Enabling on-chain digital assets 🏘 in the real world
Hype aside, the fields of artificial intelligence 🤖 and blockchain ⛓ have a lot in common. Both have the potential to change the world. Both have extremely broad reach — promising to eventually touch, if not disrupt/transform most existing industries. And both have an extremely clear value proposition (improving efficiency) when applied to specific industries.
AI is a new paradigm of software, enabling automated cognition. Blockchain is a new paradigm of database, enabling automated transactions (furthermore, smart contracts allow programmatic and deterministic transition of state).
System engineering
A system is a regularly interacting or interdependent group of items forming an integrated whole. The Swiss 🇨🇭 real-estate industry is then a system composed of a few core components. The land registrar is the bookkeeper — it stores and maintains the system’s state. Cadastral surveyors are the workers — they provide the land registrar with real-time information to transition this state, keeping it accurate and up-to-date. Buyers, investors, and sellers rely on the accuracy of this state to execute transactions. Agents, banks, legal entities, and notaries facilitate these transactions.
A transaction is the transfer of rights/ownership to a parcel of land between parties. Every single parcel of land in Switzerland is associated with information including ownership, exact boundaries, applicable laws & regulations, etc… This information, along with all executed transactions, forms the state of the system.
Glancing at this high-level overview we see the bottleneck of this system immediately — facilitating transactions. Executing a transaction currently requires the services of various third parties and middle-men. Value flowing between buyer(s) and seller(s) is partially lost/redirected to these third parties, and quantifies the impedance/inefficiency of our system. A perfectly efficient system results in all value being retained between buyer(s) and seller(s). And this can (almost) be accomplished with a completely decentralized real-estate industry. However, decentralizing the bottleneck (facilitating transactions), and leaving the rest of the system un-touched (i.e. seamless integration with the current system) is blockimmo’s approach. We will de-centralize real-estate one step at a time, delivering value along the way.
We should forget about small efficiencies, say about 97% of the time: premature optimization is the root of all evil. Yet we should not pass up our opportunities in that critical 3%. — Donald Knuth
A quick case study in the field of AI
With the deep learning boom 💥 we realized entire industries could be transformed with AI. Entire systems could be automated. And that was the problem. Instead of identifying and automating specific bottlenecks in systems, we aimed for complete automation. While the value of this was clear, and accomplishing this was technically feasible (although always more difficult than expected), this added an additional challenge — legal, regulatory, and bureaucratic implications of ‘disrupting’ large, well-established industries. The typical AI startup aimed to jump from zero to one (mine included). Let’s look at two companies in the self-driving space with very different approaches (self-driving is always my favorite example).
A court filing in Waymo’s ongoing lawsuit against Uber revealed Google has spent over $1.1 billion on the project between 2009 and 2015 (a figure that excludes employee stock grants and intra-company costs). This is comparable to Tesla’s total R&D expenditure of approximately $2 billion during that same time period. But while their total investment is similar (although autonomous driving is only one component of Tesla’s business), the two companies have taken very different approaches.
Tesla shipped autopilot in 2014 and has been iterating ever since. Customers love and pay for this service, and in 2017 the NHTSA Office of Defects Investigations (ODI) found that the Tesla car crash rate dropped by 40 percent after Autosteer (v1) installation. Today Tesla has hundreds of thousands of vehicles on the road, and this greatly strengthens their position as they can leverage this to improve their AI (i.e. massive amounts of data). They’ve delivered value (likely saving lives) to their customers in steps, approaching the goal of fully autonomous vehicles.
Compare this to Waymo who aims to jump straight to full autonomy. After a decade have they they delivered any value to their customers? Have they shipped anything? Have they generated any revenue?
This is a pattern we’ve seen in the field of AI. And really it was a hard lesson learned. The successful products and companies in this field (and there are many) have focused on automating specific components of a system (mostly under-the-hood and we don’t hear so much about them), while those that aim for complete autonomy have struggled.
Furthermore, most successful solutions take a hybrid approach — semi-autonomy can often improve metrics by an order-of-magnitude, and is almost always the ideal first step towards the complete automation of a system.
I have first-hand experience with both approaches, first as a founder trying to create an AI-powered dermatologist, and then as a consultant automating (semi-autonomous) specific bottlenecks in the TV production industry, improving efficiency by an order-of-magnitude.
What does this have to do with blockimmo?
Decentralizing for the sake of decentralizing doesn’t really make sense. Our goal is to deliver value to our users. Blockchain just turns out to be the enabling technology for us to accomplish this. To be successful in this industry we need to be both legally and technically solid, and the only way to achieve this is one focused step at a time. This means we must first take a hybrid approach (in AI manual — automated, in blockchain centralized — decentralized) — a hybrid approach combines and leverages the strengths of both.
