Our interest and excitement in addressing this particular topic is rooted in a belief that, with ScanSan, it's possible to help families build generational wealth.
First, it’s important to understand inflation: what it is and why it exists. Inflation is not a natural phenomenon; it's entirely man-made. So… how does it work?
Step 1: What is inflation?
It’s a common misconception that inflation is simply the rise in the cost of goods and services over time. While yes - this can be true - it’s not quite that simple. Those rises in cost are not so much inflation itself, as they are the observable effects of it.
In reality, inflation is the rate at which the currency loses the power to purchase a certain good or service with the same amount of capital.
This distinction is important, because inflation isn't just about prices going up; it's about the currency itself losing value in relation to what it can buy. This loss of purchasing power can be due to various factors, such as an increase in money supply, demand-pull inflation, cost-push inflation, or other economic pressures.
This highlights the reason why preserving or growing wealth during inflationary periods requires assets that either retain value or increase in value over time, such as real estate, precious metals, or tokenized assets.
Inflation is one of the biggest threats to long-term wealth preservation. As currencies lose purchasing power, traditional savings and investments can erode, leaving many individuals and businesses seeking more reliable ways to protect their assets. While commodities like gold or real estate have historically served as inflation hedges, a new player is entering the field: tokenized real estate.
As a quick example: today, you might buy a loaf of bread for £1 that weighs 600 grams. Next year with the same £1, you can buy a loaf of bread that weighs 480 grams. In this instance, the power of your £1 to purchase the same loaf of bread decreases. This is what happens when we keep savings at an interest rate lower than the inflation rate.
It needs investments that outpace inflation in order to preserve wealth.
Storing the value of your money in assets that appreciate in time will (hopefully) give you a higher return on your investment.
Step 2: What is Tokenized Real Estate?
Tokenization is the process of converting the ownership rights of an asset, such as a property, into digital tokens using blockchain technology. These tokens can be bought, sold, or traded on digital marketplaces, representing fractional ownership in physical real estate assets.
With tokenization, investors no longer need to purchase entire properties. Instead, they can own a token that represents a fraction of a property, making real estate investment more accessible, liquid, and flexible. By doing so, it opens up an entirely new way for individuals or businesses to safeguard their wealth.
Step 3: Why Tokenized Properties are an Effective Inflation Hedge
Real Estate as a Physical Asset
Real estate has long been a stable hedge against inflation. As the prices of goods and services rise, the value of real estate generally appreciates as well, keeping pace with inflation. Tokenized properties provide this same advantage, but with added benefits - which you can learn more about on our Tokenization Platform.
Liquidity in a Traditionally Illiquid Market
One of the challenges of traditional real estate is its lack of liquidity. If you own a property outright, selling it during periods of inflation to access cash can be time-consuming and complicated. Tokenized properties, on the other hand, allow investors to trade tokens quickly and efficiently, offering a flexible approach to wealth management in uncertain economic climates.
Fractional Ownership Makes It Accessible
With fractional ownership, even small investors can enter the real estate market to hedge against inflation. Traditionally, owning property required significant capital. Tokenization reduces that barrier, giving more people the chance to invest in inflation-resistant assets.
Decentralisation and Reduced Costs (Tech skills)
Tokenized properties run on blockchain technology (Distributed Ledger Technology) a decentralised system that reduces the need for intermediaries, such as brokers or banks. This not only lowers the costs associated with real estate transactions but also makes the system more transparent and secure, ensuring that your wealth is preserved in a fair, tamper-resistant environment. Other types of DLT include directed acyclic graph (DAG), hashgraph, and holochain. Fun Fact: All blockchains are distributed ledgers, but not all distributed ledgers are blockchains!
Global Investment Opportunities
Tokenized properties are not limited by geography. Investors can diversify across international markets, choosing properties in regions with high growth potential or favourable economic conditions. This global diversification can further reduce risk during periods of inflation, as certain regions may be less affected than others. Furthermore, there’s a level of flexibility available across all kinds of assets - not only properties. This allows investors to explore alternative investments, comparing them to property rather than treating them as though they are an entirely different sort of product.
The Future of Wealth Preservation
The growing interest in tokenized properties represents a shift in how people view wealth preservation. By combining the stability of real estate with the innovation of blockchain, tokenized properties offer a modern solution to the age-old problem of inflation.
As inflation rates continue to fluctuate, tokenized real estate provides an accessible, liquid, and decentralised way to maintain purchasing power and safeguard assets. For those seeking a future-proof investment, it’s an exciting opportunity that merges the best of both traditional and modern financial strategies.
Final Thoughts
In times of economic uncertainty, protecting your wealth from the erosive effects of inflation is crucial. Tokenized properties not only give investors access to the inflation-proof benefits of real estate but also provide liquidity, flexibility, and transparency like never before. By integrating these assets into your investment strategy, you can ensure that your wealth remains intact, no matter how the global economy shifts.
Inflation and Deflation: A Brief Insight
Current cost = Past cost × (Current price index / Past price index)
While high inflation erodes purchasing power, deflation isn't necessarily a favourable alternative. Economists worry about deflation because falling prices can reduce consumer spending; which is a critical driver of economic growth.
So: will you leverage economic forces to protect your wealth, or will you take control of your own future? Ultimately, the choice is yours.
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