by Alex Dell’Orto
My long time experience in the Blockchain world has made me wonder what is missing in the digital sector to integrate a technology that serves to improve the Real Estate Industry.
The slow but constant digitization of services and information has improved all that part of the industry that manages, designs and provides information to explain and represent a real estate initiative in its various aspects.
Even today, with the advent of blockchain technology and cryptocurrencies, where we see the first successful implementing example of this digital technology, we want to try to solve and improve some processes through its use.
What do we really want to solve with a distributed ledger and the use of encryption inside an open source software?
The success of Bitcoin is certainly not due to the application of blockchain technology, it is more the result of an increase of exchange value against the FIAT currency of this digital object, more and more useful and rare. After this development, many people answer in a pitiless way and say: “It’s all speculation”. I can’t say they are totally wrong but it’s not just that, what I personally think about is much more a paradigm shift.
I won’t waste time in this article to give you a full philosophical explanation that lead me to firmly believe that the paradigm of the management of the value has changed forever. First of all, because I would risk to slip into very theoretical discourses that are not useful to develop this theme, second because I don’t want to repeat concepts that others have studied and expressed better than me.
For this reason let me narrow down my focus on the integration of Blockchain in the Real Estate industry, practically I’ll discuss how to apply it, I’ll list the advantages, and what is still missing for its implementation.
To understand how to question yourself on this subject matter you must first ask yourself about the necessity of the blockchain technology, in particular Bitcoin and Ethereum, and what they both solved in a brilliant and innovative way.
Many answers can be listed so let’s start from the obvious ones:
a) the exchange of digital value on the Internet without duplicating the exchange action (avoiding double spending)
b) the certainty of the event recorded on the public ledger and the immobility of the transaction or event by third parties or controllers.
© the elimination of intermediaries for the management of the exchange.
So if you want to apply all these functions of a blockchain technology listed above in a real estate initiative let us see at how these can be applied:
1) The exchange of the digital value on the Internet
One feature of real estate initiatives is definitely the volume of economic values at stake, which often involves structured entities to manage the security of transactions and the management of these values. Inherent to this volume are the exchanges between the various activities involved, not so much the exchange of the value of real estate objects as a whole, but mostly the sum of all contributions of work and resources needed to complete a construction project.
Therefore here we have already identified 2 possible application scenarios: the exchange of digital value for the value of real estate and the exchange of digital value for the exchanges of value between the activities that contribute to the realization.
These 2 areas are different in terms of characteristics and times.
The modalities of exchange for a real estate object involve a certain number of subjects to make more efficient the constructive process or the exchange of the value during the development of the initiative. In addition to this, the exchange of value happens when you transfer the real estate object, where the process increases its complexity given the implications that this act involves. All these processes, determining the value of the real estate object of the exchange and the relative controls from both sides, involve many resources and partaking of many intermediaries that determine consequently, an increase in cost between the parties for the transaction.
It is therefore not the transaction or the speed of the transaction in this sector that is the factor to be improved through technological innovation. Instead, what needs to be improved is the certainty and transparency of the information on the subject of the discussion.
In the exchange of digital value of the activities involved we have many workspaces where innovation means efficiency of processes and activities and saving of resources. The first activities in which we can find applications are those with a management and intellectual content, such as design, accounting, management, contracts between the parties. In these first areas we certainly find a possibility of application of blockchain technology. Many of these activities use a digital data exchange and therefore can have interactions for the exchange of digital value of their performances, especially in the contractual field where the certain determination of events can improve the execution of exchanges and expected values, generating confidence in the operators and therefore greater chances of success of the Real Estate initiative.
We have certainly introduced another feature of blockchain technology, the certainty of an event. Let’s try to understand how this feature can be integrated into the real estate environment.
2) The certainty of the recorded digital event and its immutability by third parties
An immutable initiative, I will repeat, often even to be monotonous, is an operation that involves many actors and processes. The succession of events more or less fundamental in the path that leads to the creation of a work, determines the continuation of this path until the success of the initiative, whether it be the construction, upgrading or simple exchange of real estate.
With blockchain technologies available today, we can record events on a digital platform and link these events to actions and new events that in particular determine the exchange of digital value.
This function of blockchain technology is surely the most immediate application in the real estate sector. The certainty of the information is the basis for the determination of agreements and for the formulation of offers of products and services, for the imputation of the taxation and the reports of management of the contracts. Linked to this point we have the complete impossibility to modify the violation to your liking, through the database of the public ledger of the transactions.
