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10 Great Reasons Why Real Estate Tokenization Is the Way of The Future

JC Keen
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10 Great Reasons Why Real Estate Tokenization Is the Way of The Future

Real estate tokenization is about to disrupt the way people invest. Real estate investing has some incredible advantages over other forms of investing. Unfortunately owning real estate can be difficult for the average person. That’s because in most cases an investor needs a large sum of money to use as down payment. Well, a down payment is no longer required when you buy tokenized real estate.

But that’s not all. Real estate tokenization has some other incredible advantages. Sure, it has some disadvantages, but overall this form of asset tokenization is sure to disrupt the real estate industry, for the better. Below we examine 10 great reasons why real estate tokenization is the way of the future.

What are the benefits of tokenizing real estate?

Lower Barrier to Entry

One of the biggest reasons to consider tokenizing real estate is because it lowers the barrier to entry for investors. That’s because in most cases tokenizing of an asset is done for the purpose of fractionalizing that asset. In other words, through tokenization, individuals are able to own a fraction of a real estate property.

This means that investors will no longer be required to have a large down payment to purchase real estate. Instead, investors are able to buy real estate with as little as $100, sometimes even less.

In short, investing in real estate is no longer just for the wealthy. This lower barrier to entry is at the core of what people in the tokenization space refer to as market democratization.

Instant Liquidity

Real estate is considered an illiquid asset. In most cases selling real estate takes several weeks and often months. Selling often requires advertising, showings, the process of offer and acceptance, inspections, etc.

Real estate tokenization changes all of this. Tokens representing ownership in real estate can be traded in Alternative Trading System marketplaces like tZero, as easily as buying and selling stock. By trading tokens investors can exit their investments whether they are selling $100 or $1,000,000 worth of real estate tokens.

Additionally, through Decentralized Finance (DeFi) it will be possible for investors to borrow against their real estate tokens rather than selling. This could be beneficial for tax purposes and may provide opportunities to leverage capital.

Access to Global Market Capital

Real estate is local, but real estate investors are all over the globe. Through real estate tokenization investors across the world can invest in whatever market they chose, provided regulatory compliance is in order.

This is good news not only for fractional ownership buyers, but also for owners, developers, funds, etc as this provides the opportunity to raise capital from investors all across the world.

Security and Transparency

Blockchain is a decentralized immutable ledger accessible to everyone. This goes to the heart of security and transparency. Security comes from the decentralized nature of the blockchain. The more decentralized the block chain the better. Transparency comes from the fact that every transaction is viewable in the blockchain itself.

This doesn’t mean that everyone can see your personal data in the blockchain, but it does mean that assets and transactions should be easily verifiable. See How To Verify Authenticity of Digital Assets

Lower Transaction Costs

Blockchain technology is incredibly efficient. This efficiency can be easily leveraged to multiple layers within a tokenization structure to the point that it can disrupt how traditional businesses operate. For example, in real estate transactions it is customary to utilize escrow services to hold earnest money on behalf of a purchaser during the process of completing a transaction. This silly step can be completely eliminated through the use tokens representing real estate.

Another example is the custom of using real estate brokers and title companies to buy and sell property. Broker and title fees can range from about 5% to 7% of the purchase price of the property. When trading tokens, users won’t have to pay for broker or title services at all!

Automation

Blockchain efficiencies have also led to automation of real estate tasks and investment management. For example, through tokenization, it is possible to automate cash distributions to token holders. The same concept can be used to automate payments to real estate management firms, lenders, etc.

Whenever investors sell real estate they are required to report and pay taxes. Imagine the difficulty of figuring out taxes if investors were buying and selling real estate hundreds of times per year. Well, this process can also be simplified and automated through real estate tokenization. After all, blockchain is simply a trusted decentralized ledger – an accountant’s dream.

Tokens can also be used to send messages to investors and for investors to vote.

Scalability

Once a tokenization process has been established it can be easily repeated. This is probably one of the biggest advantages of arriving early in this space. As adoption grows, early adopters will be in an excellent position to leverage their existing processes and grow their real estate portfolios, investor’s base, etc.

Improved Opportunity for Diversification

Most real estate investors remain niche specific. Single family residential real estate investing is by far the most common form of real estate investing. Few venture into other types of real estate investments such as multi-family, commercial, industrial, land, etc.

Given a lower barrier to entry and how easy it can be to buy real estate tokens, investors can now diversify their real estate investments. Think how cool it would be for an entity to to tokenize an RV park, and for you to own fractional ownership on that RV Park and later staying at it for to check on your investment while enjoying your vacation.

Let’s also consider geographical diversification. Real estate tokenization will make it possible for an investor to own real estate in multiple geographical areas, all over the world!

