Demystifying the True Value of Blockchain
Case Study: Global Real Estate
The current noise level and hype around Blockchain makes it difficult for most businesses and most consumers to see how Blockchain can actually benefit them.
What’s Blockchain good for, really?
What can we do with Blockchain based products and services that we can’t do with existing technologies?
And how are the new Blockchain solutions better than existing options?
It’s really not that complicated.
The World Wide Web gave us all the “Internet of Information”.
Blockchain is giving us all the “Internet of Money”.
The Web made information easy.
Blockchain makes money easy.
And because real estate is the world’s single largest asset class, estimated at $217 Trillion, or roughly ten times the size of the U.S. economy, that matters. A lot.
Because, while real estate is the world’s largest asset class, it’s also one of the world’s least efficient markets.
It’s expensive, it’s cumbersome, and it’s slow. Or, rather, it has been for the last few thousand years.
Enter Blockchain.
Programmable Money, Programmable Trust
Money has obviously had a great deal of benefit to many people, for its entire history. Hence the interest in money, globally, and from ancient times until the present moment.
However, money has also had a very difficult time balancing liquidity (ease of use) with securely storing value (money’s primary purpose).
Blockchain technology allows for the creation of digital money, in the same way that the Web allows for the creation of digital information.
The Web may not seem that revolutionary right now, but that’s because humans get used to new things very quickly.
You’re likely reading these words on a screen, rather than on a printed page. That’s only been truly likely, in comparison to reading a printed version of this article in a given publication, for roughly a decade.
And that’s only been technically possible for the general public for roughly two decades. Out of over five thousand years of recorded human history.
Or, put in a somewhat more staggering way:
As of 2013, over ninety percent of all information ever created by humans was been created in the previous two years.
And according to one estimate, in 2017, that feat will be attained in one year, this year.
That’s what the infrastructure of the Internet and the front end of the Web has enabled, by making the finding, accessing, publishing and sharing of information both easy and free.
And that’s all about to accelerate, due to M2M, or machine-to-machine information exchange, arising in sync with the Internet of Things (IoT).
Why the brief technology history lesson?
Because in the exact same way that the Web has been such a huge deal for information creation and sharing, Blockchain will enable similar sea-changes with respect to value creation and exchange.
But wait, that all sounds a bit like the noise level and hype I mentioned above, doesn’t it?
Possibly — but it’s only noise level and hype if we stop there.
Now it’s time to find the signal in the noise — or the value in the Blockchain.
Carrying the Analogy: Web and Blockchain
The Web allowed more people to do more things with information more easily than ever before.
Blockchain will allow more people to do more things with money more easily than ever before.
The Real Power of Tokenization
Alex Tapscott, co-author of The Blockchain Revolution, and founder of the Blockchain Research Institute, recently tweeted:
“Tokenizing existing assets, aka the biggest transfer of wealth in human history. Stay tuned.”
As his intro to a linked article “Traditional Asset Tokenization” by University of Oregon finance professor Stephen McKeon, who writes in that article:
“Most investors are shut out of development projects entirely unless they can meet minimums which are often on the order of $25k and higher.
One day you might be able to buy $10 of a single commercial real estate asset like the Empire State Building, or invest $100 in the development of a LEED-certified housing project.
Real estate focused token exchanges will increase liquidity for asset owners. Real estate appraisers will become more like equity analysts, because the market value of any building will be readily apparent if the token is trading.”
“The difference between this and current crowdfunding models is that the token holders can retain fractional ownership.”
“Most electronic exchanges will trade tokens because most assets will be tokenized.”
“Tokenization of traditional assets will cause disruption to the status quo. Some systems that are in place today may not work the same way in the blockchain world (e.g. equity securities lending). That doesn’t mean the blockchain world isn’t coming, it means the current systems will have to evolve.”
What does all this mean for you?
It means that, cutting through the haze of noise level and hype, that if any facet of real estate investing has been too costly for you, that tokenization will end that.
How?
By allowing fractional purchase of tokens that are tied to real estate.
And that’s just one facet of the benefits of blockchain for the global real estate market. And it’s one with potentially significant benefit for investors (at all levels of participation), homeowners, real estate developers, and others. As with the early days of the Web, there’s no way that all possible uses and solutions have already been thought of, yet.
What else? Well, there’s the inherent “programmed trust” of Blockchain which eliminates the need for centralized and expensive middlemen — and more than one, in many cases.
You’ll often have a company or platform providing a service, a bank or credit card company that processes the related transactions, and so on.
We see this with respect to real estate ownership, but due to the far higher volume of transactions, we see it far more in the temporary lodging markets (i.e. apartments, hotel rooms, etc.).
P2P platforms like Airbnb revolutionized traditional lodging, just as Uber revolutionized traditional taxi service. Yet you still have an expensive centralized organization at the center of it all.
So what does Blockchain bring to P2P lodging?
The possibility of significantly reduced fees for both the tenant (guest) and lessor (host) along with minimized possibility of fake reviews and forged ratings, which plagues existing centralized services such as Airbnb and Booking.
In a 2016 report, Goldman Sachs Equity Research stated:
“Building trust between counterparties in the Sharing Economy: P2P lodging sites like Airbnb have already begun to transform the lodging industry by making a public market in private housing. However, adoption may be limited by concerns about safety and security (guests) and property damage (hosts).
By enabling a secure, tamper-proof system for managing digital credentials and reputation, we believe blockchain could help accelerate the adoption of P2P lodging and generate $3 — $9 billion in incremental revenue opportunity through 2020.”
And so, by this small handful of examples, we can see that Blockchain technologies, regardless of all the intricacies under the hood, can bring tangible, real-world benefits to the general public, both businesses and consumers, alike.
Blockchain will help people to save money through greater efficiencies in services and lower fees, to participate in real estate investments that may have been cost-prohibitive before now, and to potentially participate in real estate development in various ways, as well.
Both tokenization of real estate assets and the direct benefits of Blockchain technology for the global temporary housing (i.e. apartments, hotel rooms, etc.) market will unlock a great deal of value, in several different ways, from a market that’s vast but historically very slow and cumbersome.
And that’s just what we can foresee today. And more than that, it’s what is already being built, today. The first real estate focused Blockchain platforms are due to come online in 2018.
And as with the “Internet of Information”, the “Internet of Money” is likely going to be very interesting, valuable and life-changing for many people around the world, for many years to come.
