An in-depth analysis of the recent malfunction and performance issues suffered by the Binance crypto exchange.
As Cointelegraph reported on Feb. 19, Binance temporarily suspended most of its crypto trading platform activities due to unscheduled system maintenance. For several hours the exchange’s users were unable to perform most basic functions including deposits, withdrawals, spot trading, margin trading, P2P trading, lending, redemption, as well as asset transfers from sub-accounts, margin accounts, futures accounts, and fiat wallets on the platform.
During the outage, Binance CEO Changpeng Zhao explained that the root cause of the trading halt was a technical issue with one of the market data pushers. In the end the exchange solved the issue the same day, waived the day’s margin trading interest, and resumed trading after allowing a thirty minute window for canceling orders. The firm reassured Cointelegraph that no malicious activity was involved in the malfunction.
Binance’s maintenance allegedly caused a market downturn
An experienced trader who found himself unable to access the platform during the stoppage told Cointelegraph that the unscheduled maintenance proved to be a major issue. He pointed out that shortly after trading on the platform resumed after the halt, a major market downturn took place:
“While I have to admit that I prefer to trade on Binance rather than on the other exchanges, starting unscheduled maintenance caused turmoil in the market since traders encountered unexpected difficulties in position management. In fact, I noticed that after a few hours the market has seen a downturn. I hope that in the future Binance won't encounter such problems and will maximize its performance.”
Binance proved unable to manage the increased traffic
According to a Feb. 17 Binance report, the week before the unscheduled maintenance took place the exchange also reported “a number of performance issues.” The firm suggests that the reason is the higher-than-usual number of users active on the trading platform:
“The difference between BTC at $10,000 this time around and the previous times is, there are a lot more users now. While this is a solid sign of strong recovery for the crypto market, it also puts on significant load for our systems.”
The exchange’s users ran into user interface errors and trading API timeouts because of the middle-layer service being overloaded. Users that were unable to have their orders carried out also often retried right away, resulting in overloading Binance’s infrastructure even further.
Binance’s short-term solution was to increase the computing resources, but the firm admits that the impact of this approach was limited. The firm also attempted to scale up the performance in other ways, but the improvements were not ready for implementation before the traffic spike.
The performance issues also caused a delay in data, order and balance updates. Per the report, Binance is working on longer-term solutions for this issue that should multiply the throughput of the system more than tenfold. Overall, Zhao claims that all those issues can be solved, and promises:
“We will solve these issues quickly, short, mid and long term fixes. I won’t be able to guarantee all smooth sailing from here. We are bound to run into issues in the future as well, and we are confident we will solve them quickly.”
Binance expands its operations aggressively
Earlier this month, Binance added Hong Kong dollar support shortly after adding 15 additional fiat currency options for Visa and Mastercard purchases on its platform. Shortly before those announcements, the firm also added Russian ruble pairs for its peer-to-peer trading platform.
The increase in traffic claimed by Binance in its report apparently suggests that this approach is working — and the company clearly intends to scale its infrastructure to match.
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Tezos and Chainlink have retraced from their nearly parabolic gains of the last few weeks, possibly presenting a buying opportunity for investors.
The most energetic performers from the past period, Tezos (XTZ) and Chainlink (LINK), are now showing a heavy retracement. Tezos corrected 32% since its local high at $3.96, while Chainlink also corrected 25% since reaching a top at $4.87.
Do the current pullbacks provide buy the dip opportunities, or will the altcoins slide further in the coming weeks? Let’s look at the charts.
Crypto market daily performance. Source: Coin360
Tezos tops out at $4 resistance
The resistance at $4 was discussed in a previous analysis focused on Tezos and Chainlink and since then Tezos rallied towards this resistance and swiftly rejected it at this level.
XTZ USD 3-day chart. Source: Cointrader.Pro
A rejection is not necessarily the wrong signal during such an impressive uptrend. Assets never move upwards in a straight line and they go through waves and corrective movements before continuing. Thus, a rejection at $4 is standard and was expected by many investors. Since breaking through $1.75, Tezos rallied 120% without any corrective moves.
Significant support levels can be found at $2.50 and $1.75 which is the previous resistance level. However, a retracement towards $1.75 would be a 50% retracement and this type of pullback is unexpected during strong bullish trends.
