Real estate continues to be one of the largest asset classes for investors and 80% of investors view real estate as a solid investment. Despite the immense interest in the real estate market, investment still largely hinges on legacy systems that use inefficient and manual processes.
These siloed networks result in redundancies, countless costly intermediaries, disputes, and illiquidity. In fact, intermediaries alone eat up 2% – 5% of the capital raised for commercial real estate equity.
Blockchain technology is one solution. Long seen as the “wild west” of fintech, blockchain adoption in real estate offers an efficient and liquid way to manage real estate assets.
But with so much discussion about what blockchain is, some of it contradictory or confusing with the technology’s link to cryptocurrency, many investors wonder whether or not the blockchain is safe.
What is blockchain?
Based on advanced cryptography, blockchain technology is basically a ledger of transactions. These transactions are performed automatically and combined into a “block” and then added to a block of previous transactions through complex algorithms. These blocks store recorded information, and cannot be easily tampered with because it is impossible to revise the ledger. This means for any change to occur, a new transaction needs to be added.
The benefits of this technology are well-established. The blockchain can provide real estate investors with:
- Near real-time settlement of transactions
- A trustless environment that removes intermediaries
- Full transparency due to its peer-to-peer ledger
- Reduced fraud and abuse risks
In other words, the investing ecosystem created through employing blockchain technology provides unparalleled transparency, higher liquidity, improved security, and faster transactions.
Why is blockchain more secure?
The blockchain was developed with privacy and security in mind, and tokenization offers the perfect vehicle to safeguard data. Through tokenization, sensitive data is stored on the blockchain in a randomized token.
There are really two kinds of tokens: Utility tokens and security tokens. For our purposes, we’ll be talking about security tokens, which would be used to store information about your real estate assets.
The enhanced cryptography built-in to blockchain and tokenization is far more effective than one-time passwords, or even biometric data, which can be bought and sold on the Dark Web. When used in conjunction with user-side security measures like two-factor authentication, it becomes increasingly difficult for anyone other than the owner to access their assets.
How does blockchain preserve data integrity?
We view data integrity as not only the stability, accuracy, and consistency of the information but also its security and completeness. Blockchain technology, combined with tokenization, provides the perfect vehicle to preserve this integrity while maintaining efficiency and regulatory compliance.
As we have mentioned, the core blockchain itself is resistant to change. You cannot edit a past transaction or manipulate data once a transaction is made on the blockchain, it is there forever.
At the same time, it is possible to maintain privacy without sacrificing transparency through security tokens.
Data is able to be preserved with these tokens because the token security replaces the data with a randomized representation. The value of the data remains the same, but no one is able to access it except those with the right cryptographic keys.
On the blockchain, your data is secured by a private key. This cryptographic key is not one that you give publically, and it allows you to view your assets. Consider the private key a sign of ownership.
How Earn.re uses blockchain
Built on the blockchain, Earn.re uses tokenized securities to create a secure and frictionless environment for CRE investors. Interactions are completed using smart contracts, which are automated functions set to execute when certain conditions are met.
Through building a platform the blockchain, Earn.re can provide a number of features, including:
- Cryptographically authenticated data room
- Digital securities and loan origination
- Automated KYC/AML data collection and reporting
- Automated servicing and distribution management
- Automated cap table management
- LP consensus management
- Automated funds control for new construction
- Automated transfer
And with a robust API infrastructure, organizations can easily and efficiently integrate our platform into their workflow.
While tokenization is by default a secure and well-known method for protecting sensitive data, combining tokens with the blockchain system has added another layer of security for real estate investors.
At the same time, this technology provides improved liquidity and preserves data integrity, no matter which device you use for transactions.
To learn more about how Earn can help you reduce costs and improve your CRE investing workflow, schedule a demo with us today.