Transcript: Using Blockchain to Transform the Real Estate Industry

We need all the data available. We need more infrastructure in place. For real estate to really be able to adopt blockchain, other things need to be built first to get the full value. Hello, and welcome to the Constructor Podcast, The Best Way to Build It, episode number 67. I'm your host, Brittany Campbell-Turner.

This podcast is dedicated to helping property owners have certainty in their decisions about their construction projects. We talk about fostering trusting relationships, help you to understand how to lower risk, be under budget and on schedule, and most importantly, exceed your end user's desires. Last week, we spoke with Dan Robles. Dan is one of the founders of the Integrated Engineering Blockchain Consortium. He talks about the engineering profession from a traditional segmented hierarchical structure to a network structure like decentralized common database called the Engineering Body of Knowledge.

He talks about capturing the knowledge that exists between our ears instead of reducing it to just a resume. He shares with us how blockchain can enable a decentralized knowledge inventory for engineers. He explains why blockchain is case written for the built environment and how this promotes conscientious ownership and the long-term benefits for the corporate real estate market. So if you haven't listened to that episode yet, check it out at constructor.com slash EP 66. So just wanted to give you guys an update.

The event that we hosted alongside the Chicago Blockchain Center turned out really well. The focus was on blockchain and construction. So first of all, thank you to those who participated. I want to just name them really directly. Lexi Prodromos, executive director at the Chicago Blockchain Center, James Salmon, president at Collaborative Construction, and Rob Salvador, co-founder and CEO at DigiBuild.

I'm really grateful to each one of you for your contribution. Thanks also to those who attended. Please stay tuned for the release of the audio and a report that is coming out as a result of the panel discussion and also look forward to upcoming events. So the next episodes moving forward in this series are going to be focused on how blockchain influences the real estate. Market that includes today's episode.

So today we're speaking with Ragnar Lifrasar, founder for the International Blockchain Real Estate Association, and he's the founder and CEO of VLox.re. We talk about how the blockchain pilot VLox was done in Cook County. This pilot achieved the first U.S. based conveyance of a property and public recording of a deed using blockchain. We discuss how he founded the International Blockchain Real Estate Association and get his opinion on ICOs.

Let's get into the interview. Hello, Ragnar. Welcome to the Constructor podcast. How are you today? I'm well, thank you very much.

You are the founder of VLox, also the founder of International Blockchain Real Estate Association. I would like to touch base with you on those particular ventures, but I really want to ask, you know, how did you get into the field of real estate in the first place? Sure. I got involved in real estate in 2006, actually. I previously worked in medicine, went to medical school for two years before deciding it wasn't for me.

And I kind of grew up in a construction household and always loved buildings. So I decided to go into real estate, got my real estate license and started working for a friend. And that's how it all got started. And since then, I've done just about everything in real estate. I went back to school, got my master's in real estate development from Columbia, got my general contractor's license.

I've worked in development, construction, I've built houses, I've done title, investment underwriting, pro formas. So I've touched on just about every aspect of real estate commercial and residential. That helps get a sense of your background and how invested you are in the industry. Tell us a little bit about VLocks and how you got hooked up with Cook County. I mean, I'm the one here in Chicago.

You're in LA, right? Yeah, I'm in Orange County in Laguna Beach. Tell us about that. So we did this pilot program with Cook County on Chicago. It was several players.

It was the Recorder of Deeds office. It was my startup VLocks.re. It was the International Blockchain Real Estate Association, Lewis Cohen of Hogan and Lovels, as well as some other attorneys and consultants like Chuck Thompson. We did a great job and title insurance companies that we consulted with, as well as a property owner there in Chicago. It was a group effort.

How it got started was just I started communication with a member of a county recorder of deeds out there through the International Blockchain Real Estate Association. We just struck up a conversation and eventually we decided, hey, let's try something. So what did you ultimately accomplish? We basically did two things. We showed that you can legally transfer real estate, the ownership of real estate using blockchains, specifically the Bitcoin blockchain.

