Cryptocurrency Myths, Red Flags & Scams

Our main goal in starting The Crypto Realty Group has been to connect the public with real-world applications of cryptocurrency, particularly in real estate. But, in talking to people who are genuinely interested in crypto but are a little timid because of the barrage of mixed news that surfaces daily, I wanted to help you guys understand the truth as well as the pitfalls of investing.

I won’t lie. Crypto is volatile, but the returns can be very gratifying if you have the stomach to stick with it. Even with the events in China and the JPMorgan goofball, Bitcoin is still up 84% at the time of this writing than last year, and the Dow Jones is only up a little over 12%. And despite the drama, it’s beginning to rally again.

The biggest question I get asked from newbies is “Isn’t it illegal?” The answer is OF COURSE NOT. I wouldn’t risk my real estate license on ANY kind illegal activity, let alone create a startup, Facebook pages and Instagram profiles based on real estate and crypto trading (I mean, really?). I remember my first transaction involving Bitcoin: We went through hell trying to connect the dots with banks, escrow, and the seller’s side only to have the listing agent ask me the day before we were supposed to close, “Are you sure this isn’t a scam?” Sigh. No, dude. Three companies and 10 people aren’t in on a scam to buy a house in Manhattan Beach (although I’m sure there are some out there who have tried).

The Netflix documentary, Banking on Bitcoin, is a wonderful beginning to your quest for Bitcoin education, although it highlights some of the key people who DID end up going to jail because of illegal use. Criminals have been committing crimes with USD and every other fiat known to man since its inception, but that doesn’t make USD illegal. I could commit some serious crime using a pencil and a Hello Kitty eraser, but it’s not Hello Kitty’s fault, now is it? You get the point.

Crypto may have taken a tumble this week due to some recent news, but it’s not going to stay there. So, I can’t emphasize enough for you to get out there and buy, but here ARE some things to look out for in your pursuit of riches and anonymity:

MYTH: Crypto isn’t backed by anything and therefore is worthless.

No. It’s worth what we say it’s worth, just like USD. USD used to be backed by gold, but USD and gold had a tumultuous relationship over the years and finally in 1970s, Nixon well, nixed the idea. So, USD is much like crypto in that WE, the traders, place value on the currency, but unlike USD, Bitcoin has a market cap (16M in circulation and 5M in reserve) and will only increase in value over time.

MYTH: I can’t spend my Bitcoin anywhere.

Nope. More and more retailers are accepting Bitcoin. In fact, I just bought a cute pair of flats and some earrings from Overstock.com. Japan has MALLS full of vendors who accept Bitcoin. Here is a list of some current merchants who accept Bitcoin according to 99Bitcoins.com:

Microsoft

Reddit

Wikipedia

Dish Network

Overstock

Virgin Galactic

Steam

Mint.com

Subway

Expedia

Etsy Vendors

Inuit

Microsoft

Newegg

PizzaForCoins.com

Lionsgate Films

MYTH: Tupac is alive.

No, man. I miss him too. Get over it.

Red Flags

I’ve met people who have bought a few Ether and now they’re blasting all over Social Media about their expertise. There are also “startups” out there touting that they’re the ones who can help you get rich. If you see a profile pic from The Wolf of Wall Street with some dude’s head photoshopped onto DiCaprio’s telling you to give him money to invest in crypto, RUN AWAY. 

Okay, these are the obvious ones. If you’re new to crypto and want to buy, take the time to do your own research. Blockgeeks.com is an amazing website for beginners as well as pros. Know the difference between Coinbase and Gemini, Kraken and Bittrex, Blockchain and Trezor. just to name a few. Hell, there’s even a Bitcoin for Dummies book. There are about 900 coins out there with new ones added all the time – unless you have an amazing memory I don’t expect you to know all of them, but just familiarize yourself with the top few.

When you become a little more savvy, you can begin to diversify. My buddies at MT Digital Assets are a completely legit crypto hedge fund worth checking out. They’re knowledgeable and watch the market just like any good portfolio managers do (and should).

Scams

You bet they’re out there. Just as the great Nigerian scam artists popping up in your inbox or calling you posing as the IRS claiming your account is in violation and they need your info asap (my response was, “You’re the IRS, you should already have my personal information.” And the nice man on the other end replied, “Have a nice day, bitch.” – yeah, that happened).

