First Bitcoin Capital (BITCF.OTC) signed a memorandum of understanding to acquire a major stake in BitCasas, a group of companies involved in the adoption of tokenization of real estate assets and mortgage loans, today.
The current U.S. market for residential loaning is over $14 trillion, according to the Federal Reserve in a Q1 2018 report. 1.7% of these loans fail to meet scheduled payments, which are then traded at a significant discount. This market has long been dominated by large institutional investors because of the significant capital and knowledge requirements of this asset class.
Tokenization could change all that, for the better, or potentially for much worse.
“Opportunity resides within this niche marketplace as to the acquisition and collection of non-performing mortgages. With a nationwide network of legal resources, the framework for fast and accurate underwriting with the experience to monetize these undervalued assets, BitCasas is uniquely qualified and positioned to secure investments by traditional real estate mortgages and provide investors with high yields by turning non-performing mortgages into high value performing mortgages.” says Kamran Mohammadi, CEO of Bitcasas.
So what’s tokenization?
Tokenization creates fractional ownership interest on an asset (utility or security) with a blockchain-based token. Think of casino chips as a stand-in for currency, which can be exchanged at the end of the night.
All of the information regarding what the token represents (in this case, real estate debt) is loaded onto the blockchain and stored there. Once entered, information can’t be erased, and the blockchain contains a verifiable record of every single transaction ever made. This avoids what’s called the ‘double spend’ problem. There was always the potential problem where a token could otherwise be copied and fraudulently used. That’s no longer possible because of blockchain.
The token itself, thinking about it broadly, is like creating shares in a company. Except that one of the key benefits is the ability to create partial ownership of an illiquid asset (like real estate). Other big time users for the technology have included the art world, where ownership shares of an Andy Warhol painting (valued at $5.6 million) were tokenized and auctioned on the Ethereum blockchain. How this works for real estate is that people can divide percentages of a property, or series of properties, and have a digital representation of them on an immutable blockchain, which can then be traded anytime, anywhere, without limitations on time and space.
Tokenization is in its infancy in North America, but it’ spreading internationally through companies like Elevated Returns, which recently acquired 21% ownership of Bangkok based Seamco Securities (ZMICO.BKK). The company intends to tokenize USD$1 billion of real estate in its pipeline.
The biggest hurdles are the general lack of knowledge and comfort surrounding tokenization. And there’s a good reason for that. Tokenization and everything to do with smart contracts come with a lot of tiny moving parts that can be difficult for the average investor to keep tabs on, and the details can easily slip notice. There’s also the issue with any smart contract on any platform that said contract is only as efficient, and as trustworthy, as the person (or team) that coded it.
Right now, that’s the main hurdle for most blockchain-related technologies, from buying bitcoin right down to tokenization of your house, and until someone comes along with a means of streamlining and simplifying these complex processes, then widespread adoption simply won’t happen.
—Joseph Morton