Blockchain and Brokerages – Getting the Conversation Started

We’re still at the forefront of blockchain technology, what it is and how it’s going to disrupt a multitude of industries. There is no “if” in this scenario, only when. While my obvious focus is on real estate, I and my colleagues who are on board are still figuring out the how. No doubt the early adopters will have an advantage, but what I know for sure is that blockchain technology will fast become a necessity in the day-to-day innerworkings of real estate.

Since my involvement in the crypto space, I’ve had the pleasure of meeting several brilliant blockchain experts, most have which opened my eyes to the possibilities of blockchain technology. I’ve blogged about several proptech ICOs in the past, and not to do another shameless plug (who am I kidding, it’s my blog, isn’t it??) for CPROP, but they’re one of the frontrunners in the race for wide-spread adoption in the industry. Powered by blockchain, the concept is to have a ‘one-stop-shop’ for everything needed in a real estate transaction, from selecting an agent, to the purchase agreement, removing contingencies, finding vendors, financing and closing the deal. In theory, Escrow times can be slashed to just days instead of the typical 30-45-60-day escrow.

I also met Oliver Tickner, CEO of StreetWire. Agents will be soon able to update their property statuses on his platform and receive tokens (in a nutshell). Why is this useful? Because blockchain technology can track everything tied to a particular property, saving time and energy while mitigating risk and fraud. He also turned me on to a spectacular idea, and that was being able to verify buyers with a hash number – any potential buyer could be prequalified through their bank, and the coveted prequal information would be sitting on the blockchain for verification through their unique hash number. To any buyer’s agent, this in itself is worth its weight in gold. 

I bet you’re thinking, “Well this is all just great but how in the hell do we implement this in our own office?” Several ways. Once these startups are up and running, there will be portals in place, just like an online database. You wouldn’t need a special IT department with expert blockchain coders or a pool of miners. Other alternatives for smart contracts are AI-based platforms such as Matrix. An agent would be able to enter the rules of the contract in simple language, and the technology codes it on the blockchain.

There are some hurdles, the main one being getting your broker on board. With enough education and real-world applications, I feel like it would be a no-brainer. I’ve taken mine to a couple of blockchain Meetups in our area, just to get the conversation started and for her to meet the people who are using the technology right now.

To delve deeper into the subject, I highly recommend reading The Business Blockchain, by William Mouaygar, or taking the non-technical blockchain course on blockgeeks. And if your company or brokerage is already running its day-to-day applications on the blockchain, I’d certainly love to hear about your experiences!

The Differences Between Crypto and Government-Backed Money

This one is for the noobs again. I like to think of myself as an intermediate noob: I’m not a coder, a miner or even a day trader (I’m a proud Hodler, thank you very much). However I follow the news, check my altcoin investments 35,562 times a day and I have the mad skillz to get my real estate transactions done.

Unless you’ve been living under a rock, you know that Bitcoin has recently BLOWN. UP. My mother and ex-husband called me within 24 hours of each other asking how to buy. Seth Meyers did a hilarious skit about it. A rando friend of mine posted his new Trezor and Bitcoin for Dummies book. Yes, there’s a growing curiosity (okay, more like a frenzy) about how people can get in on the action, and although Bitcoin itself has become a favorite buzzword, the clear majority still don’t have a clue as to what cryptocurrency actually is.

Let’s start with the basics. We all know what government-backed money is, right? Geez, I hope so. Investopedia’s definition is pretty succinct: Fiat is a currency that a government has declared to be legal tender, but it isn’t backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that money is made of.

So, government backed = centralized. The feds have control over the banking industry as interest rates determine the cost of money borrowed. When the centralized banking system fails (remember the S&L scandal? 2008?) the public takes a major hit. We’ve also seen Greece declare bankruptcy while Venezuela is on the brink. Don’t get me started about the new tax bill – the money that’s been promised to the banks to “stimulate the economy” is mind-blowing. In case you’re wondering where I stand on this issue, you can watch Rachel Maddow’s take on it.

