Submitted by nsscadmin on
We had a question sent to us asking what a white paper is in connection to cryptocurrency and initial coin offerings (ICOs). We’ll be speaking toward what a white paper is in that context.
With the rise and fall and rise again of the price of bitcoin, cryptocurrencies have become extremely popular and have generated a lot of buzz among investors and speculators. A white paper is an informational document, typically issued by a company or startup company, to promote and highlight the features of a solution, product or service. When it comes to cryptocurrency and ICOs the white paper is promoting a solution to a problem using blockchain technology.
A white paper is a highly detailed document describing the problem at hand and a solution to solve that problem. Companies or individuals launching a new blockchain project will issue a white paper prior to an ICO to inform potential investors about the new technology, methodology, product or service that is being launched. It is meant to entice users and investors to their project.
A white paper addressing cryptocurrencies should outline:
- The problem at hand
- The basics of the operation and the concept, including technical details of their solution
- Why their solution is better than any other solutions that may have already been developed
- Other applications of the new technology
- Conclusion, and summary of the document
After reading a white paper a potential user or investor in the project should be given the information they need to determine if the project, and solution are sound. However, that does not mean they necessarily have enough information to make an informed investment decision should they choose to become an investor in the project.
One important thing to note – a white paper does not fill the role of a prospectus if the ICO is determined to be a security. Under securities law anyone issuing securities must file a prospectus, which must include in-depth information necessary for an investor to make an informed investment decision. If, after reading a white paper you are thinking about investing in an ICO or cryptocurrency project ask yourself the following questions:
- Is the ICO a security?
- If it is a security, is the issuer registered?
- Is there a prospectus which outlines risk and other information that is required to be given to you under securities law?
- Does the white paper identify what my rights are under the investment?
- Do I receive a return for my investment?
- Who are the principals behind the ICO? Have they ever been disciplined by a securities regulator?
If the ICO is not a security, you are not protected under provincial securities regulation. If you cannot answer these questions be extremely careful before handing over any money or other assets to the ICO issuer. Many ICOs have proven to be fraudulent. Do your due diligence and homework to make sure any ICO you are thinking about investing in is legitimate.