XTZ USD 1-day chart. Source: Cointrader.Pro
The daily chart of Tezos is showing a similar perspective as the 3-day chart. A clear bearish divergence confirming a temporary trend reversal, after which the price started to trend downwards.
As the chart is showing, that’s not a bad thing. The price of Tezos retraced from $1.75 to $1.20 in December 2019, after which a new higher low was found, and the trend continued.
The daily chart is showing similar support levels as the 3-day chart shows, primary support to be found at the $2.50-2.70 area. If that support doesn’t hold, continuation towards $1.80 is likely to occur.
XTZ/BTC looks for a retest
XTZ BTC 3-day chart. Source: Cointrader.Pro
The Bitcoin (BTC) pair of Tezos also shows a rejection at the small target around 0.0003700-0.0004100 satoshis. Such a rejection is not a bad sign, given that Tezos broke above a significant resistance. The price of Tezos couldn’t break above 0.0002500 satoshis for 18 months, after which a breakout led to a substantial volume increase and upward trend.
What would be the most likely scenario here? A retest of the previous resistance at 0.0002500 satoshis would confirm the breakout if buyers are stepping in at this level.
XTZ BTC 6-hour chart. Source: TradingView
The 6-hour chart shows a heavy retracement since the local top at 0.0004000 satoshis. The 0.0003400 satoshis level couldn’t provide support, through which continuation of the downward trend happened.
The primary support levels to watch are the 0.0002950-0.0003000 satoshis level and the 0.0002500-0.0002550 satoshis level. Personally, I’d be mainly watching the lowest one, given that the 0.0002500 satoshis level used to be massive resistance.
However, if the 0.0002950 provides sustainable support, a potential bounce towards 0.0003450 is likely to occur. This test will determine whether Tezos is continuing the upward trend or whether this level confirms resistance, and then downward continuation towards 0.0002500 satoshis is on the table.
Chainlink retracing for a potential support/resistance flip
LINK USDT 1-day chart. Source: TradingView
Chainlink retraced heavily in the past week, as it couldn’t break above the previous high at $4.58. An additional reason for the retracement could be the weak movements with Bitcoin (BTC), which doesn’t provide a bullish market sentiment.
However, the chart is not bearish at all. Tezos was heavily due for a retracement, through which Chainlink is showing a similar structure as it rallied 180% in 2020.
The price of Chainlink is looking for support in this retracement. The next primary support level is the $3.50 level.
Flipping the $3.50 level for support would mean another support/resistance flip and likely continuation to the upside, or at least a retest of the $4.58 resistance area. Traders should also watch the daily close today.
If Chainlink closes above the $3.75 level, the resistance from June 2019 is flipped support, and the retracement could be over.
LINK USDT 4-hour chart. Source: TradingView
The 4-hour chart shows an apparent support loss at the $4.00 level. Losing this support level caused the price to drop further downwards, through which the $3.50 level is the primary support level.
Over the short term, the resistances are found through the $3.85 and $4 levels. A bearish rejection at either of these levels would mean continuation downwards, through which the $3.50 level is the main support level.
However, breaking these levels to the upside would mean that the retracement could be done. It is essential that these levels become support, which could trigger continuation upwards.
LINK/BTC at crucial support
LINK BTC 1-day chart. Source: TradingView
The daily timeframe shows a definite retracement since the local top, which means that it’s approaching a significant level. Two support areas can be determined from this chart, through which 0.00039000 satoshis is the first level.
The primary support is found at the 0.00037000 satoshis level as that’s previously found to be the resistance. This level was broken to the upside earlier this year, meaning a retest could trigger buyers to step in and provide a ‘buy the dip’ opportunity.
However, losing that level would trigger a continuation of downwards pressure and classify as a weak move.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Wall Street's most trusted recession indicator flashed red again, as investors flocked government bonds amid the coronavirus threat.
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Caitlin Long believes that banks will offer superior custodial services to those offered by trust companies.
Caitlin Long announced yesterday that she is launching Avanti Bank, and seeking a charter for it to become the first bank in the U.S. to offer crypto custody services. Today, in an exclusive interview with Cointelegraph, she elaborated on why trust companies as crypto custodians are insufficient for institutional investors.