And now it is definitely necessary to talk about communities or stakeholders. This second feature introduces the need to understand who are the main players and third parties involved (if you can talk about third parties).
In real estate, the involved entities guaranteeing the certainty of information, normally at national level, are public authorities or agencies responsible for managing and certifying some information that are the basis for the development of the asset and the real estate initiative.
We may speak or begin to discuss whether this technology may limit the power of these authorities to manage fundamental information. Certainly, authorities will not be excluded from this process, they will be supported to compose certain information and they will be participants in the process and not the protagonists to determine the information. Hence the reference to censorship and manipulation of information is direct. Given the various converging interests in a real estate initiative, having the technological possibility of relying on the certainty of information without preponderant subjects that determine the importance or worse the change for their individual interests, becomes economically relevant. Without the involvement of people who manipulate or manage the information within a real estate process, greater trust in the people involved is created and, as a result, the success of the real estate initiative or transaction is more likely. The consequences in saving time and resources in managing the events are obvious. The current technologies has yet to be applied so we cannot confirm at the state of the art.
3) the elimination of the intermediaries for the management of the exchange in value
In the real estate world, when we speak of intermediaries, we always refer to “real estate brokers”, the middle-men par excellence in the real estate sector in the sales department. Many believe and affirm that they will disappear, leaving buyers and sellers to do without them. This was also said after the development of real estate exchange portals, but it has not been so, and I firmly believe that it will not happen ‘.
I believe it is essential to divide the intermediaries into two groups, active and passive. By dividing the intermediaries into these two groups, we can understand which intermediaries act within the process and are necessary for the maintenance or creation of value of a real estate project, and which ones instead suck resources from a passive annuity position, which do not bring any added value to the project. With blockchain technology we can see that in the passage of value we find many “passive intermediaries” who derive value directly from their annuity positions from the exchange of value between stakeholders, in the different stages of the process of building the real estate value.
The use of the blockchain that cuts out these “passive” subjects can be an advantage to bring efficiency to the chain of value or transactions, that concur to form the value of a real estate initiative or of a real estate.
As a result of these possible points of application of the blockchain in the real estate world, where we have often talked about value, exchange of value and certainty of information that guarantees expectations of value, one can wonder how to apply this technology to value management.
The immediate answer to this question, under many options, is certainly to apply it to the exchange, to the transaction. Personally I see it like this: the exchange is a passage, an action at a defined time. I can not give value to an action, when we talk about real estate, the value is associated with a building, an apartment, a plot of land.
And here the question arises: is a property a digital object, the answer is obvious: NO!
Going deeper we realize that we can not talk about just digital value for a property. A building, a house, an apartment, a warehouse and so on are material and physical real estate, where they are not recognised digitally. How can we therefore speak of digital value transfer when the good that is valorised is not digital.
How can I therefore associate digital value with a non-digital object?
From my point of view and from my experience, there is currently no fundamental object missing in the Blockchain sector in order to be able to apply this technology to the real estate sector. This digital object that during my research and studies I “designed”, is called R.E.D.A. (real estate digital asset) and I am trying to realize it with my team through the BrikBit project.
REDA is not just a digital object or a number in a ledger. As Bitcoin is a protocol, REDA is a container of information and protocols to manage the digital information of a building to create value on it, being able to identify it in a certain way through the experience of creating and managing the property.
I started asking myself questions a few years ago about how to solve problems in the real estate sector through blockchain. Today, through Brikbit, and the creation and definition of a REDA, we all have tools in the real estate sector that can help us innovate a sector that is fundamental to the development of every community.
The road that will lead to the creation of the first REDA has just begun. The answers I have been able to give today are only the first steps to create an efficient digital real estate object. A REDA should be adapted to the location where the property is located. Each REDA may have different rules from State to State, depending on the laws ruling on that territory, as for the materials and construction techniques depend on the places where they are used and applied.
In conclusion: In order to use the blockchain technology in the Real Estate sector we need a REDA to have a digital object that is a link to the good on which the value exists. Thanks to this object we can have a tool to assign digital value that can be exchanged through a blockchain architecture on the internet.
BrikBit has invented REDA and will try to continue its mission in order to apply this new instrument in the newly created sector of Blockchain Real Estate (BC-RE).