Growing Market

According to CoStar, the value of the world’s real estate assets is well past the $300 trillion mark. That’s a humongous market. However, tokenized real estate accounts for only $53.7M, according to a report by the Security Token Group. Although the tokenized real estate market is growing rapidly it is only a miniscule percentage of the total real estate market.

Adoption of blockchain technology is in its infancy. It is like the early days of the internet, when many people thought the internet was a solution looking for a problem. Disrupting the traditional real estate market won’t be easy, but it is inevitable.

It will take a few years for mass adoption to proliferate, but eventually buying real estate tokens will be as common as buying stocks using a smart phone.

As with the internet, those that recognize the potential of real estate tokenization are likely to benefit form what could be an explosive market growth.

Peer to Peer Transactions

One of the features of blockchain technology is its ability to permit peer to peer transactions. You and I can trade Bitcoin without the need for a third party. And in some decentralized applications you and I can already trade NFTs and other tokens, without the need for a third party.

Trading real estate tokens peer to peer will be a a little more difficult due to the need to meet regulatory compliance, but it is bound to happen.

Dissadvantages of Tokenizing Real Estate

There are certain disadvantages that come with tokenizing real estate.

Leverage

One of the reasons why investors love real estate investing is because you can leverage your money. This is thanks to the use of financing. You can buy real estate worth $100,000 with as little as $5,000 in down payment. When that investments grows at a rate of 2.5% in the first year, you grew your equity by 50% in a single year.

I suspect this will not always be the case in most tokenized real estate projects. That’s because most of those projects will seek to bypass bank financing. The most likely scenario is that when you buy a real estate token you won’t benefit in the same way from property appreciation and leveraging as in the traditional market.

New market

Real estate tokenization is in its infancy and will require significantly more adoption to truly take off. New markets open the doors for bad actors and gullible investors to be taken advantage of. And then there are the well meaning early adopters that fail to understand the risks that come along with new technologies. We’ve already seen too many examples of smart contracts being exploited by hackers. As I’ve mentioned before, smart contracts are the wrong tool for asset tokenization.

Lack of education – Public awareness

Most people don’t understand blockchain technology or its revolutionary nature. Imagine telling your father that you bought tokens representing fractional ownership on a real estate property in Australia using your smart phone. Chances are he won’t understand a thing. Indeed, we have a long road ahead to educate the public.

Cryptocurrency Volatility

The current bear market provided a reality check for many crypto investors. Many of these investors will be disillusioned for years to come. Cryptocurrencies will continue to be volatile. Many crypto projects are likely to fail and take many investors with them. All of this will translate into an adoption challenge for real estate tokenization.

Lack of Data (compared to stock)

When you buy a stock you can read quarterly and annual reports to help you make an informed decision. This type of information does not currently exist for real estate investments over the blockchain. If it exists, it does not fall under the same compliance scrutiny we are accustomed to see in the stock market.

Regulation Uncertainty

With emerging tech it is often the case that regulation can’t keep pace with new products and developments. This can lead to uncertainty, confusion, and often fines. Real estate tokenization is already taking place in many parts of the world, but each country will have different laws affecting regulation.

Conclusion Why Real Estate Tokenization Is the Way of The Future

I believe that the pros for real estate tokenization greatly outweigh the cons. Time will tell, but I am convinced that real estate tokenization is the way of the future. Buying, selling, and trading property tokens will be as common as it is to buy, sell, and trade stocks nowadays.

See also 13 Best Assets to Tokenize On the Blockchain

If you see things differently I’d love to hear from you. Please comment below.

How To Verify Authenticity of Digital Assets Like Art & Securities, Etc

JC Keen
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How To Verify Authenticity of Digital Assets Like Art & Securities, Etc

As cryptocurrency and blockchain adoption grows it will be essential for users to verify authenticity of digital assets.  This applies to anything that can be tokenized, including art, music, collectibles, and even securities.

Authenticity is of utmost importance to serious collectors.  Obviously, authentic art with verifiable history can command higher prices than otherwise. 

In the art world people use the word provenance to refer to the history of ownership of a painting or other work of art.  Provenance or authenticity can take various forms, including a certificate of authenticity, photographic evidence, auction sale records, etc.

In the crypto world, provenance has the same meaning.  Since a blockchain is a public ledger, it should follow that verifying authenticity and history of digital assets should be a straightforward process.  However, that is not the case when using smart contracts.    

The Case Against Smart Contracts

Unfortunately smart contracts are the wrong tool for tokenizing assets. These are unnecessarily complex, inefficient, and expensive, when all we are trying to do is creating and transferring digital assets.  This complexity introduces multiple vulnerabilities that can lead to errors and/or fraud.    

