ELAD Bilockchan Real Estate

Blockchain real estate. Several industries have recently discovered the large amount of positive utility that blockchain technology has in their space. One of those industries becomes the real estate industry. Real estate remains the largest asset class in the world. According to Fortune, the London-based real estate consultant, Savills, recorded the value of all global properties, including commercial and residential properties and forest and agricultural land. According to their calculations, the total global real estate valuation reaches a total of $ 217 billion, and residential properties represent approximately 75% of the total value.

Note: These figures were calculated on January 26, 2016.

Yolande Barnes, head of Savills global research, said: “To give context to this figure, the total value of all gold extracted is approximately US $ 6 billion. This sum pales in comparison to the total value of the property developed by a factor of 36 to 1. ”

There was a critical conclusion that Savills drew from his study. As Barnes puts it, "Real estate is the preeminent asset class that will be most affected by global monetary conditions and investment activity and which, in turn, has the power to impact national and international economies." The state has played and will continue to play a huge role in the world economy.

However, as with most traditional businesses, some problems are seriously affecting the real estate industry. Let's look at some of these pain points.

The biggest problems with the traditional real estate industry

# 1 Not open to all

Real estate has long been the investment option of the rich. Very few assets manage to provide the same degree of passive income and capital appreciation. The problem is that the barrier to entering the real estate market has always been extremely high. These barriers can be citizenship, international bank accounts, credit scores, financing, cash requirements, accreditation and have access to the appropriate sponsors and fund managers.

If you plan to invest in another country, you must make at least one international trip and visit the property. You will have to spend a lot of time and go through several intermediaries to invest in the property of your choice.

# 2 Serious lack of transparency

The Panama Papers controversy showed us the depth of corruption and dishonesty in the real estate business. A greater degree of transparency can fight corruption, tax evasion and money laundering. According to the United Nations, $ 800 billion - $ 2 billion is washed globally each year. A significant amount of it is washed through real estate. The United Nations Office on Drugs and Crime estimated that this figure is in the region of $ 1.6 billion in a single year.

To understand why this is a big problem, think about this: according to Global Financial Integrity, almost 80% of the estimated $ 1 billion left to developing countries in these illicit financial flows could be taxed to provide income for the public spending on global challenges such as infrastructure and climate change.

# 3 High fees

If you are investing in international real estate, these are some of the fees you will have to pay: exchange fees, transfer fees, broker fees, attorney fees, taxes, investment fees, etc. Due to the total number of intermediaries involved, foreign real estate investment can be an expensive process. In addition, you should keep in mind that you should also consult lawyers and accountants to make sure your tax returns are in order.

# 4 lack of liquidity

Now we come to one of the most important problems with real estate. They are notoriously difficult to liquidate. Liquidity is defined as the speed with which an asset or investment can be converted into cash. The reasons why real estate is not as liquid as cryptographic are because:

Cryptocurrencies can be included in a public exchange and sold quickly during open hours.

The number of buyers for cryptography is much more than for real estate. The liquidity of an asset is directly proportional to the offer of buyers. The problem with real estate buyers are:

First, the entry barrier is very high when it comes to real estate.

They do not seek to buy any property that is far from where they live (except in the case of international real estate).

Real estate transactions have many third parties involved, so transactions are stuck by fees and regulations. This discourages potential buyers.

Even if you find some buyers, you will be locked in a long transaction process, and there is a good chance that it will end in failure. # 5 Price commitments

Investment in real estate requires a lot of capital upfront. Most of the time, investors have to look for expensive alternative financing methods. Also, when it comes to international real estate, having an excellent credit rating in your home country will not be transferred to the country in which you wish to invest.

Transaction Speed # 6

As we have mentioned several times, real estate transactions can be extremely slow. According to the International Survey of International Travel of Consumers of Juwai, 56% of Chinese investors spend more than a year finding their ideal investment property in the USA UU. In general, it can take six months to find a property and another six months to complete all the necessary procedures to acquire it.

Given all these factors, you can see why the real estate industry is paramount for the disruption. This is where the blockchain comes in.

Blockchain Real Estate

A blockchain is, in the simplest of terms, a series of immutable and time-sealed data records that are managed by a group of computers that are not owned by a single entity. Each of these data blocks (i.e. block) is secured and linked to each other using cryptographic principles (i.e. string).

The three main properties of the blockchain are:

Decentralization: all data that is stored within a blockchain is not owned by a single entity.

Transparency: all the data that is stored within the blockchain can be seen by all who are part of the network. Each individual data can be traced to its origin.

Immutable: all the data found within the blockchain cannot be manipulated due to cryptographic encryption functions. The blockchain introduces several utilities in the real estate ecosystem, among which are:

Smart contracts

Tokenization Contracts

Smart Smart contracts are automated contracts. They are self-executing with specific instructions written in their code that are executed when certain conditions are met. Smart contracts are a series of instructions, written using the "solid" programming language, which works using IFTTT logic, also known as IF-THIS-THEN-THAT logic. If the first set of instructions is finished, execute the following function and then the next one and continue repeating until you reach the end of the contract.

