Exploring the CyberMiles ecosystem: Blockchain takes on real estate
Tackling the middleman dilemma while tokenizing REITs via STO, a #CMusecase
Real estate is the only large industry remaining in which so-called middlemen have complete control of the process. So, it’s only natural that “eliminating the middleman” has become a next frontier. There are two ways to look at it: In real estate, will blockchain technology ultimately eliminate the middlemen, or will it merely threaten the them? In terms of lending, can blockchains completely replace banks, or will the real estate industry be less drastically disrupted by blockchain? These are fair questions, the answers to which are yet to come.
What we do know is that the real estate industry has a market cap exceeding $200 trillion, making it one of the most lucrative industries. And yet, we also know that it’s one of slowest industries to adopt — and adapt — to the latest digital transformations. The land title systems currently in use, for example, are incredibly fragmented, making accessing records a less-than-easy task. Record-keeping platforms on the blockchain, however, can be used to reduce red tape, making both accessing records and sharing data between agencies simpler and easier, while streamlining the real estate asset recording process.
It’s About Time
By relying on a blockchain-based transaction system, businesses can reduce the amount of paperwork (not to mention people) involved in the process. Let’s look at the dollar bill, for instance. Of all the U.S currency notes, the $1 bill has the oldest design, in stark contrast to bitcoin. Of course a Bitcoin is transferable, and once used, the transaction is recorded onto the blockchain and the record cannot be tampered. The implications of this for real estate, from purchasing to leasing, are numerous. But it remains unclear how — and at what rate — blockchain will be adopted.
This much we do know: blockchain technology eliminates fraud to a large extent, since the transaction is auto-executed and irreversible. But there might be other fraud senario to stay alert about since there is a lack of middle agencies.
If you are making a large amount transcation, the cost via blockchain can be significantly lower compared to conventional payment methods (remittances, card payments, etc.)—i.e. any transaction that has a third-party guarantor. And you do not need to worry that the bank would pause your transaction for their own reasons.
Paving the Way for Freedom
This streamlining of the real estate asset recording process enables freedom from corruption while offering individuals more control of their real assets. When a property is purchased, a traditional paper title deed comes into play. However, there is the potential for paper deeds to be one day phased out once blockchain technology becomes more widely adopted.
To put it into perspective, the work done by property lawyers is simplified, and even accessible to individuals rather than wholly reliant on a team for their real estate dealings. Future title search and transfers essentially become open source, allowing everyone to see a history of the property transactions and to be secure in the knowledge that it is accurate. This is a very important step forward for developing nations to aid growth via private ownership, and, by extension, individual liberty. Countries with endemic corruption or antiquated land title systems are of particular importance. As a matter of fact, land titles in some countries are almost non-existent — think about that!
Consider as well that if a corrupt authority comes along to seize your asset, your home, business or land, the chance for legal recourse is very slim. With blockchain technology, however, property owners have proof of ownership that does not rest in the hands of corrupt officials, thereby tamper-proof. Even where corruption is not a problem, having real estate asset ownership history on a blockchain-powered platform provides security. Isn’t that the end goal? Other considerations:
- A massive supply/demand imbalance exists, of people willing to increase their exposure to real estate.
- Some may have crypto gains that they will have to pay taxes on if/when they cash out. Today there is not a productive use of crypto-capital that can generate additional returns.
- The costs may be less than using a traditional real estate investment trust (REIT) P/E legal or corporate structure.
- Publicly-traded REITs offer not ownership but shares of a corporation (à la St. Regis Aspen Resort’s recent digital security offering), which pays out dividend income — a taxable event. By owning a real estate asset, you may benefit from tax advantages like depreciation and deductions, in turn reducing your taxable income.
- Stock certificates used to be traded paper-to-paper, but now are traded electronically. A blockchain-based real estate protocol offers a way to track real estate ownership digitally.
- Real estate ownership requires a lot of capital — i.e. you need a lot of money to make money in real estate. Just how ICOs opened up capital to the broader public, a similar thing could be at play here.
Expanding the Reach
Using the blockchain in other unique situations, such as when real estate decisions are created by voting, is also a possibility. Owners of properties in apartment buildings, such as co-ops, often must vote to make decisions that affect the shared infrastructure (maintenance, for example). Distributed ledger technologies guarantee reliable, remote voting while also ensuring that the votes have been accurately recorded.
Significantly, the first tokenized REIT in the U.S. occurred just last month, when the owners of a luxury student residence in South Carolina announced that U.S. now can acquire this piece of real estate in the form of blockchain tokens. The CEO of Harbor, which designs the real estate tokens, noted that the blockchain process is superior because of fewer transaction costs (such as lawyers’ fees) that are common with traditional property sales.
How about tokenizing the debt? It’s happening already.
Eliminating the Middlemen
You can cut out a number of middlemen when you purchase or sell real estate on the blockchain. Lawyers, brokers and even bankers all can be bypassed by using cryptocurrency to buy or sell real estate. Blockchain also will eradicate the fees and repayments that go to escrow companies. Re:Tech, a real estate tech research and marketing firm, reported that $12.6 billion was invested in real estate technology in 2017, continued year-over-year growth in this area. With billions invested in the final quarter of last year alone, it certainly seems that the market is doubling down on this sense of urgency.
I’m excited about the blockchain and its impact on tracking titles and ownership transparency, as well as on democratizing finance to allow more people to access growth. That said, we’re a long way off from bridging the gap to the real world, especially for something as highly regulated as real estate. The Bitcoin hype has turned many into skeptics, comparing crypto-mania to the dot-com bubble. While there may be (some) truth in that, the real value of cryptocurrency is not entirely in if the technology is good for A, B and C, but whether the execution is done right — getting the various parties to agree to the system. That’s always a challenge.
The CyberMiles Solution
As real estate represents a multi-trillion dollar “alternative asset market class” opportunity, its tokenization is only a matter of time. CyberMiles will support all common STO insurance protocols on the CyberMiles public blockchain, including Harbor’s R-Token and ERC-1400/1440.
CyberMiles is a proud seed investor in OpenFinance Network (OFN), the only security token exchange in the US. To date, many security token projects on OFN, which allows trading of REIT tokens, have been issued by investment funds are real estate-related, per Hackernoon. The future of real estate on the blockchain looks incredibly bright.
If you have use cases (e.g. DApps and side chain ideas) for the CyberMiles blockchain, please email business@cybermiles.io for collaboration/ investment opportunities.
