There is some deep, dark, infrastructure “plumbing” that blockchain may be used for in real estate that could replace title, deed and even mortgage insurance with non-fungible tokens (NFTs). NFTs in this instance are Paper 2.0. However, before you dive down that rabbit hole, investing billions in re-inventing the mortgage process skip to the end and start at foreclosure law. Everything that you want to do to automate the buying and selling of real estate comes to a full stop at foreclosure and bankruptcy court. Those minor details are out of the way.
What are and How will Blockchain Play a Role in Real Estate?
Digitalization! Blockchain is just the latest chapter in the paperless revolution of fintech. At the end of the day, the biggest boost to real estate won’t come from blockchain but FinTech as a whole, as it moves complex paper transactions to digital mediums. Amazing things can happen when transactions go paperless.
Deeds, Titles and MBS could be minted as non-fungible tokens (NFTs). Before you get too excited calm down and recall:
– NFTs are just the latest version of PDFs.
– Minting / creating non-fungible tokens does not magically increase the value of the financial transaction that is being memorialized nor the underlying asset.
– Without a FINRA/SEC licensed secondary exchange there is limited liquidity in having NFTs versus traditional paper.
Digital Identify – The biggest role that blockchain plays in any industry is serving as a means of a trustworthy digital identity. While most confuse blockchain with anonymity, the real power of blockchain isn’t in anonymizing identity but in facilitating the creation of a highly secure, digital identity with a nearly infallible record of creditworthiness. This means it gets harder to fake one’s social and financial credentials and credit worthiness if there is an immutable ledger of that person’s financial history that can be easily and readily verified by any party. The hard part with identity isn’t how to establish it.
The hard part is where do the digital fingerprints of blockchain identity stop? At the end of the day, an immutable identity is as good a basis for discrimination and privacy busting surveillance as being branded with a scarlet A.
Blockchain will play a role in real estate and commercial paper in general but not as the driving force. What blockchain will do is encourage and push more digital solutions as a whole into the real estate vertical. Yes, many people will confuse converting physical paper into digital tokens, aka tokenization, as the future of capital markets not only in real estate but in other verticals.
Alas, tokenization is simply the memorialization of ownership/rights in a digital medium. Tokenization is not the offering of those financial/commercial rights to the general public for funding. When financial rights are offered to the public for sale/funding–that is called crowdfunding. Securities & Exchange Commission (SEC) via Title III of the JOBS Act.
Yes, yes. I know. The fractionalization and tokenization of real estate are going to democratize real estate as a whole. Just keep in mind that cutting up a pie that 99% of people can’t afford is just like cutting up a million-carat diamond, into 1 million carats…that 99% of people still can’t afford. Too, fractionalizing/tokenizing a property doesn’t magically increase the property’s cap rate. So what exactly does tokenizing real estate do? That is a good question.
About the Author
Samson is a classically trained anthropologist, finance and crisis management expert who advises Fortune 500 companies, Executives and startups in Washington, DC and EMENA. Samson learned his craft as Emergency Manager at Fannie Mae from 2008 – to 2016 and has since gone on to be a leading advisor to banks and financial institutions in the Dubai / Middle East North Africa region.
Samson’s focus is on helping firms understand the latest human trends in fintech, digital transformation, the Space Economy and Low Earth Orbit entrepreneurship so that they can make profitable decisions for their bottom lines. When not making the Space Economy more accessible for all, Samson is an adjunct professor at the University of New Hampshire School of Law and Columbia University in NYC. For more information or to book Samson to present at your event visit www.SamsonWilliams.com.
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