By Dimitri Elkin

August 29, 2017

If you want to launch your own Initial Coin Offering, you will have to present a white paper to the potential investors who will buy your virtual currency. The document should be approximately twenty pages long, and should provide the following information.

ICO structure

  • The name of the token
  • The number of tokens
  • The starting price of the token
  • Where the company will be registered
  • Distribution of profits from the project to the holders of the token, including management compensation, i.e., the number of tokens reserved for bonuses

Implementation Road Map

  • Where the data will be stored
  • How many users are expected
  • User identification. Will they be anonymous?  If not, how they will be identified?
  • How the information will be protected from hacking
  • Who will handle payments?
  • Details about SWIFT and other applicable regulatory systems and regime

Legal elements

  • What laws are applicable for this project, and how the project will be compliant with these law
  • Organizational chart
  • Legal entities chart
  • Description of other necessary foundation documents. Typically, a White Paper is not sufficient, and a proper legal document, such as Charter, needs to be put in place.

If this check list appears too simplistic, it is.

Following these simply guidelines, or following the structure of the white paper for Ethereum, the second most popular virtual currency, or Polybius, an online bank recently launched in Estonia, is surely a good step forward.

But it will not get you very far, unfortunately, because the standards for ICO’ s are rising, and the document that you will present to potential users / investors should go beyond mere formalities and answer many substantive questions, including the most important one: why the world needs another cryptocurrency?


Looking at the Fundamentals

Let’s prune the jargon, and try to think what it is that it will really take for an ICO to be successful.

First of all, it might be useful to note that the term “white paper” is a fancy way of saying “detailed report.”  The term originated in the British government, and it has come to signify a position paper on a complex topic.

For an ICO, the document that is required is more accurately described by the word “prospectus,” the detailed information memorandum that a company must file before an Initial Public Offering.  But since the term “white paper” seems to be generally accepted in the ICO community, it is OK to use that.

Second, one must realize the difference between the original bitcoin white paper published under the name Satoshi Nakamoto and everything that came in its wake. The original bitcoin presentation was really a revolutionary concept that addressed the fundamental problem of “double spend”, and outlined the concepts for proof of ownership. Bitcoin spread like wild fire because of the power of the original idea.  Most other ICO papers are either some refinement to bitcoin, like Ethereum, or very narrow applications that use blockchain methodology, like Filecoin.

Third, unless you have come up with some groundbreaking idea, your white paper should really look like a business plan for a technological start-up. So, the best way to develop a viable ICO document is to look at the guideline from the venture capital.

In a classic HBS paper called “How to Write a Great Business Plan” Harvard professor William Sahlman advises young companies to focus on the following key areas.

  • The team. Investors, first of all, want to know the people behind the project.  Relevant education, experience, and proven track record increase the chances of success.  Cryptocurrency is a young market, but if you don’t have someone with serious math education on your team who understands how hash function works, investors will question the team competency.  It is not a coincidence that the recent hot ICO included very reputable venture capital backers.  For example, the backers of Filecoin included Sequoia Capital, Union Square Ventures, Sequoia, and the Winklevoss twins, who you surely remembered from The Social Network, the movie about the creation of Facebook.
  • The opportunity. You should be clear about what product or service your ICO will support, and why people will want to pay for it.
  • The context. Your white paper should provide the up to date description of the ICO space and explain what is missing that cannot be addressed by the existing digital currencies.  Ethereum became successful because it positioned itself as a better version of Bitcoin.  The likelihood of repeating the success of Ethereum is low, and the odds of success will be better if you focus on one very narrow niche, for example, managing copyright for the music industry.
  • Risks and rewards. Your white paper should both outline the risks, and explain how the team will respond to the inevitable challenges. This includes both such fundamental problems as preventing “double spend” and attracting sufficient number of users for your project. You should also outline the sufficiently attractive picture of the potential market and the returns investors should expect in the case of success.

The classic advice from Bill Sahlman was used by many successful entrepreneurs during the rise of the Internet. There is no reason who it should not apply to the age of bitcoin. A good business idea will be viable regardless of what happens to the current ICO craze.  If you find a need that is not addressed by other companies, and propose an efficient solution, your business, and your ICO, will endure.