On today’s show we’re talking about the use of digital tokens for trading real estate.
Over the past week I had numerous discussions with people making investments to create a digital token platform that would allow for the derivative trading of fractions of real estate or shares in exempt market offerings. I personally know of at least five companies that are making investments to develop the token technology to trade in real estate and in securities offerings.
The theory goes something like this. Once real estate is carved up into tokens that can be as small as the mind can imagine, these fractional shares become liquid and tradable on a secondary market.
The technology allows for the transacting of tokens in the blink of an eye. The underlying technology can be used for anything. You can certify the authenticity of a token by virtue of the distributed nature of the way the token is created. There are literally thousands of copies of the token distributed across computers all over the world. This construct makes tampering with a token practically impossible since you would need to tamper not only with the local copy in your possession, but with the thousands of copies in existence whose whereabouts you have no idea.
What these tokens represent is a matter of definition. You could use them to trade baseball cards, concert tickets, works of art, a Rolex watch, literally any meaning you wish to attach to a token as a certificate of authenticity.
As someone with a technology background, I believe the underlying technology has a lot of promise to lower the transaction cost and revolutionize many types of commerce that don’t exist today.
The problem I see with tokenizing securities is that securities are governed by a complex fabric of securities regulations with multiple jurisdictions each of which can be slightly different. The issue of compliance requires using the existing rules and regulations. The securities Act of 1933 generally doesn’t allow for the trading of exempt securities, depending on the exemption. The requirement to comply with existing regulations means that the digital token system would need to parallel the paperwork required to comply with securities regulations. Until the SEC, and all of the state and provincial securities regulators recognize digital smart contracts that are possible using digital tokens, the benefits of digital tokens will be completely negated by the need to comply with existing regulations.
Host: Victor Menasce