Blockchain-based Commercial Real Estate Market

It provides security to investors and hedge against inflation

Blockchain-based Commercial Real Estate Market
Source: Unsplash

Real estate investment is considered one of the safest options for investing. It provides security to investors and hedge against inflation. It also a physical asset that is excellent for portfolio diversification and non-volatile and essentially risk-free over a long period of time. But adopting blockchain Real Estate Market is a smartest option.

The real estate global investment account is far bigger than the the size of Stock marker. But the investors in RE are much lower, because of the liquidity and global access. The owners and investors are barely satisfied in the current system. Here Blockchain technology and smart contracts can sort out these issues that facing RE and offer much more meaningful tools for a game-theoretic stable priced market.

Blockchain Technology in Real estate Market—

Blockchain is a shared database technology whose well-known application has been to support Bitcoin digital cryptocurrency. It works with linked databases that update digital record books continuously. Smart contracts are also another concept that means: a work be done and be audited automatically without the existence of middlemen. In smart contracts, codes are laws, and two parties in a transaction agreed on its content.

Blockchain and smart contracts introduce a new set of tools and framework to create a new generation of markets where supply and demand are equipped with a secure commercial transaction, and also with such various commercial rules and without the need for a central mediator sector. Historically, as like as online markets that have just altered many traditional stores and systems, blockchain and smart contracts will lead to a new type of peer-2-peer market that is able to destabilize current running markets.

Blockchain-based Commercial Real Estate Market
flowchart

In a technical view, a blockchain is a public ledger that records chronologically all new transactions requesting a new upload or modification. This figure shows Ledger and blockchain and their relation. It shows that ledgers can be figured as a history of all transactions that happened up to now. World state, as a database, holds the current values of different fields, and for this manner, blockchain is a transaction log that records all the changes that determine the world state.

Benefits of using blockchain Real Estate Market

1. Transparency and Trust:

Blockchain-based applications and businesses are by design transparency in their transaction and build trust. The possibilities of fraud and ownership disputes can be eliminated.

2. Tokenization:

Blockchain makes tokenization business models and economies possible. Tokenization democratizes ownership of assets to split assets into tokens that are stored on the blockchain.

3. P2P transaction:

It provides P2P transactions a big thrust because by design they eliminate intermediaries.

4. Smart Contracts:

Using a smart contract, a transaction is completed entirely between the buyer and the seller and has no human interaction. Transactions can be done in far less time with far less chance of fraud. Computer protocols check the legitimacy of the transaction and no agreement can be completed until all of the terms are met.

5. Integrity and Security:

The decentralized nature of the Blockchain technology ensures that records
stored on it can’t be changed or controlled by a single source, thus it provides security against malicious attacks such as hacking.

Over the centuries, human beings used fiat or real assets like gold as a means of bartering goods. Both of them are problematic in regard to time. Fiat currency is not trustworthy in the long term and, neither is gold in the near term. That means that one can witness the devaluation of fiat or gold in the long or near term respectively. As the value of money has an effective connection with ”purchasing power” we draw our diagrams with respect to purchasing power.

Hence, having a mechanism that keeps the value of its currency stable over time is of high interest. The ideal mechanism in question can be represented in Fig. 6, wherein both near and long term this ideal currency is not devalued.
In the rest of the section, we discuss this mechanism and its feasibility and features.

Before we elaborate our id it must be mentioned that the RE sphere along with the new era of blockchain must have the following features —

  • Having RE tokenization: for this, a platform is needed to act as an investment ’gateway’ in the blockchain economy. It will allow RE investors, tenants, and property sellers to participate in tokenization processes. With this tokenization, the tokens are countable, fungible, and divisible. Therefore, these tokens are ”unit of account”. If people see that one token has these properties, they are willing to specify the value of other assets with these tokens.
  • Using a crypto exchange: CE is going to be a licensed and regulated crypto exchange, and tokens will be listed on CE and can be traded on it along with other cryptocurrencies or specified fiat money. With the ease of exchanging tokens with fiat and other cryptocurrencies, the liquidity problem is met. This easily can state that this system provides a ”medium of exchange” for all parties who agreed upon the value of exchanged property or token.
  • Providing open-source mechanism: This will provide the system with excellent features to offer innovative solutions promoting efficient and sustainable future-living concepts around RE. Giving an open-source platform to a user can make them trust the system and see through its
    performance

In fact, for hiring a house, this mechanism is established by a smart contract. Also, we are to mention that as far as the platform can find tenants, after receiving the rental payment, platform rations this budget proportionally among T holders.

Token T is an ERC20- type token basically created in Ethereum blockchain and can be transferred through the platform between different holders in their very own digital wallets.

The existence of tenants can make a change in the price of T tokens. So we have two situations —

  • More tenants: When tenants are increased to hire houses: In this case the T price is expected to get higher temporarily.
  • Fewer tenants: When tenants are decreased to hire houses. This will happen when we have tokenized some houses and there are no tenants for hiring the house; this simply means that there are some T tokens that can not make interest monthly

In this platform, with blockchain, STO represents fractional ownership of real property. Companies have tried to crowdfund RE before, but the issue was always the liquidity of the ownership. If I buy a house with another person and they want to sell in a year and I don’t want to, I either have to buy him out or wait until that person is eager to sell.

Depending on the price of the property, I may not be able to buy him out. But, here with having a T token, it allows investors to trade the tokens out for fiat or other properties in the portfolio, offering liquidity with less liability. undoubtedly, investing in RE that needed a large budget in traditional systems is easier in this new system. The inborn features of blockchain, such as security, data verification, the ability to promote disintermediation in CRE, fair rights for participants, low cost, and transparency prompt us to use blockchain facilities in the presented platform to overcome such issues.

When it comes to applying blockchain in terms of cryptocurrencies we are to pinpoint that volatility has prevented widespread adoption of cryptocurrencies as payment for RE, though crypto-based RE transactions are continuing to grow. Until cryptocurrencies gain enough stability, it is unlikely that they will become a fully mainstream method of currency in the housing market. Hence, the first step to assure the users of a new innovation in RE is that they must be confident about the value of their tokens–where the proposed method can provide a store of value for T tokens.

Implementation —

In fact, the presented method mostly aims at regulating supply with demand, in regards to applying standard inflation of the RE market. All the platform does is running smart contracts verified through transparent codes.

Blockchain-based Commercial Real Estate Market
Architecture

Smart contracts that employed by the project do not only define the rules, terms, and penalties of an agreement, they can also automatically enforce those obligations or enforce the agreed-upon penalties for failure to perform obligations. Like other business sectors, AI tools can also act in an Oracle-based system and benefit the project.

Also, multiple benefits including de-risked assets with a stable price token in the RE market is implemented that can be protected against manipulative actions of market bubbles. Read more about it.

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