I won’t get into the precise details of what it takes to verify the authenticity of a digital asset within a smart contract, because frankly that is a futile exercise.  Let me just say that doing so is nearly impossible for the average person. This would involve finding the smart contract address, using Etherscan or a similar blockchain explorer, dissecting code and metadata, and then trusting that any externally stored information connected to the smart contract can’t be tampered with. 

Oh, and let’s hope that there isn’t a Decentralized Autonomous Organization (DAO) with rights to do whatever they please without your consent.

By the end of this extensive exercise hopefully you’d be able to somehow match numbers and letters to some online identity to satisfy yourself that the art was created by the rightful artist.

Then you’d want to engage in trying to understand which party owns what rights to the art. That is unless you are purchasing the art through some third party that may have some fine print addressing digital rights.

Source: RIMONLAW.COM

Before moving on, it is important to note that there are multiple ways in which bad actors can take advantage of loopholes in smart contracts. For an example on this I recommend reading What Is Sleepminting And Will It Ruin NFT Provenance?

The Case for an Asset Aware Layer 1 Protocol

A better solution for managing digital assets is to mimic Bitcoin’s Unspent Transaction Output (UTXO) model.  In other words, it would be ideal to manage digital assets as simply as it is to execute a bitcoin transaction. This brings me to Ravencoin (RVN), a fork of Bitcoin, designed specifically to handle assets utilizing the UTXO model.  RVN is an asset aware layer 1 protocol that does not need the complexity of smart contracts to handle digital assets. 

How To Verify Authenticity of Digital Assets When Using Ravencoin?

To verify the authenticity of a digital asset on the Ravencoin blockchain all you have to do is read the information directly from the blockchain using a blockchain explorer or viewer.  This is made easy by the fact that Ravencoin allows for the use of unique, human readable names, a folder like structure and Ravencoin’s ability to link any digital file using IPFS to a token.

Let’s look at an asset created by artis Kevin Lynch (@LynchStudios) as an example.

On the bottom right corner of this tweet you see the asset with the name KEVINLYNCH/LANDART#2. This is a human readable asset name that can be authenticated on the blockchain.

Kevin created the main asset KEVINLYNCH on Ravencoin. There is only one KEVINLYNCH asset name in the entire Ravencoin blochkain. Kevin owns that main asset and he is the only one that controls what can be created or minted under that asset.  This is possible because Kevin owns the private keys to this particular asset. 

He later created a sub-asset called LANDART. Think of sub-assets as sub-folders. If he desires he can create sub-assets for WATER_ART, MODERN_ART, PIXEL_ART, etc. Finally, he created a unique asset #2.

If a party wanted to sell art claiming it is art created by Kevin, all you would have to do to verify authenticity is to confirm that the main asset name is KEVINLYNCH. Then you would go to the Mango Farm viewer and type the chain address to see the art image directly linked to the blockchain.

In some cases, the asset has additional information such as the information shown on the right side of the image below. In this case the asset includes Kevin’s name, royalty requirements, a payment address for royalties, and his website.

How simple is that? When assets are created on Ravencoin, verifying authenticity is a breeze.

KEVINLYNCH/LANDART#2

Conclusion on Verifying Authenticity of Digital Assets

I expect that in the not too distant future it will be common to see peer to peer transactions of digital assets like tokenized securities. In other words, you and I would be able to trade tokens representing stocks, real estate, collectible items, etc.

As with art, it will be essential to authenticate these digital assets. Doing so is extremely difficult if the underlying asset is created using smart contracts. As shown above, verifying authenticity of digital assets is very easy when assets are created on the Ravencoin blockchain.

Udate

Shortly after writing this article I learned the featured art piece is now owned by BickBC Projects. See Brick’s gallery

13 Best Assets to Tokenize On the Blockchain

JC Keen
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13 Best Assets to Tokenize On the Blockchain

Few realize that almost everything of value will eventually be tokenized. That is because, thanks to blockchain technology, asset tokenization can be efficient, secure, it can provide for peer to peer transactions, fractional ownership, and it provides the tools to democratize all markets. This leads to the question of what sorts of assets should one tokenize on the blockchain?

Before we get into that, it is important to provide some context. Bitcoin has revolutionized how people view money and it has led to an entirely new market – cryptocurrencies. Despite this, I am convinced that the more revolutionary part about this invention is its underlying technology, that is blockchain technology.

A blockchain is a distributed ledger that is shared among computer networks for maintaining a secure and decentralized record of transactions. Blockchain technology provides for trust in the ledger without the need for third party.