Most banks can’t get behind the idea of cryptocurrency and have been very vocal about it for obvious reasons. Without getting too technical, cryptocurrency is decentralized, and each transaction is recorded onto a transparent, immutable public ledger called the blockchain. We’ll call it community-backed currency, even though the IRS considers crypto an asset/commodity. It behaves like a stock and one can spend, trade or transfer it back to fiat. The thing that irritates me the most is that these Wall Street dinosaurs write article after article comparing cryptocurrency to the behaviors of stocks and fiat trends and try to predict the next bubble while dumping on the validity of cryptocurrencies. They can’t seem to wrap their heads around the fact that yes, while crypto behaves similarly to a stock, IT’S NOT A STOCK, it’s a CURRENCY YOU CAN BUY SHIT WITH.

The Bubble Scare

I just read an article by Jerry Welch, about how crypto fails the duck test, which I think is a ridiculous analogy (he does reference a passage in his book, Back to the Futures, as to how Darth Vader struck down the pin-striped pork bellies known as stock future contracts…starting to see a trend here?), then goes on to compare epic bubbles such as the Dutch Tulip Bubble of the 1630s (!!!), Japan’s real estate market bubble of the 1990s and of course the dot-com bubble, and hints that the crypto bubble could be just as epic of any of those. But he, like so many other old-school finance “experts”, is putting old-school rules like the duck test onto cryptocurrency. No shit does it fail, and keeping in the vein of horrible, over-used analogies, it’s NOT a duck - it’s a honey badger, and honey badgers don’t give a fuck.

And while comparing a nearly 400-year-old bubble to Bitcoin is completely and totally rational (it’s like comparing the Titanic to IOTA), I honestly don’t think there is a Bitcoin bubble and many experts with much more experience than I have will agree. A great point of reference is Lou Kerner’s article. He takes a look at Amazon stock when the dot-com bubble hit and compares it to the overall performance. Still apples and oranges, but we’re at least on the right track. However, I do believe there’s going to be an ICO bubble, but again that’s another article.

Hacks

If a bank with a centralized server gets hacked, everyone is screwed. Depending on the bank, the FDIC only insures up to $250,000. Anything after that is your loss. The key point here is that centralized banks have centralized systems, and the hacking ease is much greater. Yes, there have been a few exchange hacks over the years but in most cases, the exchanges have been able to give back two-thirds to three-quarters of the fiat back to its customers. There is also the 51% Attack theory, in which if 51% of the Blockchain mining could be taken over with malicious intent to control the network. This would be extremely difficult to accomplish due to the massive amount of computing power needed.

Who Has Control

As mentioned briefly above, centralized banking is controlled by the feds and we as consumers have always been helpless with regards to inflation spikes, interest rates, and so forth. Cryptocurrency, however, is community-based for all intents and purposes and the price is derived upon simple supply and demand. Sure, the price is affected if a country like China speaks out against ICOs and Bitcoin and corrections are made, but once the news dies down then the price shoots right back up. We’ve seen just recently the price of Bitcoin was affected by the holidays – perhaps people were cashing out a little to get the Christmas shopping done, but it’s crawling back up and hanging steady around $15,000 at the time of this writing.

Another little amusing thing is that the old-schoolers in traditional finance love to discredit crypto because it’s based on “nothing.” Let me make it clear that fiat is literally based on nothing. No gold to back it anymore, no real infrastructure, nothing other than what the feds declare. To reel in inflation, the feds put more money into circulation, sometimes flooding the market and driving down the value of the dollar. Bitcoin will never have more added to circulation because it was designed that way. There are 15M in circulation now with 6M in reserves to be added at specific times throughout the life of the Blockchain. The Blockchain is at its infancy and just like the Internet, will be used in various industries over the next few years and will most definitely become mainstream. There are different Blockchains that power cryptocurrencies (Bitcoin which is closed-sourced and Ethereum which is open-sourced), and they’re not going anywhere anytime soon, if at all.

Bottom Line

If you’re going to invest, invest at your comfort level. If you’ve got the stomach to ride the ups and downs of cryptocurrency, then do so. However, I will leave you with this: The 2017 stock market has produced about a 9.7% ROI, while Bitcoin’s 2017 returns have been 1375%, and 2018 will only be better for Bitcoin as well as Ethereum and other promising cryptocurrencies.