Real Estate Informatics
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Hello [[data:first_name:”dear subscriber”]],
Welcome to this new edition of iPROPRIETOR. Today we are looking at real estate on the blockchain. Specifically at the challenges and opportunities afforded by this new technology which is leaving its nascent stage. Enjoy the following Podcast.
- VIDEO of Smart Contract Creation March 2, 2019
- Protected: ReMAX Property on Blockchain March 2, 2019
- Example of Digitized Realty Transaction March 2, 2019
- Protected: DIGITIZING PROPERTY TITLES March 2, 2019
- Realty Sales and Purchases via ICO March 1, 2019
BREAKING THROUGH LEGAL and POLITICAL OBSTACLES TO BLOCKCHAIN REALTY
Tokens are not dead
Consider the surging interest in non-fungible tokens. Unlike, say, a bitcoin or a dollar, which is fungible, or perfectly substitutable for any other bitcoin or dollar, each NFT is unique. Real-T is a non-fungible token.
It means that, for the first time, we have a collectible, provably scarce “thing” of digital value. Made popular by the 2017 launch of CryptoKitties – a series of breeding, collectible colorful cats built on the Ethereum ERC-721 standard – NFTs hit their stride last year as businesses such as gaming companies saw opportunities for trading virtual goods online.
MLB Champions, for example, launched a game with Major League Baseball-licensed collectible digital figurines. There were also some innovative uses of NFTs for charity, for rewarding environmental actions and as loyalty points. Later in the year, Cryptokitties founder Dapper Labs tapped $15 million in funding from VCs including Andreessen Horowitz and Venrock.
Then there was another three-letter acronym: STO – security token offering. With the SEC determining that most, if not all, ICOs were unregistered securities, a lot of the fundraising efforts gravitated to STOs. These deliberately self-identified as securities subject to regulatory control, which meant they can’t be sold to the general public without meeting the SEC’s various reporting and other requirements.
STOs don’t make the same revolutionary claims as the ICO boom’s “utility token” purveyors – that their tokens aren’t an investment, but a kind of pre-sold “fuel” that organically regulates a decentralized network. (The SEC wasn’t convinced: it argued that pretty much all ICOs were securities, at least at the moment of sale.) There’s no such fancy “crypto-economics” behind STOs. Nonetheless, they have the capacity to significantly disrupt capital markets.
STOs armed with smart contracts could facilitate automatic, fully reconciled updates of share registries in both primary and secondary markets. They could render traditional book-runners such as underwriters obsolete and allow issuers to fractionalize ownership of the assets to tiny stakes. And they’ve opened people’s minds to the breadth of assets that could be securitized: everything from real-estate and accounts receivable to intellectual property and even rare art.
To some crypto enthusiasts, the regulator-friendly STO movement is a let-down from the radical ideas behind ICOs, which promised to disintermediate and democratize venture capital.
But there was plenty going on elsewhere last year to sustain the community’s revolutionaries. Importantly, we saw the serious launch of the Lightning Network, the off-chain payment channel solution to the scaling challenges at bitcoin and other cryptocurrencies, which many see as the ideal “Layer 2” route to achieving Satoshi Nakamoto’s vision of digital cash. A testing version of Lightning formally went live on the bitcoin mainnet in early 2018. Since then the network has grown to encompass around 8,000 nodes and almost 40,000 channels.
To function at scale, this nascent community must grow out a network of interlinking channels – essentially, it must build an economy from scratch. It’s an experimental process, one helped this year by the “Lightning Torch,” a social media-fueled game in which people passed around a small but ever-growing pool of bitcoin via Lightning channels.
Members of the bitcoin breakaway community behind Bitcoin Cash (now itself split into competing forked currencies) mocked Lightning torch carriers for sometimes struggling to find liquid open channels for otherwise small transactions, implying that Bitcoin Cash’s core on-chain feature – bigger blocks – better fulfills “Satoshi’s vision” of peer-to-peer payments than Lightning’s off-chain approach.
It’s too early to know whether Lightning will succeed, but at least this process will let us work with data instead the wild rhetoric that has until now passed for argument between bitcoin’s feuding factions.
Meanwhile, among other altcoins, concerns were raised about 51% attacks. The massive, post-bubble drop in market prices drove miners of many coins to stop using their ASIC rigs. This drove down rental rates for mining equipment, make it comparatively much cheaper to get a majority of the hashing power and engineer a “deep reorg” of old blocks, enabling fraudulent double-spend actions.