The biggest hurdle in buying real estate with crypto is producing proof of funds. To me, if a buyer has no problem using a third party to verify they have X amount of crypto equaling the purchase price, then we’re good to go. If they give any pushback or are unable to verify for whatever reason(s), then there’s a big problem (see Red Flags).

Here are some known scams to look out for:

  1. Anyone cold calling you. Police in London just shut down a ring back in August in which the scammers were calling investors to put money in cryptocurrencies that didn’t exist. Bad.
  2. Ponzi Schemes. According to com, the LFC Coins & the Centurion Coin are all about that. This goes back to doing your homework if you get a “hot tip” on a new ICO (Initial Coin Offering). Ponzi Schemes are prevalent in the altcoin world because there is no bank account needed and no products sold other than the altcoin itself.
  3. Pump and Dump. Gosh, sounds familiar, doesn’t it? #WallStreet Just in August the SEC issued a warning on ICO scams by public companies. With much hype, investors pump millions of dollars into the “next big ICO” on crypto platforms inflating the price, then sell off at the peak.

For more information, please feel free to contact me at piper@thecryptorealtors.com or follow us on Facebook.

 

ICOs: Disrupting the Real Estate Game

An ICO (Initial Coin Offering) in the crypto world is equivalent to an IPO (Initial Public Offering) in the traditional world of finance. NASDAQ.com succinctly describes an ICO as a fundraising mechanism in which new projects sell their underlying crypto tokens in exchange for Bitcoin or Ether [among other cryptocurrencies]. Some have raised millions of dollars in funding in a matter of minutes.

At any given moment, there are hundreds of ICOs listed on tokenmarket.com, a site that tracks and even helps launch the next big idea. Among them are several promising real estate ICOs that are sure to disrupt the industry, all making real estate a decentralized marketplace governed by smart contracts. The main goal is to have transactions more affordable to the masses while increasing liquidity and decreasing the amount of traditional (not to mention archaic) paperwork needed to convey each property.

Here are a few to keep an eye on:

REAL (Real Estate Asset Ledger) is a new Ethereum Smart-Contracts governed ecosystem that applies Blockchain technologies to the enormous Real Estate investment industry, giving greater access to global investment in Real Estate, lowering barriers to entry, and increasing market liquidity. It will offer an effective method of investing and securing the value of the existing 50-100 Billion USD equivalent in cryptocurrency into the less volatile and growing Real Estate market by generating rental income and value appreciation. See White Paper.

REIDAO seeks to introduce crypto assets that are backed by a particular real estate in the real world. This will create an exposure towards the real estate market for the crypto assets holders, such as rental income generation and capital appreciation from the underlying property. These crypto assets will follow the ERC20 Token Standard, and will be able to be integrated with other services on the Ethereum blockchain. See White Paper.

REX (Excerpt from Executive Summary from White Paper): Traditionally, obtaining reliable property information has been difficult. Today, with advances in technology, data has become easier to ascertain. However, the data has become controlled, manipulated, and governed by centralized organizations, resulting in exorbitant transaction and listing fees. With recent advances in peer-to-peer data distribution and blockchain technology, Rex will provide universal access to real estate information and streamline the transaction process.

Rex will start by building a global multiple listing service, creating a data layer that is accessible to everyone. The database will minimize listing fees and maximize listing exposure. In our third phase, Rex will provide users the ability to create sale and lease “smart” contracts. Benefits include a savings on time, communication, and administrative costs. Finally, Rex will develop an architecture to create tokenized contracts with an exchange where property tokens can be traded.

ATLANT focuses more on peer-to-peer rentals, but seem to share the same goals as the ICOs listed above: They believe blockchain has the potential to help accelerate the adoption of the Sharing Economy which has already begun to unleash industry disruption by opening up significant amounts of previously untapped private capacity and tokenization of property will completely change real estate transactions and ownership transfer as we know them. With a secure, tamper-proof system based on the blockchain, users can trade parcels of property on our platform and bypass intermediaries in rental deals, transacting P2P (peer-to-peer), all of which will enhance ease of use and security for guests and hosts alike, streamlining user experience and driving accelerated adoption. See White Paper.

PROPY – Again, basically the same concepts as above per their White Paper. The buyer exchanges government-backed currency (fiat) to PRO (Property Tokens) to unlock the contracts, contingencies and eventually conveyance.