Our approach is to move the bottleneck of our system, transactions, on-chain, and integrate seamlessly into the existing system. This allows us to deliver the core value of a decentralized real-estate industry to our users, with a minimal and simple solution (both technically and legally). It’s no coincidence that the bottleneck in our system is perfectly suited for blockchain — this is our 🔑 technical insight.
How can blockimmo actually do this?
By moving transactions on-chain, we build on the major strengths of the (Swiss) real-estate industry (the land registrar and cadastral surveying), maximizing efficiency while minimizing overall change to the system. The accuracy, thoroughness, and transparency provided here enables us to verify the legitimacy of any property moving through our platform. And now we can streamline the transactions that depend on this information, reducing dependence on third parties like agents, banks, legal entities, and notaries.
blockimmo is able to ensure transactions adhere to laws & regulations by having solid operational processes in place, i.e. with seamlessly integrated KYC/AML checks (only where required). Agents and middlemen are no longer necessary because our online platform provides sellers with a large target audience, and investors with large selection. Smart contracts will eventually remove the need for notaries and complicated legal documents (although these processes are abstracted from investor(s)/seller(s), blockimmo currently does these under-the-hood for all transactions going through our platform). And the tokenization of property allows small-stake investments and crowd-financed development projects, reducing the reliance on banks and investment funds. The end result is a simpler, more efficient transaction that keeps the money between the investor(s) and seller(s).
Bridging the gap between the real world 🌍 and blockchain ⛓
The challenge is then ensuring these on-chain transactions hold in the real world. Seller(s) receive their money 💰, and investor(s) must be sure their purchased rights/ownership (tokens) to property (TokenizedProperty) are legitimate.
There is currently no straightforward way to integrate a TokenizedProperty (an on-chain digital asset representing the rights/ownership to a property) with the Swiss land registry. An on-chain registry would make accomplishing this trivial (and completely decentralized), but transitioning the Swiss land registry on-chain in short-term is an unrealistic expectation. The land registry isn’t the bottleneck we are trying to address either. So we are currently working with our legal team to introduce a simple, centralized layer to bridge this gap (until the Swiss land registry is moved on-chain, a process blockimmo will work on simultaneously with responsible authorities).
The holding entity — our first 🔑 legal “sneak-peek”
Currently we’re working with our lawyers on a legal framework for a legitimate asset backed token (backed by real-estate). The use of the word ‘entity’ is hypothetical in this case and does not represent, in any form, the final solution. — Bastiaan Don, Founder
We’ve formed a holding entity to sync the rights/ownership to on-chain properties (TokenizedProperty) with the Swiss land registry. This entity is composed of trusted parties, and it’s sole purpose is to map the rights/ownership to property (as stated in the Swiss land registry) to its on-chain state (as determined by a TokenizedProperty's token holders). This entity is entered in the Swiss land registry as the owner of all TokenizedProperties (there are manual/legal processes a seller and blockimmo execute when tokenizing a property), and uses the on-chain decentralized LandRegistry (built up as property is tokenized and transactions are executed).
This on-chain registry is simply a decentralized, immutable, secure database that the holding company (and any other interested party) reads to determine ownership. Our goal isn’t for this to be the official Swiss land registry yet, but it is the single source of truth for any on-chain properties/transactions facilitated by blockimmo.
We realize this introduces a trusted (centralized) component into our platform. And while some blockchain purists will scoff at this, it enables us to deliver the core value of a decentralized real-estate market to our users now, instead of in a decade. Thinking back to the case study above, we want to ship now and work towards a fully decentralized real-estate industry over the next decade, delivering value to our users along the way. Learning the hard lesson of the AI boom and applying it to blockchain. We’re focused on assembling a trustworthy and respected entity to enable step one, and work with the Swiss cantons/government to transition to an on-chain land registry from a stronger position. Eventually we can simply remove this layer for a completely decentralized real-estate industry, but for now we take the hybridized approach.
A technical aside
The core value of an AI solution is the trained model. Funny enough, this usually ends up being under 10% of the total codebase. Similarly, the core value of a ÐApp is its smart contracts. Again, most of the codebase is supporting auxiliary code (along with legal processes that happen on the side/under-the-hood to ensure compliance with the real world). Part of architecting an optimal solution is determining which critical state/functionality belongs on-chain.
We will open source our smart contracts to help us build a solid, secure platform, and move the industry forward responsibly and quickly.
Coming full circle
We’re sticking to the basics with our approach and keeping this simple. The fundamental lesson of building a startup — deliver the core value to your users and iterate. A variation of this lesson was learned the hard way in the AI space — a hybrid solution (semi-autonomous) can usually solve your problem. And in system engineering — optimize bottlenecks. We’re extrapolating these lessons to the blockchain space, and we see a clear path towards a decentralized real-estate industry.
Interested in meeting us? We’re based in Crypto Valley Zug and we’re happy to talk. Let’s keep in touch: https://blockimmo.ch