The price drop made fraud affordable, which spelled trouble for various proof-of-work blockchains: Bitcoin Gold, Vertcoin, Flo and, the big one, Ethereum Classic.
Again, however, these attacks encouraged positive technological development, in this case to find additional security against double-spends. New approaches included the Komodo Platform’s use of bitcoin’s more reliable security as a backstop to the altcoin’s native consensus security, and a plan proposed by Flo developers to enlist the user base to automatically rent hashing power and offset an attacker. The industry was showing, once again, that what doesn’t kill you makes you stronger.
Stablecoins and DeFi
The past year was also the year of the stablecoin, where digital tokens are offered by an entity that pegs their value to some other asset, typically dollars. There was a crying need for cryptocurrency exchanges to use an alternative to Tether. But, more importantly, many see trusted stablecoins as the missing piece for enterprise blockchain applications that use fiat-currency mediums of exchange, such as in supply chain management.
These innovations could add a real-time, volatility-free payment rail to systems that until now relied on the friction-filled banking system for settling cash transfers.
Last year, Gemini, Paxos, a venture-backed startup called TrustToken, and a consortium founded by Circle and Coinbase all launched stablecoins that back every token issued with a dollar stored in reserves. Each submitted to being heavily regulated and argued that because the funds are stored inside banks insured by the Federal Deposit Insurance Corporation, users have peace of mind that their tokens can be redeemed and, by extension, that their one-to-one peg will hold.
Trading in these stablecoins is growing rapidly, but they may face competition from alternatives backed by corporates that leverage giant user bases to create network effects: JP Morgan’s JPM Coin, for example, as well as a widely anticipated offering from Facebook.
For crypto purists who point to persistent crises in the banking system as a reminder of the risks of third-party backers, these reserve systems are all flawed. The alternative, some argue, is for algorithmic stablecoins. This is not easy to achieve, partly because hackers could build competing algorithms to put algorithmic stablecoins’ smart contracts under stress. Nonetheless, a number of complex math solutions are giving it a shot.
One early offering, Basis, disbanded in December as its model, which involved the automatic issuance of interest-earning “bonds” to regulate monetary supply, faced insurmountable regulatory hurdles. But the one that has caught everyone’s attention is Dai, the stablecoin at the heart of MakerDAO, the Ethereum-based cryptocurrency credit project.
MakerDAO is more than a stablecoin project. It’s generating crypto-collateralized loans and has given rise to the fascinating new world of decentralized finance, or #DeFi. Along with the “staking as a service,” in which custodians essentially pay their clients interest on coins that are used to seek block rewards in the validation of proof-of-stake blockchains, #DeFi is giving shape to an unchartered system of new money creation on top of a base cryptocurrency infrastructure. It portends huge potential for frictionless financial access – as well as undeniable risks, with parallels being drawn to systemic crises in traditional finance.
Who knows where it all goes. Either way, it will no doubt provide great fodder for the 2020 Consensus year in review.
The integration of blockchain has attracted (paywall) virtually every industry. This new technology offers the ability to see real-time cryptocurrency transactions in a digital ledger that is managed by the network. The benefits of blockchain are vast as it gives consumers a look at information that is accurate, easily verifiable and public, according to Blockgeeks.
With blockchain having multiple advantages, its integration into the real estate market may seem like a natural next step, but on all accounts it has been almost entirely halted, causing many to wonder if and when the technology will be fully incorporated.
Seven members of Forbes Real Estate Council share what they think are the biggest roadblocks to bringing blockchain to the real estate industry and what industry professionals can do to help push it forward. Here is what they had to say:
Real estate professionals weigh in on blockchain. ALL PHOTOS COURTESY OF FORBES COUNCILS MEMBERS.
1. Issues With Escrow Services And Title Registration
Two natural areas where blockchain can add value relate to escrow services and title registration. Roadblocks include potential litigation related to escrows, and the entrenched industry incumbents for title services. In both of these areas, some combination of advocacy groups along with government intervention could make progress. – Larry Solomon, TheGuarantors
2. Finding The Right Application
The biggest challenge in the industry will be finding the right application of blockchain, as opposed to force-fitting it into various scenarios. We have a tendency to get overzealous about applying tech, but we need to focus on being proficient users of the best software, not just the coolest. Understanding blockchain will be one of many things in the real estate tool belt that will make a huge difference. – Michael Sroka, Dealpath, Inc.