That was the first thing. And the second thing we did was show that after you do this transfer of ownership, you can then take it to the county and have it recorded. So it's important to emphasize that it's always a two step process in the United States, at least it's the transfer of ownership between buyer and seller, whoever the two parties are. And the government is not involved in that transaction. It's just between the two parties.

And then after that property has been transferred to the new owner, that new owner can then choose to have it recorded into the public record. So our pilot program is really testing, is this a legal way to transfer ownership? And if so, how in the heck do you do it? Because it's paper based process right now. And obviously blockchain is not.

So it was a really, really big milestone. I think for blockchain in general, because this is the first time in the world that I'm aware of where we were able to prove that you can use blockchain to transfer property. Now we just tested it. We got it all approved, but we didn't actually transfer a property for various reasons. But we did test it several times and our technology worked and all the lawyers signed off on it and the property owner was happy with all of our testing.

It was a great thing. Can you talk with us a little bit about some of the misconceptions of the use of blockchain and real estate? And I mean, what were the challenges that you guys had to hurdle as you were working together to do this test? Misconceptions around blockchain is what does it do well and what does it not do well? And unfortunately, there's a lot of hype and misunderstanding about what blockchain can do and not do.

And you know, blockchain is slow, can be inefficient, and it's not good at doing a lot of things. But what it is really good at doing is transferring digital value peer to peer without the need or permission from a third party. And it's really good at having this immutable ledger as a result of those transactions. So kind of those two things are what blockchains are good for. And you could add on maybe a minor third one is that's just creating digital assets.

So those are probably the biggest misconceptions in terms of our pilot program. We had several misconceptions. You know, people thought the county was converting all the records to a blockchain or they thought that the pilot program was having the county in some way use blockchain for their property for the deeds. But that wasn't the case. So what we did at Cook County was pretty straightforward.

We simply tested that using a paper deed for transferring the property. Could you create a Bitcoin colored coin that was the deed? So instead of a paper deed, you have this Bitcoin token, which was a colored coin. And we tested it. And yeah, you can do that.

And our software accomplished that according to all of our tests. And we did all the legal things that you would need to do. That's really exciting to know that there's a possibility with blockchain to utilize that. And I am curious why you guys chose to utilize Bitcoin as the blockchain. Versus, say, Ethereum.

And I kind of want to get an understanding partially just because of my understanding about smart contracts as it relates to Ethereum. And then why why wasn't that an option you guys really wanted to consider? Great questions. So I'll take the second part first. So in terms of smart contracts, I think that's probably one of the most misunderstood things about blockchain.

I would say over hype as well. Smart contracts are really nothing more than conditional payments. They're nothing more than sort of self enforcing agreements. And so they're pretty straightforward. Now, why did we use Bitcoin versus Ethereum or something else?

Several reasons. Real estate is expensive. It's high value. It generally moves slowly. So your number one priority has to be security because you're dealing with such expensive assets.

Right. And so Bitcoin is by far the most secure blockchain. It has the longest track record, the biggest market cap. It has the best security. It's the most battle hardened, proven blockchain.

That's the main reason why we chose it. There's there's some other ones. Security was our first priority. And there was nothing that we were going to do with Bitcoin that we could have been done better with another blockchain. That being said, Bitcoin isn't the perfect blockchain.

There's other ones that try to do other things. But definitely for our purposes, it was the best based on security. OK, that makes sense. And just based upon some of my research. Most recently, it just seems like there's a few pitfalls with Ethereum that the attacks and that's a challenge.

So security as a paramount reason as to why you guys chose Bitcoin blockchain to do the test. That makes a whole lot of sense. This is a big debate, obviously, right now in the blockchain world is Bitcoin versus Ethereum or some other ones. And my view is that Ethereum is still young. It's still experimental.

It's still figuring out how to fix some of its security issues. There's somewhat a slightly different use case for Ethereum and Bitcoin. I mean, they're kind of meant to do different things. That being said, there's also, of course, some overlap in terms of some currency and some ledger functions. But generally, I'm kind of practical and old fashioned and conservative and empirical.

