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.

Cryptocurrency and Real Estate 101

Cryptocurrencies are a thing. A real thing. What IS a cryptocurrency? Investopedia describes cryptocurrency as "A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation."

At the moment, Bitcoin, Ethereum and Litecoin are the leading cryptocurrencies, with Bitcoin in front as the most popular among the three. Think of Bitcoin as just another currency such as Yen, Euros or Pesos. Bitcoin is bought and sold just like a stock - the price fluctuates and the value increases or decreases depending on units traded or outside forces such as software upgrades.

What makes Bitcoin unique is that there are only approximately 16,000,000 "coins" in circulation with another 5M or so in reserves. Unlike stocks or other currencies, coins will never be added, which could then flood the market and devalue the currency in the future.

Who Can Use Bitcoin?
Anyone with a computer or a smartphone and an Internet connection.

Okay...so how does this work with real estate?
So glad you asked! I'm very proud to have been a part of the first Bitcoin real estate transaction here in SoCal. (read more about it HERE). At the time, there were no escrow companies on the west coast set up to accept Bitcoin, but now we have Guaranty Escrow backing us up with BitPay, a Bitcoin exchange that works with fortune 500 companies such as Microsoft and Virgin Atlantic. The exchange works as a wire transfer as the Bitcoin hits the escrow account in USD - BitPay charges a small transfer fee to the transferor just as a bank would. The escrow company/seller side never sees the Bitcoin, only USD, making for a smooth title transfer. It behaves as an all-cash transaction.

Does the Bitcoin price fluctuation affect the purchase price?Absolutely not. Although the price of Bitcoin fluctuates, whatever the price of Bitcoin at the time of the exchange is the amount of Bitcoin the buyer exchanges to meet the purchase price. The seller is never affected by the loss or gains.

Hope this was a good start for all those interested in the inner-workings of real estate Bitcoin exchange. Feel free to contact me for more information!