Digital assets, such as contracts, images, music, etc can be added to a blockchain and can be transferred and/or traded similarly to how cryptocurrencies are transferred and traded. This opens up an entirely new universe for digital market for assets of all kinds, especially when you consider all sorts of securities can and eventually will trade on the blockchain.

The digital assets market will account for trillions, if not quadrillions, of dollars.

Unfortunately the Bitcoin blockchain wasn’t designed to handle assets, thus tokenizing assets on this blockchain comes with significant challenges. Similarly, Ethereum and other blockchains can be adapted to handling assets, but because these protocols weren’t designed for this purpose they can lead to significant inefficiencies, high costs, and security challenges.

A few blockchains have been designed with asset tokenization in mind. See Which Is the Best Tokenization Crypto?. Chief among them is Ravencoin, which is a fork of Bitcoin and was designed specifically for the purpose of asset tokenization, including the handling of digital securities (i.e. stocks). One key feature of Ravencoin is that it provides a solution to overcome the AML/KYC risks associated with securities and the issuance of STOs (Security Token Offerings).

What Are The Best Assets to Tokenize On the Blockchain?

Stocks

Eventually all stocks will trade on the blockchain. Earlier this year, Intercontinental Exchange Inc., NYSE’s parent, purchased a stake in tZero, a marketplace to trade private digital securities. tZero provides a trading system, which uses blockchain technology, where private and public entities can choose to list digital versions of their stocks. See NYSE Owner Gets on Board With Crypto-Powered Revamp of Trading.

Real Estate

Companies like RealT already provide investors with the opportunity to buy fractional, tokenized residential properties in the US. And companies like Market Space Capital is doing the same with multifamily developments. See interview with Sohail Hassan below.

In addition, smaller companies such as Hydra Chain Technologies and Dwell Homes Inc are jumping in this emerging market. Through their partnership with DigiShares, these two small companies are planning to tokenize single family residences in Wisconsin and Illinois, USA.

Real estate tokenization is expanding to all parts of the globe. Outside of the US, companies like BRIKbc Projects are tokenizing luxury residential real estate properties in Brisbane, Australia (home of 2032 Olympics City). Thus, providing access to real estate in hot markets for as little as one Property Token (under US$100).

Debt

In the simplest terms, blockchain technology can be used to tokenize debt to the point that traditional financing could become a thing of the past. Imagine raising funds for a business through peer to peer platforms and completely bypassing banks, while maintaining the right level of security and meeting all regulatory compliance.

Nevertheless, it is likely that the biggest users of debt tokenization will be the financial institutions. See J.P. Morgan’s Onyx Has Tokenized $300B of US T-Bonds So Far

NFTs

A few years ago, it was impossible to imagine that the Non-Fungible Token (NFT) market would grow as much and as fast as it has. According to Skyquest, the Global Non-Fungible Token (NFT) Market is expected to reach a value of USD 122.43 Billion by 2028.

Some argue that NFTs are a passing trend, but the reality is that NFTs can have real value and can combine with other forms of asset tokenization in multiple ways.

NFT Use Cases

  • Art
  • Music
  • Gaming
  • Fashion and wearables
  • Events and ticketing
  • Social media
  • Metaverse
  • Virtual land
  • Digital identity
  • Fantasy sports

Vehicle and Land Titles

There is no reason why vehicle titles, land titles, and any other titles or similar instruments can’t be tokenized. Titles stored on the blockchain make ownership transparent, secure, verifiable, and recognizable by local and global economies.

Medici Land Governance, an Overstock.com subsidiary has been using blockchain technology for a few years to support land governance, titling, and administration with a secure public record of land ownership.

Businesses and Business Entities

When it comes to tokenizing a business, this often means tokenizing the legal entity owning the business. If you want to tokenize a restaurant and the restaurant is owned under the entity Restaurant LLC, then most likely way do so is to tokenize the entity named Restaurant LLC itself.

The bottom line is you can tokenize any business!

Crypto Mining Farms and Mining Power

Cryptocurrency mining in large scale requires significant expenditures, especially when mining Bitcoin. Not surprisingly, companies like RenewaBlox, the worlds first exclusively renewable, immersion cooled, Bitcoin mining farm is planning to tokenize their business using the Ravencoin blockchain.

Tokenize Farms, Nature, Forests, Carbon Credits, Mines, etc

Farms of all types, anywhere in the globe can be tokenized. This could include livestock farms, fish farms, market gardens, orchards, vineyards, etc.

Additionally, forest of all types can also be tokenized. In fact, I’ve personally been exploring the idea of tokenizing timberland for the purpose of delaying clearcutting. This is an alternative form to selling carbon credits. It is easy to see how carbon credits will eventually be tokenized.

See Single.Earth Raises $7.9M Led by EQT Ventures to Tokenize Nature. According to their website, