Real estate has nearly always been considered a relatively safe investment. After all, whatever happens in the stock market, people will always need a place to live and work. Yet, real estate transactions also tend to be some of the most complex and expensive, rendering real estate itself relatively illiquid.
In recent decades, securitization has had some success in making real-property interests easier to deal in. But a new method of engaging in such transactions promises to go even further in transforming the purchase, holding, and sale of real property: Tokenization.
Tokenization involves representing ownership of an interest in real estate with virtual tokens that exist on a blockchain (forming a type of security token). The core technology is the same underlying the popular cryptocurrency Bitcoin and the many initial coin offerings that have characterized the last year and a half but adapted to be compliant with securities regulations.
Tokenization and the blockchain offer numerous advantages over traditional methods of dealing in real estate. These include increased liquidity and transparency, enhanced security, and simplified management.
But tokenization is also a highly complicated process, both technically and legally. Companies interested in launching a real-estate-backed virtual token must carefully consider and resolve a wide range of issues when planning, developing, and launching their real-estate token.