Long explains “There’s a reason why the big custodians for institutional investors in securities markets are banks – two reasons, actually – 1) unlike trust companies, banks have direct access to the Fed for liquidity purposes, and 2) the treatment of a bank in bankruptcy is clear, while the treatment of a trust company in bankruptcy is unclear.”
In addition to providing its clients with greater certainty in case of bankruptcy, “banks face MUCH higher capital requirements than trusts”, noted Long. Higher capital requirements also lower the risk of default.
She notes that “pensions/endowmts/foundtns/corps/sov wealth” need this level of financial security before entering the crypto space.
“There’s not a bank in the US that can custody crypto right now – so this means trust company custodians are the only alternative at present. But trust companies can’t offer the risk reduction benefits of direct access to the Fed.”
There is no lack of players in the digital custody space, from corporate giants like Fidelity to crypto-native companies such as itBit, Coinbase, Gemini, and Xapo. There is even a bank that offers digital custody -- Bank Frick, based in Liechtenstein.
Why custody matters?
For big institutional players to allocate some of the trillions of dollars they have under management to cryptocurrency, they need to have custodians that they — and their investors — can trust. To instill this trust, a crypto custodian must demonstrate technical expertise, legal clarity, and financial soundness.
Long refers to the missing piece as “a regulated bank that can act as a bridge to Fed for payments + custody crypto for BIG institutional money”.
If Avanti Bank fills this void, it may lead to the next phase of exponential growth for crypto, and some of the outlandish bitcoin price predictions may come true.
ConsenSys is spinning off its healthcare division into ConsenSys Health, seeking to solve the issues in U.S. healthcare by applying technological solutions.
ConsenSys, the Ethereum-focused company founded by Joseph Lubin, announced on Feb. 25 that it will spin off its health division. The new ConsenSys Health company will develop blockchain use cases to tackle issues in the U.S. healthcare industry.
The announcement is part of ConsenSys’ strategy shift of favoring products such as Codefi and Infura, which led the company to spin out several internal projects into independent entities.
ConsenSys Health focuses on applying blockchain to the health industry, citing issues such as rising costs and access to care as some of the areas where blockchain can contribute. Co-founder of Ethereum (ETH) Joseph Lubin commented on the news, saying:
“Spinning off a separate company in this area is an opportunity for us to combine the powerful technology built by ConsenSys with a team of domain leaders to solve the biggest challenges in healthcare.”
The new company will be headed by Heather Leigh Flannery, who was the Global Lead for healthcare at ConsenSys. She is deeply involved in many initiatives combining blockchain with healthcare, serving on the chair of associations such as HIMSS Blockchain in Healthcare Task Force, Blockchain in Healthcare Global and the Healthcare Special Interest Group in the Ethereum Enterprise Alliance.
The blockchain solution for healthcare
ConsenSys Health will be specifically targeting the U.S. healthcare market as the most ripe for disruption, citing its high per-capita cost — by far the highest among OECD countries.
According to ConsenSys, blockchain can improve on this by addressing the rising costs of research and administration. Making data sharing safer and faster, expanding access to care and engaging patients directly are some of the initiatives where blockchain can help. Flannery is confident that the use of technology can improve the situation:
“The convergence of many emerging innovations, such as blockchain and machine learning, enables us to approach old problems in new ways. This opens up the possibility for improved patient and provider experiences, new business models, and ultimately, a sustainable and value-based healthcare system.”
Healthcare is one of the central themes of the upcoming 2020 U.S. presidential election. As the primaries for the Democratic presidential nomination continue, most candidates are proposing political approaches to the problem, such as Bernie Sanders’ “Medicare for All.” Though he is currently leading the polls, the proposal is generating immense criticism due to its radical approach.
A technological solution spearheaded by blockchain may become a more acceptable alternative for the public. Of the remaining candidates, only Michael Bloomberg has shown some interest in the cryptocurrency and blockchain space.
Coronavirus fearmongering is getting out of hand, but it's still a good idea to cancel PAX East and GDC 2020 before the outbreak gets worse.
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Starkware, led by Zcash founding scientist, hopes to bring security and scalability to crypto exchanges.
