This morning I read with a great amusement the article "Why Bitcoin and cryptocurrencies are the next PR landmine
". The opinion piece posits that many PR practitioners fail to do due diligence for the Initial Coin Offerings (ICOs) they represent because
they are paid well. As a PR practitioner who has been involved in the consultancy of some locally-based ICOs, I couldn't help but laugh at the incredibility of this suggestion.
Because I felt that the opinion piece is unfair. I personally know some PR practitioners in Singapore who have rejected 6-figures PR work involving certain ICOs because they couldn't understand--in spite of best efforts-- what the ICO is about.
Yet I could understand the author's stance--there are indeed bad eggs around! In this spirit today, I hope my article on how to read ICO white papers can help you trust not
in mere hype, but use your understanding of the white paper to inform your purchase. This applies regardless of whether you are a HODL
early adopter, or a shorter-term speculative investor.
What are ICOs and Whitepapers?
Accoridng to Investopedia, an ICO is
"an unregulated means means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks."
Now, every legit ICO will include a white paper
which explains what the fund raising is about. As a token-purchaser, reading white papers is important because it can act as a signal to inform whether a startup is legit or not. Some white papers are written by lawyers, some are written by people skilled in both business and technology, some are written by PR practioners like myself, and some are written by professionals with a strong finance background.
In the context of Singapore, white papers will usually include disclaimers at the start like:
"This document is not an offer of securities or a collective investment scheme, nor does it require registration with or approval from the Monetary Authority of Singapore. Contributors are advised to read this document carefully in full, and perform due diligence."
Why do they write such disclaimers? This is because any token that behaves like a security/ investment vehicle (indicated by the Howey Test
) has to be regulated by the MAS, by law. Which involves bureaucracy and which might then even run into the risks of being illegal.
Also read: There is something everyone knows about crypto and ICOs, but no one wants to admit
The purpose of the white paper therefore, is not just to expediate with clarity what the project is about-- it should ideally inspire trust and create legitimacy in the minds of the people who are going to buy the tokens.
In addition, the best white papers are written to inspire
early adopters. This is to say that if you are their target audience, you should feel excited after reading them. Some of the best white papers I've personally read include: Monetha
(local) and Tron
Against this context, the white paper of the ICO should include:
- the vision of the project;
- its technology;
- what problem this project is solving in the marketplace, an assessment of why this problem is important, and solution(s) that highlights the unique selling point of the project;
- how the tokens will be distributed (look in particular at the percentage given to the public, the bounty and the core team);
- timeline of milestones (use this to check if the project is long or short term);
- the core team and track record.
ICO white papers as a method to discern between legit and scam
Here are the three elements I would personally look out for in the white paper to discern if a project is a scam or legit:
The vision of the ICO as articulated in the white paper would give you an idea of how long term or short term the project is. In additon, check out for unique selling point in the positioning of the ICO. What is so unique about the solutions that they are providing in the market space?
It would be a wise idea to do a background check on core members of the team-- do they have strong track record and reputation in the roles that they are supposed to be serving in?
Language and focus of the whitepaper
Pay attention to the language and focus of the white paper. Here, I would like you to pay attention to the overall feeling you get after reading the White Paper.
What is the main emotion you feel?
Is it a fear of missing out, or is it excitement over the technology or solutions?
The emotion you feel is very important because most white papers associated with scam ICOs play very strongly on the concept of "fear of losing out".
If you feel consumed by fear after reading the white paper, it is very likely that you have been emotionally manipulated by the wording and structure of the paper. Most likely, the team who wrote the white paper would have been capitalizing on your greed to push you to make the purchase.
Legit ICOs tend not to focus on this fear, but on the core unique selling point of technology, solutions, and problems that they are solving.
One great example of a local whitepaper that creates excitement is that of Bountie.Io
. Many amateur gamers actually do want to earn money via gaming (too) and the Bountie white paper does a great job of articulating the vision of creating a gaming ecosystem via blockchain technology
It is possible to argue that a scam company could hire a professional white paper copywriter and still come up with an excellent proposal.
Also read: Are ICOs a scam or a blessing upon the startup ecosystem?
I fully acknowledge this possibility and wish to reemphasize that the point of writing this post to use the white paper as a signalling tool to reduce your risks of falling prey to a scam ICO.
After all, if a scam company could invest so much money in coming up with a professional-looking and logical white paper, it might as well act upon the idea long-term as a legit company.
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