New technologies are taking us day by day into a new, changing, dynamic and more than anything “surprising” world. Money as we know it is being replaced by many other forms of existence that go beyond “paper”. Today there are so-called crypto currencies that represent money but in virtual form, and “tokens”, which represent a part or share of an asset. Those assets can be properties or real estate projects, and each token would represent a bit of that project. In this article, we will talk about what tokenization is in the real estate market.
What are crypto currencies?
Crypto currencies are virtual currencies backed by blockchain technology. Its creation stems from a libertarian philosophy with the aim of restoring the citizen’s freedom over their assets as well as other benefits such as immunity against inflation, anonymity, etc.
This proposal for a new economy has some pillars that stand out:
#Decentralized: There are no public or private institutions behind bitcoin or any other crypto currency.
#Anonymous: It is not necessary to use exchanges for your operations (where identity validation is necessary) since we have a wallet where we can store our crypto currencies safely without revealing any type of private information.
#Global reach: There are thousands of nodes in all parts of the world. We can also carry out transactions to and from wherever we want, in just seconds. At first glance, it is a very strong paradigm shift that breaks with the traditional financial scheme.
#Unconfisc able: As it is a decentralized and anonymous economy, it also becomes unconfiscatable . Governments cannot resort to confiscating funds, preventing transfers, collecting taxes or applying rules, obstacles and regulations
#Unshakable: His explanation leads us to an introduction about the blockchain.
Architecture and operation
The architecture of crypto currencies in general and Bitcoin in particular is based on the blockchain. The blockchain is a distributed database, where each computer is a node. Which is responsible for generating consensus (51%) to decide which blocks are real and to be able to verify and maintain those that are created. In addition, it is a secure record, in which each block contains information, with the purpose of creating an unalterable digital record. Taken to traditional finance, it is an accounting book that we all have access to.
3 Elements of Each Block:
- Information (issuer, receiver, number of coins).
- Fingerprint (string of numbers, letters. It is UNIQUE).
- Trace of the previous block.
The last point is the one that generates the chain of blocks. Altering the information of a block would imply altering its fingerprint, and therefore invalidating the entire chain of blocks.
Still, there are calculators that could calculate millions of fingerprints per second and disrupt the entire blockchain. For this, the proof of work was created, which delays the creation of the block, auditing the entire chain originally created. If during creation an alteration is identified, the new block will not be created.
In short, to be able to modify a single block, the intruder would have to modify the fingerprint, the proof of work and achieve 51% of all the votes to be able to modify the block successfully without anyone noticing.
Tokenization in the real estate market: What are tokens?
A token is a unit of value, created by an organization, with the aim of governing its business model. In turn, it is created by it to give more power to its users to interact with its products. Finally, a token facilitates the distribution and distribution of profits among all its shareholders.
A token, unlike a crypto currency, does not require its own blockchain platform to operate. In fact, most of the tokens are created on the Ethereum blockchain due to its smart contracts feature.
In addition, they pursue other purposes. Although they can function as a means of payment, the tokens offer us a concept very similar to that of the shares of a company. That is, an asset which is valued in millions of tokens, and added to their price, gives us the value of the asset. In the same way that each share of a company makes us owners of a certain percentage of it, each token entitles us to a certain portion of the asset in question.
The new generation of real estate investment
The real estate sector has always been a market that is difficult to access due to the need for large capital and support. First, the operations of buying and selling real estate with crypto currencies appeared. Today this new investment modality is born: tokenization in the real estate market, which opens the doors to a large mass of people willing to invest small amounts of capital in said sector.
Each token represents a fraction of the value of a real estate project. Those tokens can be bought and sold just like shares of a company.
Under this system, it is possible to acquire tokens of properties already built or participate in real estate projects that are financed through an initial offering of tokens.
Those tokens will increase in value as the work progresses, and you can also sell them at any stage of it.
It is an investment that promises decentralization, agility and lower costs.
In addition, tokenization offers us “not to put all the eggs in the same basket”, we will be able to diversify our capital in different projects and thus reduce investment risks.
The tokens are fully liquid as they can be quickly bought and sold through the blockchain.
Tokenization combines the advantages of the crypto world due to its profitability and the stability of the real estate market. And in turn combines the volatility of the crypto market with the strength of the bricks.
Some disadvantages of the old real estate model:
#Iliquidity: One of the most illiquid markets in which a person can invest. With tokenization in the real estate market we will be able to buy a part of the property. Sell it quickly on a platform that centralizes the entire supply of tokens.
#Paperwork and administration problems: With the new model we will no longer have to think. About marketing strategies, costs, and not to mention the endless procedures that wear us out.
#Security: Tokenization offers us an even safer environment. Since smart contracts are unalterable and all the information is in the Blockchain.
#Frequency of payment: The entrepreneurial company may offer us weekly payments. We do not have to wait 1 month to receive interest and in this way we can reinvest or dispose of our profits more quickly.
Conclusion about tokenization in the real estate market
The real estate market, far from settling down in a closed box. Adapting to new business modalities. These modalities that in turn are adapting to the new cultural paradigms. Dynamism, agility, creativity, democratization, globalization, disintermediation and digitality.
Tokenization is a way that the real estate market found to reinvent itself. Do not stay out.