An Israeli startup Starkware believes it can solve two of the most pressing issues in crypto trading — the inherent vulnerability of centralized exchanges and the low transactional capacity of decentralized ones.
The venture was co-founded by professor Eli Ben Sasson, who was a founding scientist for Zcash (ZEC). Besides raising almost $40 million from prominent investors that include Sequoia and Intel Capital, it also received a grant from the Ethereum Foundation.
Starkware for exchanges
Oren Katz, VP of engineering at Starkware, explained their approach in an exclusive interview to Cointelegraph:
“We basically provide a scalability engine for exchanges (or marketplaces). The exchange keeps the order book and does the matching. The users post orders to the exchange. The exchange matches orders and sends the ones to be settled to us (StakWare's service). We batch a large number of trades together (could be tens of thousands) and prepare a single STARK proof, which attests to the validity of the entire batch. The proof is sent to an on-chain verifier (e.g. once every 15 mins). Once verified, the root state (of all user balances) is updated on-chain.”
For decentralized exchanges, the tradeoff is that decentralization decreases. For the centralized ones, it’s the loss of custody over users’ deposits. This may lead to lower revenue, as they will not be able to trade, lend nor stake users’ crypto.
Therefore, the system becomes self-custodial which almost completely eliminates the risk of an exchange mismanaging users’ deposits. Its first use-case is the Deversify exchange, an Ether DEX, launched by Bitfinex.
“We have spoken with all the major crypto exchanges, some get very excited about our solution, some don’t. For some, it’s a bug, for others, it’s a feature. They say ‘people trust us, we have a good reputation’”.
Why should we trust you?
In response to the concern that by implementing Starkware’s technology, an exchange is just moving the burden of responsibility to another centralized entity, Katz explained:
“Ask yourself what is the worst thing that can happen if we become malicious? We can’t steal your crypto since we don’t have your keys, all we can do is stop processing transactions.”
Katz summed the value proposition of Starkware: “What we want to provide users is with the user experience, volume and cost of a centralized exchange, but without the counterparty risk.”
Whether major crypto exchanges will embrace this technology is unclear. Holding millions of dollars in cryptocurrency is burdensome, but also is highly profitable. Much will depend on the users’ appetite for risk.
Chris Blec is a content creator on YouTube whose channel specializes in Ethereum decentralized finance, or DeFi, topics.
In recent months, Blec has earned a reputation for holding various Ethereum projects to account in the interest of users, particularly on the issues of decentralization, privacy, and beyond.
The decentralized exchange Uniswap is completely decentralized, for instance — no admin can manipulate it.
However, Blec has recently focused a beacon on other top DeFi projects like Compound Finance, which currently has an admin structure that could be abused in worst-case scenarios, however unlikely.
One of Blec’s latest beacons came on February 20th, when he publicly asked Circle, the payments company behind the USDC stablecoin, whether using the Tornado.cash privacy tool on Ethereum was grounds enough to violate that stablecoin’s terms of service.
— Chris Blec (@ChrisBlec) February 20, 2020
Within a few days, Joao Reginatto, the Product Lead with the USDC team, responded with some interesting clarifications.
First, What’s Tornado?
Tornado is a mixer system built on Ethereum that is underpinned by zk-SNARKS privacy tech, or “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge” transactions.
This dApp allows users to have a non-custodial interface through which they can mix their ether (ETH) so as to make anonymize their activities on Ethereum.
And of course, it’s not that everyone has something to hide, but rather that everyone has a reasonable expectation to financial privacy. Industry publication Decrypt just published an investigation into the Ethereum Name Service (ENS), for example, which showed how these names made it extremely easy to track users’ activity on Ethereum.
Tornado is an early and promising solution on the flip side, which allows users to obscure their ETH payments in order to maintain privacy.
Yes, You Can Use USDC With Tornado
Blec’s aforementioned query was picked up on February 24th by USDC’s Reginatto, who responded on Twitter with a series of comments to provide context on how Circle’s leadership was approaching this nuanced privacy issue.
For context, some cryptocurrency companies have recently moved against users they’ve determined have used mixers, particularly via bitcoin; accordingly, some users in the Ethereum space have been concerned that activities on Tornado might similarly draw ire.
