BLOCKCHAIN TECHNOLOGY FOR ARCHITECTURE AND REAL ESTATE
The Real Estate Blockchain and its futuristic applications
Palazzo della Permanente di Milano
Real estate is worth more than €340 trillion worldwide, even though it is the most underdeveloped sector for the application of digital technologies. The material value of real estate, without the management of the data that represents the real estate itself and which define its functions and management, makes very little sense in an increasingly digitized and innovative world.
With the pandemic, all digital services got a further boost, the different platforms required a complete reorganization of building spaces and an increased demand for data and information on real estate, in order to sell, rent, generate incomes and finance it. Throughout this period, blockchain technology has increasingly become a necessity rather than a new word to be inserted to sell more.
Before we go any further, in order to have the building blocks on which to anchor this article, let’s remind ourselves what blockchain is. Blockchian is a shared and unalterable administration of facts and transactions where the rules of computation replace the central confidant (also called, Centralised Manager, for example the public administration, the Cadastre or a bank) that traditionally oversees the correctness of the administration.
Blockchain to be such needs at least 3 parties (community), which do not even have equal interests (if they are opposing it is even better). All parties involved have to comply with the agreements in order to trust and use the result of the solution on the shared data source with a blockchain, hence the need for transparency.
Like the Internet in the early years of the new millennium, platforms with digital services are starting to emerge, within which exchanging value and having ‘certainty’ of information is not secondary. It is evident how much better management of economic value and the data linked to it is needed in real estate, with a view to optimisation and transparency. Especially the management of rights where the need to reduce or eliminate contractual disputes is felt. The transparency of data and the possibility of verification through a blockchain, has the result of leading participants (or users) to trust, opening up the possibility of new processes and needs to be met.
Consequently, the current conception of real estate is modified, no longer linked only to its evident materiality, but also to the possibilities that its data and their management will give to the community to which it belongs. We can therefore talk, without shyness, about the construction of a new paradigm, within which humans and machines can communicate, interact and carry out transactions efficiently and with maximum security, where the first challenge to be faced is the definition of common standards and rules on which to build the real estate blockchain of the near future.
Speaking of communities, we can see that by 2050, 70% of the world’s population will move to urban areas. This will bring greater complexity from the interaction of the different areas on which the city rests: health, education and public safety. The interesting challenge will be to resolve in advance conflicts over resource management within the city itself. Conflicts that are often economic in nature.
In the advancing city, a complexity emerges due to the expansion of public services, not always aligned with the growth needs of the resident population.
The use of Blockchain can, due to its rigorous nature, dictate precise rules for managing the digital value of information. Hence the possibility of conflict prevention, especially in the financial sphere. The establishment of Blockchain protocols is a quick and unequivocal alternative to a procedural system that cannot keep pace with technological evolution. Quite simply, where the rules are cumbersome, or complex to implement, the Blockchain is an enormously helpful tool.
I will not be able in this article to list all the applications that this technology has churned out in the last 2 years, the impact of which will change the real estate sector and also the way architecture is designed and built. Just as the birth of cryptocurrencies, I am referring to Bitcoin and later to altcoins, has evolved with the blockchain for smart contracts (Ethereum), in the Real Estate Blockchain sector, methods and tools have evolved and changed as well.
From my experience and the comparison with different professionals and experts, the “Real Estate Blockchain” has polarized towards three macro areas: Land registry, Tokenization, Real Estate Digital Asset. The applications of the “Land Registry” area, for the management of territorial real estate information on the blockchain, were initially created to replace land registries, in an attempt to speed up the long process and eliminate the intermediaries -the States, in the management of property rights. It has come to be realized that in order to use this technology in real estate, a compromise must initially be reached between the innovators and the entities that retain the levers of power over the information necessary for the guarantees that the real estate world requires.
Also in this area, we can include applications for the “notarization” of documents, a real innovation linked to smart contracts and to the writing on the blockchain of the recognisable information of a digital document, entrusting the role of the notary, who is very present in the European real estate sector, to the blockchain, which, with its method of irreversibility of transactions, can attribute a certain date to an event and therefore allow the verification of that “file” without the need for any certifying body. In short, through this software, you can write the fingerprint of the file of a “deed” or a “lease agreement” attributing a certain date of stipulation or signing of the agreement between the parties, being able to verify later the correspondence of the agreement file and the signatures of the signatories.
