Why Are We Using The Blockchain Technology?
- The blockchain technology allows everyone in the world to invest in German real estate security tokens (theoretically)
- Transaction data from trading security tokens can be recorded very securely and fast on the blockchain
- The increased efficiency of the blockchain technology allows us to reduce costs & increase returns for investors
Introduction: The Blockchain Offers Unique Advantages
In a previous article in the GermanReal.Estate Wiki, we discussed what a blockchain is already. Some investors have been asking why we are using the blockchain technology to trade our real estate security tokens (currently Polygon). Running our smart contracts on a blockchain offers different benefits that cannot be found in traditional financial services (e.g. real estate crowdfunding).
Read the full article to learn more about the unique benefits of the blockchain and why we are using this technology:
Blockchain Advantage #1: Global Technology
Real estate (in Germany) is an exciting asset class to have in any portfolio. Unfortunately, many people are facing different problems when trying to buy a physical property:
- Not having the right financial situation: When applying for a mortgage, banks want to see low or no debt, a good Schufa score, etc
- Not having the right job situation: To get a mortgage, an unlimited job contract and a completed probation period are required
- Not having the money: Buying real estate involves high start-up costs in Germany (e.g. notary, taxes, real estate agent)
- Not having the right visa: Securing a mortgage without a permanent residency or German citizenship is difficult
When investing in real estate security tokens on the blockchain, none of the requirements of traditional real estate investing matter. The blockchain technology allows (almost) everyone to invest in real estate security tokens through the internet. As investors can buy our security tokens directly with their wallets, there is no need to physically be in Germany.
Attention: While the blockchain technology allows global trading over the internet, German money laundering laws restrict some transactions. The internet doesn’t know any physical borders of countries, German law does. That is why there might be some issues when investing in our real estate security tokens with a non-Euro bank account.
Blockchain Advantage #2: Digital Processes
Buying a German property the traditional way will take weeks and months with all parties and steps involved (finding the right property for the right price in the right location, securing the mortgage, notary meeting, and changing the German land registry). And most of this traditional German bureaucracy still involves pen & paper processes.
Our smart contracts that run on the blockchain allow us to streamline the traditional pen & paper processes to an absolute minimum. GermanReal.Estate allows you to invest in properties in Germany in minutes, and not in weeks or months (indirectly with security tokens). All our investors need is a device that is connected to the internet in order to invest (and e.g. receive passive income).
GermanReal.Estate is the easiest way to invest in properties in Germany!
Blockchain Advantage #3: Secure Record-Keeping
Aside from being slow and bureaucratic, the traditional pen & paper processes of the German real estate industry are an invitation for human error as well. As the blockchain technology is digital, it is by far the most secure record-keeping system existing.
With every transaction of a real estate security token, a record is written below the latest transaction. After accumulating enough transactions, they are sealed in a block. Thanks to the unique hash (fingerprint), this block is linked to the previous block. Therefore creating a chain of blocks that cannot be changed anymore, as the faulty hash would cause the blockchain to break.
The transparency of the decentralized blockchain network makes transactions visible to everyone. If somebody would try to manipulate our transactions, hack GermanReal.Estate, or steal real estate security tokens from an investor’s wallet, we could just destroy the stolen security tokens and mint new ones according to the record we have before the hack happened.
Blockchain Advantage #4: High Efficiency
Thanks to the decentralized blockchain network, there is no need for middlemen when investors want to trade our real estate security tokens. While traditional financial services require an exchange (e.g. stock exchange) or a bank, the blockchain technology runs smart contracts automatically.
The increased efficiency will show its full potential with our secondary market (expected to go online in 2024). The GermanReal.Estate secondary market will allow investors to trade their real estate security tokens like stocks are traded on a traditional stock exchange.
While it is currently difficult for investors to cash out before the maturity date of the security token, the secondary market will give investors another option to make a profit. Depending on your future outlook of the German real estate market (if property prices will go up or crash), you will be able to buy more security tokens or sell your amount of security tokens completely.
Blockchain Advantage #5: Reduced Costs
The increased efficiency of the blockchain technology is benefitting us in two different ways: Allowing us to reduce costs and therefore increasing potential returns for investors. Real Estate security tokens have allowed us to eliminate all sales commissions for investors. GermanReal.Estate makes money by charging property developers that want to finance their projects, not by charging high sales commissions from investors.
While traditional real estate investments (like REITs, short for Real Estate Investment Trusts) require a minimum of 5.000€ or even 10.000€ investment, tokenizing real estate with the blockchain can be economical at much lower investment minimums. That is why the minimum investment on the GermanReal.Estate marketplace starts at usually 100€.
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