Hello my fellow readers, I hope you are fine, today is Alessio writing to you because I believe if I'm building a platform that deals with Smart Contracts I should be in the forefront to write those articles.
Shall we start with the WHY?
… and carry on with… WHY NOT? 😀
Let’s start from ScanSan philosophy.
ScanSan's philosophy is to Create a Generation of Wealth in people’s lives.
This can be achieved in different ways and what we thought would be the best way is to mix the brick and mortar with the technology.
Up till now investment in properties was restricted to a limited amount of people who have large amounts of money that needed to be left in some sort of assets that will always appreciate in the future.
Bear in mind that Property tokenization emerged as a concept after the creation of blockchain technology and gained momentum after the release of the Bitcoin whitepaper in 2008.
The timeline:
Blockchain Technology (1991): The fundamental ideas behind blockchain were introduced in the early 1990s when researchers Stuart Haber and W. Scott Stornetta proposed a cryptographically secured chain of blocks. However, it wasn't until the launch of Bitcoin that blockchain technology was widely adopted.
Bitcoin Whitepaper (2008): Satoshi Nakamoto's Bitcoin whitepaper outlined how blockchain could be used to create a decentralised currency. This led to the first real-world application of blockchain, proving its potential to record secure and transparent transactions without intermediaries.
If you are running macOS Mojave or a more recent OS, and haven’t updated to the macOS Ventura 13.4 beta 3 or newer, you can still find the file. If you’re comfortable with Terminal commands you can use the command: open /System/Library/Image\ Capture/Devices/VirtualScanner.app/Contents/Resources/simpledoc.pdf
Rise of Ethereum and Smart Contracts (2015): Ethereum introduced programmable smart contracts, which allowed blockchain to support more complex transactions beyond cryptocurrency. Ethereum's flexibility made it possible to tokenize assets like property by embedding terms and conditions directly into smart contracts.
Development of Property Tokenization (Post-2015): With the introduction of smart contracts, tokenizing property became feasible. Platforms began to explore property tokenization as a way to fractionalize ownership, attract global investors, and automate processes through smart contracts, all of which capitalise on blockchain’s secure and transparent infrastructure.
In essence, property tokenization became practical after the development of blockchain and Bitcoin, but it was Ethereum’s smart contract functionality that truly enabled the tokenization of real-world assets like property.
Tokenization will transform the way how people invest in property, allowing fractional ownership and more efficient transactions. Smart Contracts are at the core of this innovation – basically, those are digital agreements stored on blockchain that execute automatically when certain conditions are met.
Let’s see how we can talk about smart contracts without scaring nobody.
In the past investing in properties (or buying properties) was a long process that involves solicitors, banks, and a lot of paperwork. The Smart contracts can simplify this by automating tasks such as verifying ownership, transferring funds, and updating the Land Registry records. By cutting out intermediaries, smart contracts not only save time but also reduce transaction costs, making property investment more accessible.
What Are Smart Contracts? Smart contracts are self-executing contracts where the terms of the agreement are written into lines of code. These contracts operate on a blockchain network, meaning they don’t require traditional intermediaries to verify or process transactions. Instead, smart contracts are executed automatically, following the rules coded within them, which allows for quicker, more cost-effective transactions.
Blockchain technology is renowned for its transparency and immutability. Similarly, smart contracts are algorithms that execute on the blockchain, much like how internet protocols enable the delivery of WhatsApp messages.
Once a smart contract is created, it cannot be tampered. This is crucial in property tokenization, as it ensures that all transactions and records are secure. Since blockchain transactions are also publicly accessible, investors can view transaction history in real time, enhancing trust and making fraud nearly impossible (please pay attention at the “nearly impossible”).
Who is going to benefit from all of this and what is the specific thing that Tokenization of Properties unlocked?
Answer: Everyday investors and Fractional Ownership!
One of the most exciting benefits of property tokenization is fractional ownership.
I know you are thinking: Well fractional ownership has existed long before the advent of tokenization, especially through mechanisms like Real Estate Investment Trusts (REITs), joint ownership, or even timeshares. However, tokenization introduces several key advancements and improvements over traditional fractional ownership. Things like:
Liquidity
Before Tokenization: Fractional ownership often locked investors into long-term commitments. Exiting an investment required selling shares or ownership stakes through slow, costly, and complex processes.