All this, and this is the innovation, without intermediaries. The second macro-area was developed mainly in the private sector, where the focus was on the so-called “Tokenization”. In other words, the creation of those instruments typical of equity investments, for the splitting of property or real estate projects. By definition, a token is a digital object that represents a unit of account within a Blockchain and that, thanks to its intrinsic characteristics, can transfer information within it.
What is called tokenization is a process by which the value of an asset or action is represented through tokens, which are stored and exchanged within the Blockchain. In a nutshell, with tokenization we are linking a real asset (a service, a property, an action) to a token, all through a smart contract. The token therefore retains the main characteristics of cryptocurrency, namely transferability and security, but represents an asset outside the Blockchain network: a real asset or right.
The euphoria was initially great, as was the discovery that having real estate tokens was not the same as owning cryptocurrencies that would grow in value in multiples. In addition, the audience reached, for obvious regulatory issues, was not as large as expected. Projects to ‘tokenize’ real estate initiatives are counting on these instruments to raise the necessary capital for their construction and to have a valid tool for financial management. The future of real estate investment therefore lies in the use of Blockchain platforms, which allow investors to buy and sell parts of ‘tokenized’ real estate assets. In this way it is possible to buy occupancy, produced energy, portions of rights, depending on the specific interest and resources of the investor. The real novelty hinges on this, i.e. no need to open a bank account, no third-party approvals, no passive or unnecessary intermediaries.
A final note is that transactions through a Blockchain are processed 24/7, without any time limits or holidays (typical examples related to the operation of an intermediary) and can be confirmed in minutes. The evolution of tokenization tools is the increasing use of so-called NFTs (acronym for Non Fungible Tokens), which represent unique or non-fungible objects. These new standards for Token creation are gaining more and more popularity in the Real Estate Blockchain, also because of their success in the art world.
In the future I will dedicate a specific article on NFTs, also because of their continuous use to solve different and new needs in the Blockchain environment. One of them is to guarantee exclusive access to certain digital services in the aforementioned tokenization platforms or Metaverse.
These are the innovations of the last year, which have caused so much talk because of the transformation of the name of the most famous social network from Facebook to Meta.
Metaverses are applications in which real parallel digital worlds are created, where, through access with cryptocurrencies and blockchain software, real estate dynamics have developed. The best known “Decentraland” and “Sandbox” have triggered a race to buy lots of digital land in order to build their own virtual spaces, in the initial logic of real estate subdivisions. To date, there are already offers to sell these plots through NFT for significant sums of money. Initially considered to be video games on the Internet, they are now the object of special attention from all the biggest companies and, in particular, since we are in Milan, fashion houses. A few days ago, Dolce & Gabbana organized a fashion show on Decentraland to start proposing new collections for this frontier sector.
Also in Milan, we can mention the new experience of Fabio Rotella, with his project NFT Konny, which will be presented at the next Design Week in June. This project will soon land on a Metaverse and we will be able to follow this interesting experience closely. Connected to the Metaverse we continue with the last macro area, the Real Estate Digital Assets or REDA. REDA is not just a digital object or a number in a ledger. Like Bitcoin is a protocol, the REDA is a container of information and protocols for managing the digital information of a property to create value on it, being able to identify in a certain way through the experience of creating and managing the property.
The projects and applications for this area are the most backward, being the median object and the one most needed, it is also the most complex and complicated to build. As in the past, for the NFT token standard, a way forward is being sought to make the use of this new tool understood.
Thanks to the Metaverse there are new opportunities to create experiences that can lead to growth in this field. As the REDA is the representation of the “Building” system, with its rules and information, the first experiences of construction of digital buildings linked to blockchain protocols are taking place in the Metaverse. Initially the buildings were conceived by Game Designers, who are familiar with the use of 3D creation tools.
Today there are many requests for architects who design these digital buildings, sought after for their creativity and ability to manage space.
Personally, I am very fascinated by this kind of experience, having a past as a digital designer (in the 90s I was already using 3D modeling computers to make renderings for my architectural projects), I would be curious to make a building in a Metaverse, in order to try my hand at solving spatial management and perception problems in this new sector.
The Real Estate Blockchain sector continues slowly its growth and experiences, it will evolve with uneven speeds, respecting the different balances between the actors and interests at stake. In my opinion the mentioned topics are just an introduction to a sector with wide-ranging applications. Promising to go further into the topics of NFTs and the Metaverse, I would like to close this article with a “see you next time”.
Alessandro Dell’Orto
Real Estate architect and
Blockchain Expert
reFRAME Digital