The best way to understand it is to imagine a vending machine. Each step you take acts as a trigger for the next step to execute. The most important part of this complete interaction is that you (the buyer) are directly contacting the vending machine (the supplier). At no time are you dealing with a merchant (an intermediary).

Also, remember that smart contracts are created in a blockchain, which makes contracts immutable and transparent (unless privacy features are used). Let's review the main benefits that smart contracts can offer.

Benefits of smart contracts

The most obvious benefit is that it will eliminate all intermediaries. Imagine how much money you can save by eliminating all brokers, banks and lawyers. With them without charging their standard cuts of 2-5%, you will be saving a small fortune.

Smart contracts will also significantly accelerate real estate transactions. As we mentioned before, real estate transactions can take months, and this is mainly due to the large amount of bureaucracy, intermediaries and lack of transparency that must go through. Government regulations, however, will eliminate intermediaries, as mentioned above. In addition, all the various data related to the property can be saved as a hash file within the blockchain. If you are interested in knowing more about a particular property, you can exploit the transparency of the blockchain to track all the information you need. Imagine how much time you will save compared to the more traditional approach of the average man.

Finally, smart contracts can protect owners from property fraud. It is possible to link the digital property of your property, documents and contracts directly to the blockchain. Once inside the blockchain, it is impossible to manipulate or alter it. The governments of Andhra Pradesh and Telangana in India are using blockchain technology to fight property fraud. We have covered this in detail here.

Tokenization

According to Wikipedia, “Tokenization, when applied to data security, is the process of replacing a sensitive data element with a non-sensitive equivalent, called a token, that does not have an extrinsic or exploitable meaning or value. The token is a reference (that is, an identifier) that is assigned back to confidential data through a tokenization system. "

In simple terms, a token is a digital representation of a real-world asset, value or function. One of the most exciting use cases of blockchain technology is that it helps tokenization of real-world assets. This tokenization will not only increase the liquidity of traditionally illiquid assets, but will also make it possible to trade those assets without a third party. Think about it, instead of buying a property, you are buying simple tokens from an exchange.

Does this seem a bit exaggerated? Well, according to the World Economic Forum, in the next ten years, 10% of the world's GDP will be stored in crypto assets. That is worth $ 10 billion in assets stored as tokens.

A deeper insight into the tokens The

Tokens in the blockchain space are generally classified into three categories:

Payment currencies: These are the "cryptocurrencies" with which we are all familiar. Bitcoin, Litecoin, Ethereum, etc. They can be used as currency both inside and outside your platform.

Utility tokens: Tokens that fulfill a particular utility or function on their platforms are called utility tokens. Utility tokens can grant holders the right to use the network and / or take advantage of the network by voting within the ecosystem. The Golem GNT is an example of a utility token.

Security tokens: A token that derives its values from a negotiable external asset is called a security token. These are subject to federal values and regulations. This is the category that will be used to tokenize real estate.

Fractional ownership through tokenization

One of the most interesting results of tokenization is fractional ownership. This is especially interesting when it comes to expensive assets such as real estate. Instead of one person owning a property, it is possible for several people to buy property tokens and be co-owners of the building.

To understand how this will work, let's take a hypothetical example.

An average beach house in Malibu costs ~ $ 650,000, which is out of budget for most people. However, suppose the seller tokens the house. After that, five people for every $ 130,000 of these tokens each and jointly own the house. When the transaction is completed, these five enter into a multi-signature smart contract based on home ownership.

A multi-signature smart contract will ensure that any decision made regarding the house is agreed by the majority of the owners. Since the contract is automatic and executable, it will not require any supervision and will force the co-owners to be honest.

Advantages of tokenization of real estate.

Fractional ownership decreases barriers to entry by an amazing amount. Real estate no longer needs to be the playground for the rich. Instead of saving and taking loans to buy an expensive asset, you can simply buy a fifth of that asset. A multi-signature smart contract will ensure that joint owners adhere to honest behavior.

Tokenization increases liquidity by a considerable margin. Instead of waiting forever to sell your property, you can go to an exchange and liquidate your tokens.

It allows greater portfolio diversification and risk reduction. Instead of saving all your money on a single property, you can use the same money to buy fractions in several properties.

How will Blockchain Real Estate change?

Blockchain technology will allow the democratization of real estate. It will open the doors for potential investors from around the world to prove their investment in real estate. If executed correctly, this can also be enormously beneficial for the encryption space, as it will increase the real-life utility of the tokens. The scary part is that we just scratched the surface of what could be possible through the union of blockchain and real estate. Hopefully, we will soon see more exciting use cases.

Road map