With Tokenization: Property tokens can be traded on secondary marketplaces (depending on regulatory compliance), offering much greater liquidity. Investors can buy or sell fractions of a property quickly, much like trading stocks.
Accessibility
Before Tokenization: Fractional ownership opportunities were often limited to accredited or institutional investors due to high minimum investments, legal complexity, or geographic constraints.
With Tokenization: Tokenization reduces barriers to entry, allowing anyone to invest in real estate with small amounts of capital, sometimes as low as a few dollars, broadening access to global markets.
Transparency and Trust
Before Tokenization: Traditional fractional ownership often relied on intermediaries like trusts or legal agreements, making it hard for investors to independently verify ownership, valuation, or transactions.
With Tokenization: Blockchain technology ensures transparency. The ownership record and transaction history are immutable and publicly accessible, reducing reliance on intermediaries.
Efficiency and Cost
Before Tokenization: The process of structuring, managing, and maintaining fractional ownership could involve significant administrative costs, legal fees, and time delays.
With Tokenization: Smart contracts automate many processes, such as distributing rental income or executing transactions, reducing operational costs and increasing efficiency.
Global Reach
Before Tokenization: Investing in foreign real estate often required navigating complex legal and regulatory frameworks, making it difficult for smaller investors.
With Tokenization: Tokens can be purchased globally (subject to regulations), enabling cross-border investment opportunities with fewer hurdles.
Fractionalization at Scale
Before Tokenization: Practical limits existed on how divisible ownership could be, due to legal or logistical constraints.
With Tokenization: Properties can be divided into millions of tokens, allowing ultra-fine fractionalization. This enables micro-investments and granular portfolio diversification.
Enhanced Utility
Before Tokenization: Fractional shares often came with limited utility, focusing solely on income or capital appreciation.
With Tokenization: Real estate tokens can incorporate additional features, such as voting rights, profit-sharing mechanisms, or even integration into decentralized finance (DeFi) applications for staking or collateral.
Rather than buying an entire property, investors can buy “shares” in the form of digital tokens, allowing for more flexible and affordable investment options. Smart contracts manage ownership rights for each token holder and can even automate the distribution of rental income or profits from property sales, creating a seamless and hands-free experience for investors, enabling Global Investment Opportunities.
Smart contracts make it easier to attract investors from around the world. By tokenizing UK properties, property owners can access a global market of investors who can easily participate in fractional ownership without facing the usual barriers of cross-border transactions. With currency exchange, local regulations, and other complexities managed through smart contracts, international investors can seamlessly invest in UK property.
The Future
In the future we see that smart contracts can be programmed to automate many tasks in the property management and maintenance. This sector often involve a complex set of tasks especially when there are multiple owners. By creating a pipeline of these processes, such as handling maintenance requests, renewing rental agreements, or issuing notifications to investors about important updates will create a level of automation and transparency that will give huge benefits on both, property owners and investors, making it easier to manage properties efficiently.
As well we see the Compliance and Regulatory Adherence being automated and handled on the blockchain through smart contracts. Smart contracts could also be highly valuable in ensuring that investments comply with UK regulations. Each digital contracts can be designed to automatically verify an investor’s credentials, check for compliance with Anti-Money Laundering (AML) laws, or enforce tax obligations.
By embedding these rules directly into the code, smart contracts can streamline the process and make regulatory adherence simpler and more reliable.
In the last 10 years the Information Technology expanded so quickly that everyday people started to adopting the latest technology everyday without even coming to the realisation that only 10 years ago the power of the Smartphone they have in their hands was built on a big Server in some of the most prestigious IT Big Tech Company.
Smartphones today are much more powerful than servers from 10 years ago.
Processing power: An iPhone 12 can perform 11 trillion operations per second, which is more than 5,000 times faster than the CRAY-2 supercomputer from 1985.
Regarding Artificial intelligence we can say that 10 years ago, no machine could reliably provide language or image recognition at a human level.
So hold on tight because the future is already in front of us.
At ScanSan, we leverage the power of smart contracts to provide a seamless, transparent, and reliable tokenization experience. Interested in learning more about how property tokenization works? Explore our resources or sign up for updates to stay informed on this evolving sector.
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