As such, Reginatto made a major clarification to USDC users when he followed up with Blec, saying:
“I can tell you that to date, we have not considered any Circle USDC customer using the current TornadoCash tool to be in breach for the single reason of interacting with TornadoCash. We of course assess every customer’s compliance with our terms on a case by case basis.”
At least as things stand then, that’s a major win for USDC users and a score for Blec’s advocacy efforts. In a separate and related comment, Reginatto noted that while USDC’s smart contract did have a blacklist function, that function had never been used to date, with the suggestion being that USDC’s centralized backers had been provably conservative so far. On that point, he added:
“As the ecosystem and the technology evolve, blacklisting in its current form might likely prove too blunt or simply impractical. Believe me, we think a lot about this topic and are always engaged in collaboration with regulators around the world to conceive better solutions.”
Accountability Is Good for Everyone
It’s not easy to ask the tough questions, but when done in good faith, the results can be extremely productive. Blec’s query to the USDC team and Reginatto’s responses are just one such example.
Furthermore, beyond Blec and USDC, Tornado is a big winner from this episode. A major crypto company just revealed that it had no direct qualms with the privacy tool, which is obviously legitimizing, and other firms may follow suit in kind.
The post Tornado Ethereum Privacy Tool Is Okay With USDC Stablecoin Creators appeared first on Blockonomi.
Non-fungible tokens, or NFTs, are a blooming sector of the cryptoeconomy. They can be understood as digital collectibles, like CryptoKitties, which are verifiably unique and can be deployed in a multitude of ways, for example as art, ad space, gaming pieces, and beyond.
Like crypto’s decentralized finance arena, most of the NFT activity happening today is happening on Ethereum. And like DeFi, the promising NFT ecosystem seems to be on track for solid growth in 2020. But how much growth might we reasonably expect?
Here, cue in NonFungible, a tracker site for all things crypto-collectibles and blockchain gaming, whose team just published their “Non-Fungible Tokens Yearly Report: 2019,” an excellent trove of information covering last year’s happenings.
Therein, the experts at NonFungible notably estimated that the market capitalization of the NFT economy could reach a valuation over $315 million USD in 2020. If that projection pans out, the NFT market would be bigger than it’s ever been before.
Breaking Down the Numbers
At the end of 2017, the NFT market had a market cap just over $30 million, per NonFungible. One year later, and despite a bear market sinking its teeth into the cryptoeconomy throughout 2018, the NFT market grew some 480 percent to $180 million.
In 2019, the market saw steady growth, rising around 17 percent on the year to just short of $211 million. As the sector has seemingly been heating up in recent weeks, the NonFungible team has estimated that 2020 will more than double the previous year’s growth, with their target being a 50 percent rise to $315 million.
The rise in NFT users over the last few years roughly tracks that market cap trajectory. Per NonFungible, the number of addresses that owned NFTs was 58,000 in 2017. That number rose to 111,640 in 2018, and then growth acutely evened out as NFT addresses peaked at 113,287 in 2019. With the fresh uptick in activity in the space, the tracker site projects a 30 percent climb in addresses for 2020, toward the 147,000 mark.
What Could Drive the Growth?
There are a few factors that appear to be playing into a hotter NFT market in 2020. For one, the wider cryptoeconomy seems to have been tilting bullishly in general in recent weeks, so that increased interest and activity around Ethereum and ETH spills over into niche arenas like NFTs.
Beyond that macro point, there are more focused trends to watch. The launch of the virtual world Decentraland on the Ethereum mainnet on February 20th was a huge development that was years in the making. An associated $100,000 prize campaign has drawn in plenty of new users that are partaking in NFTs for the first time.
These dynamics help explain why Decentraland’s NFT parcels and wearables have been among the best-selling NFTs in recent weeks. But the project isn’t the only virtual world that’s been heating up.
For instance, Cryptovoxels is another like-minded project that has become the de facto gallery world for the cryptocurrency arena’s digital artists on SuperRare — Ethereum’s biggest art platform right now — as Zima Red‘s Andrew Steinwold noted in his latest NFT Data Dump:
“SuperRare is continuing its strong growth streak. Wallets up 6.67% last month and breaking over 1,000 holders of SuperRare art. Again we see SuperRare stats highly correlated with Cryptovoxels. The reason being that Cryptovoxels has become the defacto NFT art platform so SuperRare artists and collectors will make their galleries inside Cryptovoxels.”
