The whitepaper and the ICO/IEO controversy: Part 1

Since the advent of cryptocurrencies and
the blockchain technology, a whitepaper has had some kind of rebirth. Instead
of serving as scholarly document, it has now become synonymous with a
prospectus, a document that often precedes an initial public offering (IPO).

An IPO prospectus is a step that a privately owned company takes before inviting members of the public to subscribe or acquire its stock. The issuance or the release of a prospectus to the public is a legal step that must be fulfilled and the while document itself must adhere standards set for such IPOs.

A whitepaper has somehow morphed into a prospectus of some sorts for tech companies that plan to offer tokens for sale to the general public. This routine was probably inspired by the first ever cryptocurrency, the Bitcoin.

When Bitcoin launched, it was preceded by Satoshi Nakamoto’s now famous whitepaper document entitled ‘Bitcoin: A peer to peer electronic cash system.’ Since then it has seemingly become the norm that a whitepaper must precede the start of a token offering.

Complex whitepapers

Prospective investors are expected to read and understand the complex verbiage contained in such documents. However, the apparent abuse of the whitepaper document –whose issuance was/is largely unregulated—by bad actors, has raised concern of many with some regulatory authorities using this as a pretext to curtail this industry.

The Financial Conduct Authority (FCA), a UK based financial regulator, for instance noted the following about the abuse of this document in a consultation paper