Although the US real estate tokenization market has undergone continuous development in the past two years, it is still in its early stages. In other words, various ecological infrastructures are beginning to take shape, the various roles in the ecology have not yet been clearly formed, their respective functions have naturally not been fully determined, and there are no coordination rules and processes between the various roles in the ecology. confirm. Therefore, there is still a lot of room for operation in the generalization of the real estate market.
At present, various participants entering this market still have a lot of room to define the development of this ecology. For the late entrants, they can only participate in the established market structure in accordance with the established market rules.
At the current stage of development, one of the most basic components that is forming in the ecology is the underlying computing system. The main technology of this underlying infrastructure is naturally distributed accounting technology. For the current participants, which distributed accounting technology to choose determines the later ecological development. This is like in the early development of the mobile Internet, there were multiple operating systems competing, including Nokia’s operating system, BlackBerry’s operating system, Microsoft’s operating system, and of course Apple and Android operating systems.
With the development of the mobile Internet to this day, only Apple and Android systems still exist. In the process of the development of the tokenization of real estate, the competition between the underlying operating systems is also ongoing (see my article on the dispute over the underlying operating system of blockchain technology). In order to ensure long-term sustainable development, any service provider must make the right choice in the underlying blockchain technology. In making this choice, it must be based on the following principles.
First, this underlying distributed accounting technology must be open source. The most basic feature of blockchain technology is to use technology to ensure trust. The business supported on top of it can therefore not be restricted by national boundaries, language, culture, and business habits, and trust is guaranteed entirely through technology. One of the prerequisites for ensuring this trust is that the underlying technology must be open source and transparent. Such a requirement has become a basic requirement for the application of blockchain technology. At present, the underlying blockchains that are influential in the market are all open source. Starting from Bitcoin and Ethereum, to today’s Fabric, Quorum, Corda, and Libra blockchains. Only on the basis of the support of such underlying technologies can it be possible to carry out international business. The underlying blockchain technology that is not open source can only rely on the market influence of its providers to conduct business. But the chance of such a development is basically zero.
Second, this underlying chain must be a permission chain. Since the business carried out in this ecosystem involves physical assets and actual currency, traders must have their real names and operations must comply with relevant laws. The essence of real estate tokens is securities, so the bottom layer supporting this ecology must meet various legal and regulatory requirements. The identity of the user is the most basic requirement. Therefore, the public chain cannot be used as such an underlying infrastructure.
Third, there must be very good support for smart contracts. In such a business, various real estate assets need to be customized and digitalized through smart contracts. Various contracts in the transaction also need to be realized through smart contracts. Therefore, the smart contract function of this underlying system must be powerful and easy to use. Among the various requirements for smart contracts, security is the most basic requirement. Fourth, this infrastructure must meet the requirements of commercial operations. This includes permissions and security of data and functions. Only the parties involved in the transaction can have transaction data. Other parties in the ecosystem that have nothing to do with transactions cannot obtain these data.
Fifth, it must be able to support ecological operation, maintenance and management. This aspect is a major function of data aggregation and reporting. This is a basic requirement for preventing commercial fraud and ensuring ecological safe operation.
Sixth, performance is not the basic requirement of this underlying blockchain. A very common misunderstanding in this regard in the market is to emphasize the performance of the blockchain system. But this understanding is wrong (see my related article). The biggest value of blockchain technology is to solve multi-party cooperation. In the current economic and financial activities, many multi-party cooperation scenarios are still very inefficient. These current processes usually take days or weeks to complete. For example, settlement after securities transactions, trade finance and real estate transaction transfer. If blockchain technology is applied to such a scenario, the process time can be greatly shortened, and an improvement of more than an order of magnitude can be achieved. The current distributed accounting technology can fully meet such performance requirements. Therefore, the performance of the underlying blockchain technology is not a major issue for the real estate tokenization business.
Seventh, the transaction costs of this underlying infrastructure must be low. Tokenization of real estate is a process of the generation and circulation of securities products, and there will be a large number of transactions in circulation. If the cost of supporting such massive transactions is too high, it will reduce the feasibility of this business.
The above are some basic requirements for choosing the underlying blockchain for real estate tokenization. The market will choose the underlying blockchains currently in the market according to the above requirements. For the blockchain that can win in the future and become the bottom layer of the global real estate tokenization market, meeting the above requirements is the most basic requirement. This is just like any mobile phone operating system must meet some basic requirements before it can be adopted by mobile application developers.