And when it comes to having to build a business on a blockchain, having to put someone else's money and my own money on a blockchain, I just think that's the best route for now. In past episodes, we've been talking a little bit about the utilization of smart contracts, particularly in the construction world or whether it be design specifically or smart grids or whatever the case might be. I'm always curious as to someone who's actually been talking about this for quite a long time, what their thoughts are on smart contracts as it relates to construction.

I think there's some great value there, as long as people understand what phrase means smart contracts and they understand the limits of smart contracts and they understand the risks that they're taking when entering into smart contracts, because security is very hard and smart contract security is triple hard because of the complexity of a lot of these smart contracts. So for me, I think it's kind of early for a lot of these applications that people are trying to write, especially on Ethereum, the smart contracts, the parity wallet bug where hundreds of millions of dollars are locked up in these multi-signature wallets.

And if that was your smart contract, if your funds were in there, you cannot get that out. As enthusiastic as I am for smart contracts, I think some people are trying to make money too quickly before the security is there. Now, that being said, I think there's a lot of potential for smart contracts in construction, which again, smart contracts are just conditional payments. They're just self-enforcing agreements. So where this can definitely come into play is liens, you know, lien releases.

That's a big issue. I have my general contractor's license. I worked in construction. I've renovated properties before. So I'm very familiar with all the problems with liens.

And I'm talking actually to someone right now in the International Blockchain Real State Association. She's in Cincinnati. He's a lawyer. And one of the things we talked about is how could we make liens better by putting them on the blockchain or using a smart contract? That's where I see one of the very first use cases.

What use cases you've talked about with other guests and what you're seeing. But that's definitely one of the first ones that I see. That's something that in my review as an owner's rep for my clients, I will review pay applications all the time. And I actually said that it would make a whole lot of sense in that entire process to kind of check the boxes, right, to make sure that the conditions are being met, that are written on this piece of documentation for every single pay application, all the different subcontractors and suppliers.

It's really quite simple, you know, to take all that time to review those pieces of documentation that it can really easily be checked by a code. I don't know. It makes sense to use it. Yeah, it kind of it kind of is. Because what are you saying?

I mean, it's two parties that say we're going to lock up some money basically. And once a condition is met, we unlock the money and sets of basic payment or agreement it should be able to be much improved. And so, you know, what is a smart contract? So this is a great example of a Bitcoin multi-signature escrow where funds are put in there. And as soon as the work is done, you simply both sign with your private key and the funds are released.

So I know some several teams working on it, and I hope that a really good team comes up with a good solution because it would make everyone's life better and no one likes the current system. So it's an exciting thing to see. I'm glad you brought it up, because when we were doing this pilot program in Cook County, we learned several things. And one of them was that for the real value of using blockchain for conveyance and for title to be unlocked, we need more infrastructure in place because we need all the data available.

So if liens aren't part of the data set in your blockchain title, you're missing a very, very critical piece. So, yes, you can convey your property in the blockchain. There's value there. But if you still have to go out and manually search for liens before you do that, you're missing things. And so that's why we stepped back from VLocks and we decided not to pursue doing blockchain deeds because we're seeing other things need to be built first to get the full value.

And liens and just these other data that affect title are definitely one of them. So I'm glad you brought it up. I feel like we could we could dig into all the different potential applications for blockchain and real estate and construction sort of all day. But I do want to talk with you a little bit about how did you get started with the International Blockchain Real Estate Association? How was that born?

I got into Bitcoin in 2011 and then I started the International Blockchain Real Estate Association in October of 2013. When I started it, it was just called Bitcoin Real Estate, just a LinkedIn group. You know, Bitcoin was kind of the only thing around. But then we changed the name, obviously, to International Blockchain Real Estate Association to reflect more blockchains and just the broader use of blockchain besides the currency. So, yeah, I started October 2013 and it's been a great journey and we've made a lot of progress since then, especially in the last year.

So you have an annual conference that takes place. Tell us a little bit about what people would see there if they were to become a member of Ibrea. Yeah, we just had our second annual conference in New York beginning of October during New York Real Estate Tech Week. It was sold out that the videos will be available and we had several panel discussions and speakers. So we talked about smart contracts.