We’re still in the learning stages, but from what I’ve read so far, these ICOs will still be taking a small fee just as we agents would for assisting with the transactions. I’m all for growth and development, so it will be fascinating to watch how these and other real estate ICOs perform in actual practice. From a layman’s point of view and at the risk of sounding like a snippy agent, it looks as if you have a choice between Burger King, Carl’s Jr., Jack in the Box, McDonald’s or In-n-Out: They all sell the same thing, are fast and efficient, and taste is subjective. But sometimes you want that human touch, to be waited on and catered to, and that’s when you call a good real estate agent - or at the very least - have a night out at Morton’s.

What’s a Smart Contract?

As Realtors, we know all about contracts. Since I’m based in California, we’re encouraged to use the California Association of Realtors forms (CAR forms) as they are legal, binding and approved by the State of California and its 34,875,392 lawyers (JK, we only have 33 million). We look to the backbone of the transaction, the Residential Purchase Agreement (RPA), to resolve any disputes or answer any questions that may arise, then we load up the transaction with disclosures just as an extra CYA for both buyer and seller. As one attorney explained, “Every line in the RPA and every disclosure is based on some lawsuit that occurred.” At minimum, we’re talking a dozen different disclosures ranging from wire fraud advisories to earthquake safety. Don’t get me wrong, I’m not knocking it. We’re trained to understand, verify and translate these contracts in the best interests of our clients, and they are all put in place to protect both buyer and seller during the process and beyond.

So now enter the smart contract. A smart contract lives on the Blockchain which in short, is an immutable, distributed ledger on a decentralized system (see my blogpost Cryptocurrency 102: What is Blockchain?). Blockgeeks.com (a great resource for noobs) describes a smart contract as a way to “help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.” But here’s the catch: You need to know how to code for the most part, or pay a company to put it on the Blockchain for you - so when it comes to real estate transactions as far as I can tell, you’d still need some sort of middleman to convey the property. 

So. Many. Questions. As of this writing, we’re reaching out to crypto companies who have had experience with real estate smart contracts to get more answers. How is the property conveyed without the use of standard, legal forms? How does the buyer know exactly what they’re getting without the use of disclosures? How is title transferred? Heck, how would one even search for a title to a property? What if there’s a bug in the code? Will these contracts be regulated for consumer protection?

Just as crypto has disrupted the banking industry (I’m finding everyone in the crypto world loves the word “disrupt”) smart contracts will disrupt not only real estate, but law, healthcare, automotive, and so much more. But how? Cryptocurrency seems to be above the federal guidelines, anonymous and untouchable, at least for now. Smart contracts are certainly in the infant stage, and I can’t wait to see how (or even if) they comply with state/federal laws and guidelines. Harvard Business Review said it best: “The blockchain is truly an innovative approach to governance for networks and machines. But we must resist the temptation to anthropomorphize code and misapply machine governance to social systems. Code is law for machines, law is code for people.” Cue HAL from 2001: A Space Odyssey: “Are you sure you want to include the washer and dryer in the contract, Dave?” But alas, I’m sounding like the Gen-Xer who’s afraid of change – I assure you I am not, but I do think it’s best we continue to educate ourselves in the real estate industry because smart contracts are only going to become more popular and more user-friendly as time goes on.

Cryptocurrency 102: What is Blockchain?

Google Blockchain and you'll find thousands of articles. The crypto world wouldn't exist without Blockchain. I think blockgeeks.com described it best: Think of it as a shared Google Doc that has no centralized location and can only be added to but not edited, and is accessible to everyone on the Internet. Every Bitcoin and the millions of other existing cryptocurrency transactions are recorded onto the Blockchain. Since it's hosted by several computers simultaneously, it is impervious to hackers. An editor, or miner, is locked out until the previous transaction is recorded, making it impossible to edit the same record at once. 

So again, how does this work with real estate? Here's the cool thing: Blockchain isn't just for cryptocurrency anymore - although we've already proven we can fund with crypto, Blockchain has spread to other uses, such as recording deeds and transferring title, escrow, contracts and even smart contracts. The process is safe and legal, as the software must be compliant with existing laws; it's merely transmuting the paper trail into a digital trail. Read more about IBREA's pilot program in Chicago or watch the video here.

Does this then eliminate the roles of the broker and escrow? No, but according to Ragnar Lifthrasir, President of IBREA, now is a good time to educate and find ways to integrate Blockchain technology into the world of real estate. It's no secret that real estate practices are somewhat outdated, and this could be a defining moment in whether or not real estate practitioners are willing to adopt new ways of getting the deal done. It's an exiting time to be a Realtor!

For more info, please contact me at piper@thecryptorealtors.com.