Beyond digital worlds and digital art, the rise of Ethereum’s top digital games — namely Gods Unchained, CryptoKitties, and Axie Infinity — is another key dynamic to watch as this year proceeds.
There’s still plenty of room to grow, to be sure, but with so many trends coming together in rapid fashion, an NFT market cap of $315 million seems reasonable in 2020. Let’s see what happens from here.
The post Non-Fungible Report: NFT Market Cap Could Hit $315 Million This Year appeared first on Blockonomi.
Trump and Obama have both triggered huge stock market rallies after urging investors to buy. Will Trump's latest tweet kickstart a new run?
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A volatile global economic climate could undermine the years-long stock market rally. Rising uncertainty could lead to a gold rally.
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Tesla stock got clobbered on Monday, falling twice as hard as the Dow Jones and S&P 500. Don't expect TSLA to bounce back anytime soon.
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Find out how to sign a partnership agreement using blockchain and how to manage cryptoassets and fiat revenue.
What should be written in a partnership agreement, and how should a general partnership be run? How can an agreement be concluded remotely using the blockchain? Four business models to manage cryptocurrency and cash flows are outlined below.
Relations between partners
To draft a partnership agreement, partners should identify themselves, their shares and membership interests. They need to define the project and its goals as well as key tasks. Furthermore, attaching the business plan, presentations, and technical requirements or specifications for the project are also a necessary part of this step.
An important decision is determining whether all or several partners are going to act on behalf of the general partnership, or if a managing partner will be assigned. Whether alternatively or additionally, partners may wish to hire a CEO. A legal entity can also be the managing representative.
If the agreement does not specify such, all partners may act on behalf of the general partnership independently, thus being able to acquire new rights and duties for the general partnership. The managing partner(s) may be restricted to certain rules and conditions, such as which transaction amounts require a collective decision, the size of a deal that the managing partner can enter on behalf of the general partnership at his or her sole discretion, and so on. For instance, the managing partner may not close supply contracts for over $10,000 without the consent of the other partners.
As mentioned in the first article of this series, a general partnership can act as a business entity. However, many people are unaware of them, which can cause some issues when dealing with external counterparties.
Therefore, I recommend finding a friendly legal entity in order to present your project to other business entities and individuals. In the beginning, partners may choose a trustworthy company that serves as an authorized representative of the general partnership with the right to enter into agreements with third parties for the convenience of the general partnership. Such relations are governed by an agency agreement between the general partnership (the appointor) and the legal entity (the authorized representative).
In my case, my partners and I decided the following: I was chosen to be a managing partner and had the right to conduct business relations with other entities in the market.
All deals of more than $30,000 had to be approved by a remote simple majority voting of partners. In order for partners to communicate with each other, we created a channel on Telegram messenger and agreed that all discussion within that chat is legally binding on the partners — one of whom is a legal entity.
This entity represents our business project in deals with external counterparties, and has a written agent agreement and power of attorney for situations in which the legal entity must confirm its authorization. The agent acts on behalf of our general partnership (the appointor), and all acquired assets belong to the general partnership, including money, intellectual rights and other properties. By doing so, we were able to solve bank-related issues. The authorized representative as a legal entity had a bank account, so the partnership could send or receive money through this agent.
At the same time, this is not the only possible model. The following chart represents other types of interactions between partners, clients and agents.
Business models with fiat and crypto
In reality, all types of relations can be developed based on specific financial flows. The diagram above consists of four figures which may be applied solely or in combination with each other:
Model 1. An individual as the managing partner
An individual can manage the project, but there is almost no possibility that the individual will be able to open a bank account for entrepreneurial activities. From a financial point of view, such a partner will only be able to work with cryptocurrency. This method can be used as a single financial tool only in the case when all revenue is generated in cryptocurrency. Otherwise, one needs to combine it with other solutions and methods.
The managing partner distributes cryptocurrency profits between the partners, while they have to declare it and pay taxes in accordance with the legislation of their residency.
Model 2. An agent company owned by partners
Partners incorporate a legal entity — for example, a limited liability company, or LLC — that will act as an agent of the general partnership.
