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I don’t consider myself an expert in blockchain technology – at least not yet. Cryptocurrencies and NFTs (non-fungible tokens) both use blockchain technology. That’s what gives them value. However, very few people can explain what blockchains are or how they work. For those of us in real estate, I think I can explain it in a way that is fairly easy to understand. As we know, anytime a piece of real property changes ownership or becomes encumbered by a mortgage loan, a document, such as a grant deed, is recorded with the county recorder’s office, in the county where the property exists. The recorder’s office maintains these records and they are used to establish and verify property ownership. When you purchase a property, a title insurance company will verify the records with the county recorder, and for a fee, they will insure that the ownership of that property is what you expect it to be. The confidence that the public has in this system is what gives real estate its value, and why banks can lend against that property with certainty. Now, think of a blockchain as a county recorder – only for the whole world.
So why did I say that blockchain technology is what gives cryptocurrencies their values? Because unlike government-issued currencies like U.S. dollars, where the government can print money anytime it wants, the exact amount of Bitcoin available in the market is verifiable and documented on a blockchain and it can’t be manipulated. When governments increase the money supply, the value of their currency goes down and inflation goes up (that’s what’s happening now). The fact there is a finite and verifiable amount of Bitcoin (or any other cryptocurrency) in the market makes it more appealing to investors, and gives it more value. Today, some of us know that blockchain technology is used to establish ownership for all sorts of things including intellectual property such as music, art, poems, and film. Real property is just around the corner.
Ok, how does any of this translate into trillions of dollars of untapped real estate value? About ten years ago, I attended the Clinton Global Initiative (CGI) conference in Chicago. The event attracted many of the top corporations from around the world, along with an impressive network of political and business leaders. CGI was designed to attract financial and intellectual commitments from companies, organizations, and individuals that could be used to solve problems and improve the quality of life for people around the world. First American Title was at the conference I attended and they presented an idea on how title insurance could unleash mountains of wealth in communities around the world. Their idea was based on the fact that real estate, especially in less affluent countries, has less value because there isn’t a trusted recording system like we have here in the States, and because of that, ownership isn’t clear and dependable. It’s also the reason why it is next to impossible to get mortgage loans in most of these countries. The First American presentation was lauded by President Clinton himself, but I don’t think the initiative gained much ground after the event because the recording systems were never established. However, with blockchain technology, the idea is not only viable, but it’s also inevitable.
Economic systems are based on trust. The more you understand the transparency and dependability of blockchain technology, the more you will understand how it will attract more investment capital to markets around the world than ever before. Here in the U.S., blockchain technology will eventually overtake the archaic and fragmented county recorder system making the sale and transfer of real property faster and less expensive. If you’re an investor, my opinion about cryptocurrencies and NFTs is to tread carefully. Keep this in mind: At the turn of the 20th century, there were more than 2,000 car companies. Everyone knew that cars were the future, but only three companies survived (Ford, GM, and Chrysler). History repeated itself with the dot-com bust in 2000. The same will happen with crypto and NFTs – some will be worth a lot, but 99% percent of them will eventually go to zero. There will be thousands of applications for blockchain technology in commercial, residential, vacation, and retail real estate. My recommendation is that you ignore the hype around crypto and NFTs and spend your time studying blockchain technology. Doing so will help you acquire an understanding of how it will revolutionize our economy, open new markets, and trust me…it will help you make smart decisions on how to position your business in the future and where to invest your money in the coming years. The opportunities will be endless.
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