Proponents of the technology, which enables digital currencies such as Bitcoin, say it can revolutionize real estate deals— but can it overcome its shady reputation?
In September, REcoin, a startup that billed itself as the “only cryptocurrency backed by real estate,” was busted for fraud by the U.S Securities and Exchange Commission.
The Las Vegas-based startup had planned to use blockchain technology — a growing list of public records that are encrypted and linked across a network of computers — to support its currency. It launched an initial coin offering (ICO), the equivalent of an initial public offering for digital currency, or tokens, and claimed to have raised millions. But as it turned out, REcoin was duping investors. It never had “any real operations,” had made no investments and misrepresented how much money was raised, according to the SEC.
REcoin is one of many startups looking to leverage blockchain within real estate. And incidents such as this illustrate some of the potential hazards of the nascent technology. While blockchain-based applications are touted as secure, the world of ICOs is a virtual Wild West. It’s a regulatory gray zone, and anyone can launch a token sale with nothing more than a white paper. It’s the same technology that enables the use of Bitcoin — which JPMorgan Chase CEO Jamie Dimon referred to in September as “a fraud.”
“It’s creating something out of nothing that to me is worth nothing,” the banking executive said. “It will end badly.”
That’s not to say Bitcoin’s underlying technology doesn’t have its benefits. In October, JPMorgan launched a blockchain-based payment processing network, which the bank says will allow for faster and more secure transfers of money. And some property executives, including developer Ben Shaoul of Magnum Real Estate Group, believe blockchain will be a game changer for NYC real estate.
Magnum’s condominium development in Alphabet City will be the first New York site to accept Bitcoin payments. “People call us and say, ‘Hey, I’d like to be able to use my Bitcoin to buy an apartment,’” Shaoul said, noting that he felt it was a no-brainer to offer the option. “When the writing is on a wall, you need to adapt and pivot.”
Eric Hedvat, also of Magnum, added that Bitcoin is more efficient than other payment methods and reduces fees and transaction time. “When you send Bitcoin, it’s peer-to-peer, so you don’t have to go through the bank process, which could take three to four days,” he explained. “With the blockchain and the trusted network, you know in an instant if it was sent.”
But Bitcoin isn’t the only way real estate players make blockchain work for them. Proponents of the technology claim it will allow for smoother cross-border transfers, reduce transaction times from weeks to hours, end data monopolies like CoStar Group and Zillow, and herald a secure globalized real estate market.
“In real estate, blockchain can help a lot in both the title business and in pretty much every aspect of it,” Hedvat said.
Other industries are already experimenting with the encrypted ledger technology. IBM, for example, is using it to monitor its food distribution network and recently released a blockchain-based app for cross-border payments. Similarly, the San Francisco-based startup Propy, an online real estate marketplace, uses blockchain to simplify cross-border transactions. Propy, which launched this year, has already brokered one such real estate deal entirely online. TechCrunch founder Michael Arrington, who is also an investor in Propy, bought an apartment in Kiev, Ukraine, for $60,000 through the platform in September.
“We’re at a great point now,” said Ragnar Lifthrasir, founder of the International Blockchain Real Estate Association (IBREA), which hosted a second annual conference in Manhattan in October. “We’re finally getting strong interest from both sides — software engineers and the big real estate companies.”
Reigning in the wild web
As the name suggests, blockchain is a series of blocks of code, strung together like beads. Because of its linear structure, it creates a transparent and immutable record of every transaction and every access point, which proponents say eliminates some of the obscurity that leads to fraud. Certain so-called keyholders can also access a blockchain from virtually anywhere. These keyholders — all of whom have a unique access code — can share important data with all parties in a transaction, including banks, title companies, governments or even consumers.
One of the most obvious uses of blockchain in real estate is the “tokenizing of assets,” which allows individuals to buy tokens that represent a fraction of a property — or a share of a company that owns a property.
“Wouldn’t it be cool if a cab driver in Kathmandu could own a piece of Manhattan for the price of a cup of coffee?” said Matthew Long, a real estate investor and participant at the IBREA conference. “That’s what blockchain allows.”
A handful of companies outside the U.S., including Atlant, Real and ReiDAO, are claiming to do just that. The problem is that almost none of those firms have actual properties to tokenize. And some have already raised money through ICOs on the promise to build a platform that will allow for tokenization down the line.
But ICOs are a legal morass. And in the last few months, there has been an explosion of digital currency sales.
REcoin was one of several real estate startups to run token sales this summer. In the same time period, Propy raised $16 million through the sale of its “PRO coins”; data provider RexMLS raised $4.5 million “REX coins” to compete with the likes of Zillow and CoStar; and Atlant, which aims to be an “Airbnb, Booking and Expedia killer,” raised $6 million in “ATL tokens.” Stayawhile, a Manhattan-based startup that offers furnished apartment rentals in urban centers like New York and Boston, is beginning its token sale in November.
Though the concept is straightforward, whether or not the sale of tokens should be regulated by a government body remains unclear.
“Are we looking at a security? Are we looking at a commodity? A currency? A collectible?” said Matt Gertler, a digital currencies lawyer and 上海千花网龙凤论坛