In this case, a general partnership is not needed. However, one could prove useful as an additional element of the model, when a general partnership works with cryptocurrencies and its partners do not want to show it in the accounts of the legal entity.
Furthermore, partners of a company dealing with crypto will face problems in many countries, as banks are likely to refuse dealing with tokens and cryptocurrencies. Hence why combining this model with Model 1 is inevitable in such cases.
Model 3. An agent company co-owned with a local partner
Partners incorporate their company, which includes all members of the general partnership plus their local partner, in one chosen jurisdiction. Let’s call it a regional representative model. Such a legal entity will work with the general partnership on the basis of an agent agreement. This is a great choice if partners need to create a local presence for their business. The local partner will be the head of the company and develop the business in the designated area. It also solves all financial problems, as the company can now open bank accounts and distribute profit among its partners.
Model 4. Independent agent
A legal entity or an individual entrepreneur appointed as an agent of the general partnership. This option is also useful, because both the legal entity and individual entrepreneur can open a business account in a bank to receive payments from clients. According to the agent agreement, agents in such cases receive company revenue that they are authorized to use to pay off current expenses and debts on behalf of the general partnership. Agents take a fee from this money for their services, and eventually distribute the rest among partners.
How to sign a partnership agreement using blockchain technology
This is an alternative manner of establishing a business partnership, as there are many different ways to enter into such an agreement. In our case, all partners were located in different countries and it was difficult to meet each other in one location.
We decided to use modern technology. In fact, we drafted the text of the agreement on an electronic form. We wrote the cryptocurrency addresses of each partner, indicating that the agreement will become effective when each partner publishes the hash sum (checksum) of the agreement file in the blockchain from the mentioned addresses.
We decided to use the Emercoin blockchain and the “carousel” method for contract signing: The first signatory creates an NVS record (short for Name-Value storage, a kind of token in Emercoin) with the hash sum of the contract, and sends it to the next signatory. The record needs to be sent one-by-one to all the partners in the circle, and the contract becomes effective when the NVS returns to the wallet of the first signatory. Partners (and all viewers of the file) are able to verify addresses in the carousel. If they correspond with the announced addresses, the contract is considered duly signed by all parties. In our case, we use the same addresses to distribute profit.
- Relationships between partners and managing partners are regulated by the partnership agreement (general partnership) in the chosen jurisdiction.
- English common law is a better solution if partners are located in different countries.
- The company’s CEO can be a third party. Partners may wish to authorize one among themselves to sign a contract with a CEO — otherwise, all partners must sign it.
- The managing partner or a hired CEO is allowed to make decisions related to the project with a clearly defined maximum amount of the deal. However, all other decisions must be made collectively. Mutual consensus is also needed in the following cases: changing the list of partners, changing the number of investments, goals and key tasks of the project, and the share of each partner in investments, profit, voting power, and others.
- Relations with an agent are governed by the agent agreement. When the agent is a legal entity or an individual entrepreneur, they may control the general partnership’s fiat money.
- A general partnership may be useful when partners work with cryptocurrencies and tokens but local banks refuse to do so.
- If partners make their decisions remotely, they should legitimize this condition in their agreement, for instance, by agreeing that all decisions made in their chat are legally binding. The project can be transformed into a legal entity at any given moment, e.g., when it becomes profitable.
The business model of a general partnership has both advantages and disadvantages — some people may think that it will not protect their interests, and it may not suit everyone’s needs. However, based on my own long-term experience in legal practice, I can say that there are no 100% safe legal instruments.
In conducting their business, partners may face a huge number of legal actions and courts, which require a significant amount of time and resources. And even then, one could come away with nothing after winning the case, because the debtor simply has no assets (they could sell them, re-register them in their grandmother’s name or simply disappear). Common sense dictates that the main issue is not the legal model, but trustworthiness of partners. One needs to remember the following: Reputation is the most important asset.
Nowadays, when information is distributed at the speed of light, a scammer can face serious consequences such as nobody wanting to deal with them after a couple of bad cases. And that’s why we need an agreement — not for court (although it can be used there), but as a guarantee of good behavior lest partners become bad actors and are not held accountable.
This is part two of a two-part series on general partnerships, read part one here.
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