The coming cryptographic invasion
Updated: Jun 17, 2018
I’m sure by now you’ve at least heard of the crypto mania that has swept the world since the past year. The crypto technology you’ve most commonly heard about is bitcoin. There are actually many more technologies and coins based on the same platform as bitcoin, called blockchain. One of those technologies is Ethereum and the currency used on the Ethereum blockchain is Ether. What makes coins like ether and its underlying technology different from bitcoin is that it can be used for a lot more than simple money transfer. Ethereum allows you to create your own coin and assign to it any value you like. This is where the crypto world and the real estate world meet in my opinion.
There are companies at the moment that are developing new forms of development financing and ownership models. Here’s a simple example. Consider a developer trying to raise funds for a condo tower development. The usual scenario would be that he reaches out to several investors and other financing options like banks trying to sell an “investment opportunity”. This means the investors will finance the construction of the tower, after which there will be a huge ROI when the condos are sold. Now, in today’s crypto world, developers themselves are starting to consider crowd funding for their projects. Let’s think for a second, about what this means. Instead of going to an investor or a bank, the developer sells coins denoting a percentage of ownership of the whole building. He then sells these coins to the public and to whoever wants to invest their money in his new project. This allows low cost funding without banking fees, with lower carrying costs, all while equity being spread across a wide range of regular working-class people.
Now consider if the building was apartments. The raising of funds would be similar to as described above, but instead of receiving a return on their portion of the investment, the crowd funders would continue owning a portion of the apartment tower and would regularly get their portion of the rent from what the building collects. The very low fee for money transfers on blockchain means that people who have even a sliver of ownership, can receive payments monthly as a return on their original investments.
These ownership “coins” that are translatable to dollars, can also at any point, be sold to another person. This buying and selling of tiny “shares” of the building can take place on an exchange, just like various coins are already traded today.
The implications of this kind of funding are broad and expansive. It not only allows developers to raise capital much easier and from a much wider swath of the population, but it is also a democratization of the development process. Where even if a person does not own his own home, he can still own a sliver of an apartment and his own city, in turn taking power away from huge rental apartment corporations and landlords and distributing it to the denizens of the city or county or even country.
These use cases are merely a sliver of what is possible when the world of crypto meets the world of real estate. Today we hear about certain individuals buying houses using their crypto earnings, which is merely the tip of the iceberg of crypto’s disruptive potential.