We talked about using cryptocurrency to purchase real estate. We talked about what was going on around the world. We talked about ICOs, of course, which is a very hot topic right now. Talked about all the all the major applications of blockchain to real estate. And in terms of joining the International Blockchain Real Estate Association, just go to our website.

I just want to update here that Ibrea has updated info about their networking groups. They include tokenization of assets, universal property identifier, accepting cryptocurrencies for payments and blockchain for title and convenience. So check those out at Ibrea's newly updated website, Ibrea.network. To connect with Ibrea on social media, go to the website and follow the social media links. Ragnar talks about the power of the LinkedIn page here.

Let's get back to the interview. For people to meet other people, you know, who they can build software with and do deals with. And so you can see you could search through the members and I think we have over three thousand four hundred members if you're looking for an attorney or software developer or a broker or developer. Could you tell us a little bit about some of the innovations that have been born out of Ibrea? I mean, obviously you have all these people that come together and there's got to be some really awesome developments out of it.

I mean, people I would imagine, like you said, you spoke with an attorney from Cook County, right? You were able to get this test done with VLocks through Ibrea. Are there other things like that that you would say have been taking place? And maybe some other examples? Mexico City, we have a chapter down there, great chapter chair, and she's been working with one of the state governments in Mexico.

Things are done kind of at the state level there for real estate, as far as I understand. So they've been talking for a long time. They're they're working on, you know, a project, what they can do down there. That's kind of a government title project. But I would say a lot of the progress and spinoffs from Ibrea have been now a lot of startups.

So just in the last 12 months or less, I've just seen an explosion of startups come out, a lot of projects, people trying to do a lot of things. So that's probably the biggest thing is just people meeting, you know, whether it's at a local meetup or through our conference, our Slack channel or whatever. I'm seeing a lot of teams coming together and just trying different things. So that's really exciting because ultimately, for real estate to really be able to develop block chain, it needs software.

Like we've spent the first few years just trying to just raise awareness, just let people know just what the heck this stuff is and how you can use it. Finally, I'm so excited that we're at the point now where we have entrepreneurs doing this. We have investors looking to invest in entrepreneurs. We have real estate companies saying, OK, we get it, we like it, we're sold. Like, what software do we think we run?

And unfortunately, there's not one company that we can point to and say, go to that company. They have what you need. We're still early. What about the legal side? How much interest from the law perspective is actually taking place in Ibrea?

You know, kind of in the early days, a lot of the question was, is this legal? Can you even use blockchain in real estate? And we're lucky in real estate in the sense that we're actually less regulated than people think compared to, say, financial services. Banks, they're actually have a lot more restrictions in terms of what they can do, both with the currency and the ledger functions of blockchain. We're pretty lucky.

There's not a lot of legal questions or blockades or obstacles for blockchain in real estate. Really, the only place where it starts to bump up against blockchain, the law is down at the, at least in other countries, at the conveying of real estate, because in other countries, it's the government who actually changes the register, title registry. They're actually the ones who do the conveyance. And so they would have to be involved in blockchain software to do these things, whereas in the US. It's not the case.

So, yeah, and I would say the second area where the law sort of bumps up against blockchain would be in ICOs. ICOs can be a security. You know, your blockchain token can definitely be a security problem. Most are to date. So those are kind of the areas.

But, you know, the attorneys are really looking at ICOs. Governments are looking at title. And then I would say the third one that hasn't happened yet, but I think it's going to start happening more, would be crowdfunding to purchase real estate assets. As more people figure out the formula to do that, I think you're going to see that the lawyer is making sure that's done correctly. Yeah, that makes sense.

Actually, in one of the past episodes, I interviewed one of the founders for the Construction Blockchain Consortium. And if you haven't checked them out, probably just look into them. They're doing some interesting things and investigating what some of the options are for blockchain in the industry. This particular guy, he is a lawyer and he's based out of the UK. And he has, I would say, some interesting perspectives because his original research started with algorithmic dispute resolution.

