Tokenization: The Future of Real Estate
Have you ever sold a piece of real estate? How does it compare, say, to selling stock? Did you notice any difference between the two?
Why is there such a contrast? How come real estate is a total nightmare?
While there are many factors in this discussion, the main premise comes down to liquidity. As an asset class, real estate is one of the most non-liquid ones out there. This makes it extremely difficult, especially from the investment perspective. It serves as a most for others to get into.
This is all about to change over the next decade. Blockchain is going to upend the real estate market. At stake, roughly $300 trillion.
At the core of this is the tokenization of real estate. This is where the future of this industry lies.
Adding Liquidity Where There Is None
How would you like to trade real estate as easily as a stock?
This was a concept that stood little chance until recently. With the introduction of blockchain, along with cryptocurrency, this is looking more like a coming reality.
Cryptocurrency allows for any asset to be broken up and traded on blockchain. This is a revolutionary concept when it comes to real estate. Therefore, we will approach a time when real estate is traded similar to stocks. There one will enter a wallet and make a purchase for a token. This is done daily these days. However, in that instance, the token will be tied to a piece of real estate.
Of course, this opens up the market to enormous change. To start, it will explode in size. The number of players will grow exponentially. Consider the fact that millions of people with minimal amounts of money will be able to buy these tokens. In many instances, the purchase might be as small as a dollar or two.
Being able to engage in a market in such a matter means there will be tremendous liquidity brought to the table.
Consider the possibilities for commercial real estate. These are often multi-million dollar properties, especially when in major cities. The ownership structure is usually some type of general partnership agreement. This means there are a number of limited partners, typically the ones who put up the money.
However, on deals of this size, the buy in is healthy. Few are in the class to even consider an investment of this type.
With tokenization, this is not longer an issue.
Going Global
Blockchain and cryptocurrency are global in nature. They do not exist in any country. Hence, whatever is put on the blockchain is transmitted around the world.
We can already see the implications of this on the real estate market. Suddenly, there are no geographic constraints. Do you want to have holdings in the far east? It is as easy as buying something in your hometown. What the token represents, or more accurately, where, is of no consequence to the system. Whatever is located on blockchain is there. What is represents is up to the individual tokens.
Keep in mind, this is a $300 trillion market. With a global population of roughly 7.5 billion, there are a lot of people who will no longer be excluded.
Of course, as the infrastructure is built out, we will see a massive shift towards automation. These applications and platforms that this will be built upon is going to radically alter the entire industry. With automation comes the ability to push down costs. Again, the present system is, for the most part, archaic.
People will need to be careful though. Under such as system, it is easy to buy some tokens of properties in St. Petersburg, Russia when Florida was desired.
It is really amazing how much is going to change over the next decade. We are witnessing the foundation of something will affect most industries.
Real estate is no exception.
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I worry that physical assets can not be secured by encryption. This is exactly why pegging a crypto to something like gold makes it less secure and less valuable, even if common sense says otherwise.
The only way to truly secure things in the physical world is with potentially lethal force. The threat of lethal force is usually enough to stop citizens from fighting back 99% of the time. Fear of death is a powerful motivator.
Within this context we can see that we can't evict someone from a property just because someone signs the order with a private key. There is no way in hell society will allow hackers and scammers to just steal property in the same way they would rugpull a shitcoin or hack a metamask wallet.
Obviously the enforcement of these things would have little to do with the actual NFT, making the NFT worthless unless it existed in some kind of insane code-is-law crypto city state. I could only imagine something like that working in a society of true abundance where losing the house you live in wouldn't be that big a deal.
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Ultimately, you have different stages (and phases). Crypto tied to real estate is no different than anything else we have. What is a company? It has plants, offices, and other assets. Yet how do we own it? Based upon a piece of paper (Articles of Incorporation) and shares of stock that are supposedly in our trading account.
So if we try to think of this as all or nothing, then we get exactly what you describe, something that is at odds with itself.
How do we know who owns real estate today? How do we protect it? That isnt going to change anytime soon other than the ownership and accessibility.
Of course, if you own a downtown office buiding and there is no police force, well then you might have an asset that is diminishing in value as it gets destroyed.
Whether that is tokenized or not is has no bearing on it.
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The bigger problem to me is settlement. If you are using crypto tied to gold, eventually you have to settle. That means transferring the physical commodity to another part of the world.
If that isnt done, then you are pegging it to "paper" which changes things entirely.
The idea of commodity backed money is foolish and a myth people buy into like Santa Claus.
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I have already seen some blockchain projects that have been created for the real estate market, I will explore it further and then maybe do a post. The real estate market will be changed by the blockchain in the future.
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I am worried about how to enforce this tokenization of assets because it's only an agreement on the blockchain. This means that there will still need to be some entity such as the government that makes sure that the rules are followed.
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For now, yes you will. Since people tend not to want to follow them, that is an issue.
Of course, there is more opportunity with tokenization since it is programmable. If people do not follow the rules, their tokens can vanish.
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Its really a great piece,crypto currency and bitcoin have some how had an effect on real estate in my opinion and the fact that crypto currency and bitcoin are global in nature and still going. Thank you so much for this post.
!00% agree with you that blockchains will make real estate 'trading' mucho easier. I do see quite a few challenges to take care of though before this can be rolled out massively. The first initiatives are already out in the market. Recently I bought the right for physical land in the Satoshi Island project. No notaries required and all, just a few clicks and I bought the right to claim some physical land. Perrrrfect how this works. Had to trust the contracts and certificates for the physical land though. That's something that still needs quite some work imho. Those should've been on some blockchain, but they are not, hence I had to trust the papers I was shown. Am looking forward to more adoption of tokenisation of real world assets, like Tiamonds by LCX (NFTed Diamonds in which the physical diamond is locked away in some save in Liechtenstein; When the owner wants, he/she can change the NFT for the physical diamond as well).
It will be a process with many layers needing resolution. We can only start the process then start to address the issues as they arise.
The governments are going to resist this since it does take some power away from them. Hence it is a process.
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It is a huge process. Notaries are not required anymore, so they will resist even harder than any government, or again it'll be the government that shall change laws, so I suppose the notaries will do a shitload of lobbying 😉
I would love to see it happen. As I have literally faced issues regarding buy/sell property during my life span. And I have to say, it would literally save time, effort in several ways to make things swift. If it ever happens anytime soon, I am going for global land expansion lol. Cheers to that!
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Liquidity for real estate will be a problem for a very long time. What I see in the real estate world for now with blockchain is the ability to document properly ownership of properties. In the case of liquidity with real estate, it will be similar to REITs but this time around, it will be in the form of cryptocurrency.
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