Real Estate Tokenization: Pros, Cons, and Challenges |
Posted: March 23, 2020 |
Technology is paving its way through everything and how can the real estate sector be left behind! Smart homes equipped with IoT devices in each and every corner of a house is a concept that is increasingly becoming common. Now, another technology that has made an impact in the real estate sector is blockchain. Although at a relatively nascent stage, blockchain is currently being explored for a number of applications in the real estate industry. One of them includes tokenization. So what is real estate tokenization and how does it bring value in the industry? Real Estate Tokenization - An Emerging TrendTokenization involves converting a physical asset into its digital counterpart- which represents and acquires its value from the underlying asset. These are known as security tokens and are stored on a decentralized blockchain ledger. The security tokens, raised on the blockchain, can represent art pieces, precious metals, commodities, company shares, and real estate property. In our case, real estate tokenization refers to recording and transacting all the interaction of the property via security tokens. Each token represents the underlying property. Tokenizing a property and further storing its data on the blockchain adds flexibility in the conventional model of real estate. How Does It Work?Blockchain is essentially a decentralized digital ledger used for recording data, transactions, and documents. The data is permanently stored on the ledger along with a time-stamp attached to it. Additionally, the authority for data is distributed among various members in a transparent fashion. Tokenization involves distributing property shares into its equivalent tokens. This token can then be used for representing the ownership and each transaction made on the property is recorded on the blockchain. Moreover, digital tokens can be used for signifying proof of ownership, transferring fractional rights of the land, receive interest or pay debt on the structure or to hold equity or share of a physical property. Any interaction or transaction made on the token is then permanently stored on the blockchain ledger. Converging real estate and blockchain through tokenization entails multiple benefits. This includes
Pros of Asset TokenizationThe innovative strategy has been noticed by real estate investors, stakeholders, and regulators. This is indeed due to a number of factors that facilitate unique trends in the traditional sector.
Cons of Asset TokenizationBlockchain is yet at a developing stage. While the concept of security tokens has gained considerable attention, it needs to resolve complex issues before it can be manifested on the ground.
The Road AheadTheoretically, the concept of tokenization can be truly revolutionary for the real estate sector. But it has some major tests to face before it can operate at an industry-grade level. One of the main challenges remains the awareness of blockchain and security tokens. For the concept to be completely optimized, it needs to work at a much larger scale. This will indeed take a long time as the industry is on such a primary scale. Additionally, the technology also faces concerns about scalability. All said and done, one also cannot deny that tokenization indeed holds an innovative promise to transform the real estate sector.
|
||||||||||||||||||||||||
|