And I like the fact that you say you're conservative in your thinking and kind of wanting to do the most secure thing instead of kind of going beyond looking at things plainly. He does a lot of investigation in AI and what's the combination potential with AI and blockchain. He really believes that there's going to be a new segment of law that comes out of the use of blockchain. And I was curious as to whether there was interest because of that in real estate. As I see it, at least here in the US, there aren't any laws that need to be changed for, I would say, 98% of used cases in real estate.

The only area I can see where there might need to be a change would be something around liens. But I think there's ways that you can functionally build an effective blockchain solution to without needing a law change. And I definitely wouldn't build an application or a business or anything else that required a new body of law. It would be interesting, though, if ICOs, if the SEC made it easier or made it very specific guidelines for ICOs. But otherwise, it's not a big impediment.

You know, what we need right now is two things. It's education and it's support for entrepreneurs in several ways, both to help them improve what they're doing and tell them what not to do sometimes, getting them help with investment. And so that's that's where we're taking Ibrea next is really focusing on education and the support of entrepreneurs. We'll have some exciting things we're going to announce at some point. Can't give an exact date.

That's going to be the next focus, because I see it as we're entering phase two of blockchain real estate, where before it was awareness and basic education. Now we're ready for software. Now we're ready to really put some things out there that people can use and start building. Could you talk with us a little bit more about ICOs? I mean, obviously, they're they're sort of the rave at this at this time.

And a lot of entrepreneurs are looking to raise funds that way. What are you seeing? And then what would you say your recommendations would be if you could narrow it down into, I don't know, a short segment for entrepreneurs who are looking for that? First is don't do an ICO to raise money, build a business. Think about your application.

Think about your business first, how it's going to run. What problem are you solving? What's the solution? Start there, just like it's traditionally done. Right.

And then after you figured that part out, then consider is a token appropriate for what you're doing? And the answer could be yes, or it could be no. In a lot of cases, it's no. And I say that because, you know, a lot of people pitch me their ICOs and they want me to be their advisors. And I've turned everyone down to date.

And what I'm seeing is people wanting to design an ICO for money. And it's like the real estate problem they're solving is almost an afterthought. And they spend so much time on engineering the economics of it and everything else. It's a little scary and a little concerning for me. So in terms of ICOs, just start with the fundamentals, start with the problem you're going to solve first.

And just remember, money is not when I see these ICOs raise money like that. That's just a starting point. It's like not an accomplishment. Yeah. Like the accomplishment is what you do with the money.

It's just the tool. And actually raising money is sort of a debt, right? It's a debt to your investors. It's kind of, it's your money, but it's not right. So it's like a kind of a big burden.

And the more money you raise in an ICO, the bigger burden you have to a lot of people to perform. So that's kind of the first thing. And then the second thing is, you know, that's the entrepreneur side. And especially for the people who get involved with ICOs is to really do their due diligence, especially when it comes to if it's a security or not, and especially if they're ever going to be involved in the United States, is this is going to come back to bite a lot of people.

And going back to the expectations, I think a lot of ICOs are going to get in trouble, not so much by the SEC, but by upset investors. And we already are seeing this in the Tezos ICO. I think it was where there's a class action lawsuit against them. And a lot of it comes down to people's expectations and what you promised them and what you said was going to happen. So when you're looking at either doing an ICO or investing in one, just look at the expectations and the promises because investors will absolutely hold you to it.

And I saw an ICO today, a real estate ICO, it just blew my mind. They basically said they were going to replace all real estate applications in their ICO and they're probably going to be able to raise money off of that promise. But when they don't deliver, it's going to get really ugly fast. ICO should try to solve just, you know, try to solve one problem, just to just solve one problem with your application. And all these ICOs are trying to do, we're going to tokenize assets.

We're going to do smart contracts for the sales process. And then you're going to use our token for the currency and then it's going to be a registry for the government. It just blows my mind. So many people are going to get so badly hurt by these. Your approach to being a little bit conservative when it comes to things that people are getting really excited about and looking at the opportunities to utilize blockchain for a kind of second that approach, just because really don't know if people are going to deliver just like any other business and any other investment.