3. Known Unknowns
I believe that people have not yet begun to fully understand, or to trust, what cryptocurrency is, let alone try to understand what the blockchain is, and how it can help the real estate industry. Education is the biggest roadblock. There must be understanding and trust before this technology can be fully utilized. Whether that education comes by choice or by force is the real question. – Mark Bloom, NetWorth Realty
4. Negative Perception And Dinosaur Thinking
The two biggest hurdles that I see in bringing blockchain to real estate is shedding the negative perception on cryptocurrency and overcoming the dinosaurs in the real estate industry who don’t want change, even though it brings more transparency and ease to real estate investing. My prediction is this style of investing is going to be the biggest game changer the real estate market has ever seen. – Chris Ryan, Luxury Lifestyles Group / RE/MAX Crest Realty Westside
5. Vested Interests
The same roadblock that exists now to open source central data repositories.: vested interests, equally affecting brokerages and multiple listing services. Such a movement would have to come from outside the industry, i.e. government lead. – Colin Bogar, Property Passbook
Real estate is a relationship-driven business involving typically the largest, most emotionally driven, legally complex and potentially riskiest transaction in the average consumer’s life: It requires intermediaries. That’s a huge impediment to blockchain and why it’s not going to totally disrupt real estate. It can improve parts of the industry, but right now the movement is overselling itself. – Kevin Hawkins, WAV Group, Inc.Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?
7. Too Many Regulations
There are just too many regulations from a banking standpoint, along with the title companies and closing attorneys. It will take many years before these folks can wrap their mind around cryptocurrency and blockchain as being the future. Real estate leaders just need to stay persistent and lobby changes within the existing old-fashioned, stereotypical way of conducting real estate transactions. – Engelo Rumora, List’n Sell Realty
Blockchain technology: the next big thing in commercial real estate
Blockchain technology has recently been adopted and adapted for use by the commercial real estate (CRE) industry. CRE executives are finding that blockchain-based smart contracts can play a much larger role in their industry. Blockchain technology can potentially transform core CRE operations such as property transactions like purchase, sale, financing, leasing, and management transactions.
Download our report ” Blockchain in commercial real estate” to learn more.
XYO Network to Help RE/MAX México Adopt Blockchain for Real Estate Market
Blockchain-oriented firm XYO Network recently partnered with RE/MAX México to leverage distributed ledger technology (DLT), an umbrella term that also touches upon blockchain, for real estate management processes. RE/MAX México, a leading real estate brand in Mexico, intends to use the technology for record-keeping. The company hopes that it would streamline its business processes by putting the transaction data on a blockchain, thus securing title deed issuance and property management.
RE/MAX México will work with XYO Network to develop a title registry based on blockchain. The system would improve the sophisticated relationships between all the parties, including property buyers, sellers, brokers, notaries, and agents. The agreements will rely on smart contracts, which are blockchain-based contracts that eliminate the need for intermediaries and can automate transactions and deals.
XYO will contribute with its DLT technology, geolocation data, and Oracle network, which supports the development of location-based smart contracts.
RE/MAX México COO Sergio Felgueres commented:
“In real estate, it goes without saying that location is everything, and we see location coupled with the latest blockchain technology as major areas of opportunity for our entire industry.”
“The use cases and possibilities in our initial discussions with XYO were intriguing, and we very much look forward to building out the deployment and deepening our relationship with the company.”
XYO Network co-founder Markus Levin noted:
“As more smart, forward-looking service organizations like RE/MAX México incorporate location verification and the blockchain into standard business processes, we’ll see increased efficiencies and seamless transactions, where both sellers and buyers realize process improvements and broader benefits.”
RE/MAX México currently has over 2,000 agents in Mexico, who work in its more than 120 offices. For the past 20 years, the company has helped clients buy, sell, and rent properties, such as houses, apartments, and offices among others.
Real estate is one of the greatest beneficiaries of innovative technologies like blockchain. Last week, blockchain-based real estate platform operated Propy said that it had used the technology to handle the first real estate sale in the European Union.
Video: How To Create A Smart Contract in Real Estate
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