Cryptocurrency is the peer-to-peer transfer of digital currency in which encryption techniques, independent of a central bank, are used as a regulatory system, based on blockchain technology. The blockchain essentially acts as an instant and permanent record keeper which verifies transactions via a network of computers. Let's think of cryptocurrencies, then, as programmable money.  Focusing on the underlying distributed ledger technology (DLT), blockchain technology is regarded as providing a low-cost, high-speed rail for moving money and title in a new tokenised form. Tokenisation may be used to convert the value/title of physical assets into a digital form, enabling the division of ownership into a given number of tokens.  These digital assets, deriving their value from an external asset, such as commercial real estate, have the ability to be traded, and are regarded as security tokens which must comply with securities regulations that are consumer protecting.  The security tokens can be thought of as programmable ownership.

Why Does this Matter for the Real Estate Industry?

The real estate industry currently relies on an inefficient loop between attorneys, financial institutions and real property agents, which makes transactions slow and cumbersome. This inefficient loop stems from lack of guarantees of trust between parties, escalating cost by as much as 10%. Blockchain technology, specifically the use of smart contracts (software that is triggered when certain conditions are met), can revolutionise this process, while complying with legal requirements. The smart contract code facilitates, verifies, and enforces the negotiation or performance of an agreement or transaction.  If and when the pre-defined rules are met, the agreement is automatically enforced. The nature of smart contracts, which may then be self-executing, limits the need for third-party involvement, further reducing costs and time to completion.

Beyond those improvements, 'Proptech' can significantly expand access for ordinary investors to benefit from higher-yield returns. Currently, very few investment opportunities exist beyond a very wealthy sub-class, with most persons being limited to investments in private real estate, through traditional means, with poor liquidity. Mega commercial real estate projects, which are amongst some of the highest return-yields, require a significant capital injection beyond the capacity of most citizens. Tokenisation through projects like 'REXY' creates a bridge for fractional ownership in real estate, which makes a multi-million-dollar investment project a possible investment vehicle for many smaller investors.

New Regulatory Frameworks and Barbadian Developments

These new technological advancements, which can massively expand access, nonetheless require a responsive and enabling legal framework, modified to this changing landscape. Some rules are no longer fit-for-purpose, and regulators and innovators in the tech space are moving feverishly to address this misalignment. The Financial Services Commission in Barbados, in consultation with a working group, has created new financial regulations applicable to digital assets and proposed new regulatory sandboxes for individual products. This regulatory approach focuses on having no more, and no less regulation, than is required to avoid consumer vulnerability and eliminate systemic risks, while enabling innovation. Modifying the legal requirements of the Stock Exchange to cover new digital assets, as well as ensuring compliance with anti-money laundering and know-your-client requirements are particularly necessary modifications to bring the law into this new era, which regulators in Barbados have already begun tackling.

The emergence of cryptocurrencies and the underlying blockchain technology are promising developments for a more financially inclusive world. The concept of communities financing communities can be transformative, for investors, businesses and states alike, provided the law keeps pace without slowing down innovation. This new state of affairs, however, requires responsive and adaptive regulatory frameworks that provide legal protections for consumers and a conducive operating environment for businesses. These developments in Barbados's regulatory framework and new fintech/proptech businesses provide robust new promising investment opportunities.

Source: Barbados International Finance & Business 2019

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