I mean, you really do have to do your due diligence. You have to understand the business plan, the inner workings. And if you don't understand that, and if you don't know that they're capable of delivering, you can see that getting ugly too. Yeah, certainly. And even the teams, I'm surprised that probably more than 50% of the ICOs I'm seeing, none of the founders have real estate experience.

They're either software or finance professional background, but they don't have any real estate experience. And I just, I cannot believe it because as you know, real estate is more complicated than people think. And I just can't imagine giving my money to someone who, someone on the team didn't have some sort of real estate experience. There's the counter argument to that as well. Disruption comes from people who think outside the box, you know, look at Elon Musk, he never owned a car company, never came from producing cars or solar panels.

But I would say most people are not Elon Musk. So I would be very, very skeptical of a team that didn't have a real estate founder, it's not an absolute requirement, but shoot, it sure does help. It's already high risk enough. What would you say to any of, any investors who are considering investing into real estate and looking at ways similar to you, like, is this possible? How do we actually do this?

How do we actually do conveyance of property on blockchain? Like, what would you recommend? Continue the line of thinking or where are you even at in that thought process? We're at this odd point where there's actually a really strong demand from a lot of real estate professionals and companies to do something, either a pilot or proof of concept, or even just start using it. And it's just not currently a lot of application specific software for them.

Of course they can accept Bitcoin for payment. That's what I tell every company, just accept Bitcoin, convert it into dollars. If you want, you've been able to do that for eight years now. What I tell people is accept cryptocurrency number one, but number two, get involved with the international blockchain real estate association to cause over 3,400 members and you can meet someone that probably working on something that interests you. And that's also where you get education.

But that's my default answer is those two things. Get some skin in the game. If you really want to understand blockchain, you've got to get skin in the game. You've got to buy some Bitcoin. You've got to send it to someone.

You've got to look up the transaction on the blockchain, learn how to keep your cryptocurrency safe, just the fundamentals. People just want to, they either want to study it all day and do nothing, or they want to do something without practicing first. Kind of got to balance those two. Absolutely. With that, I really want to appreciate you getting on the podcast today with me.

And I want to give you the opportunity to share with the audience where people can learn more about you, Ibrea and VLox.re. Oh, thanks. Yeah. So international blockchain real estate association and best place to find me is Twitter at Ragnarly. So at R-A-G-N-A-R-L-Y.

And then my startup VLox is V-E-L-O-X.re. And I don't really answer LinkedIn messages. Usually Twitter is the best way to find me. That's usually the best way. If I don't know someone, that's the best place.

But thank you for having me on. This is really fun talking with you and I'll definitely look up the things that you mentioned. Great time to be talking about all this. Yeah, that's perfect. Absolutely.

I think it's a fun time and we'll definitely continue the conversation. Thanks once again, Ragnar. Thank you very much. Thanks for listening to this interview with Ragnar Leprosar. Find out more about Ragnar and Ibrea at constructor.com slash EP67.

I interviewed Ragnar before they had their latest website launch. So you can find them now at Ibrea.network. If you learned something valuable in this episode, share it with your friends and colleagues. You can also let me know if you enjoyed our discussion by connecting with me on Twitter at Brittany underscore CT or find me on LinkedIn. Or you can just email me to at Brittany at constructor.com.

That's B-R-I-T-T-A-N-I-E at construct double R dot com. Next week, we will be speaking with Dave Conroy, research and development lab engineer at National Association of Realtors. He frequently educates about how blockchain and distributed ledger technologies, prototyping, software design, management and networking can integrate with real estate. He believes that real estate finance and supply chain are most viable markets for a blockchain application because of the high value of the assets and reduction of the friction between multiple parties that have to be involved. So I look forward to sharing this interview with you guys next week.

If you haven't already subscribed to the podcast, you can do so at your preferred podcast player. Please leave a review to show you support and let me know you're enjoying the podcast. I look forward to talking with you guys for the next couple of weeks about blockchain. Thank you.