schedule.

Inflation is self-explanatory. If there is too much inflation, it will be difficult for cryptocurrencies to maintain their value, just like the dollar. Interestingly, the distribution of dollars is also uneven. This can be a problem for cryptocurrencies because if a majority of the initial supply of a currency or token is allocated to the team and its affiliates, selling pressure from these parties could depress the price of the cryptocurrency, especially if they Substantial profits have been made.

It really depends on how aggressive the distribution plan is. If the cryptocurrency distribution schedule is long and smooth, the selling pressure should not affect the price at all. Or, if the cryptocurrency has a short distribution schedule, then expect ugly prices.

The hope with an aggressive allocation plan is that you'll get a good idea of ​​when crypto prices might crash in the future, meaning you'll be able to buy on dips if this is a crypto project you believe in.

On the other side of the economic equation, we have demand drivers, which include revenue generation like fee payments and staking rewards, and other benefits that give ordinary people reasons to buy and hold cryptocurrencies beyond just price speculation. As far as I know, cryptocurrencies have the strongest demand drivers because they need to pay all fees on their respective blockchains. This is why I am so bullish on layer 1 blockchains. If the teams behind crypto projects can drive user adoption of their blockchains by building new decentralized applications and experiences etc., then their respective tokens will be There is a good chance it will go up. But that doesn’t mean the demand drivers for tokens are insignificant. Some such as Decentraland's MANA is used as a payment method in the Metaverse market, and usage has exploded in the past year. In the long run, between trough and peak, MANA has grown almost 500 times since 2020.

route map

route map

The sixth thing to look for in a cryptocurrency white paper is a roadmap. The roadmap should last at least a few years and contain actionable goals within an achievable timeline.

Examples of actionable goals include testnet or mainnet launches, crypto wallet launches, exchange listings, scalability or privacy upgrades, and specific partnerships within a three-year time frame.

Be sure to note down any exact dates, as the currency or token will most likely rise as the milestone approaches. On the contrary, something like attracting 1 billion users in a year is not a reality.

However, not all white papers have a roadmap. This could be because crypto projects don't actually have a roadmap, it could be because the roadmap exists on a separate document or page on their website, or it could even be because crypto projects can't publish a roadmap for regulatory reasons. This is especially relevant for crypto projects from the aforementioned unfriendly jurisdictions, which you can tell by all the disclaimers in the files if this is the case.

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References, sources, footnotes

The last thing to look for in a white paper that few people notice is references, sources or footnotes. This is because the details make or break things.

References often reveal whether the author of a white paper is a truly talented individual. Referencing common sites like Wikipedia or other cryptocurrency white papers is not a good sign, nor is complete absence of sources.

Good resources include publicly accessible scientific papers and even niche cryptographic writings by early cypherpunks like David Chalm and Adam Back.

In addition to providing you with interesting reading, high-quality reference material can lead you to other crypto projects and even inspire you to create your own. The same goes for footnotes, which can sometimes contain key information about the cryptographic item you're reading. This is why you should read cryptocurrency white papers from cover to cover, even if you don’t fully understand the technology involved.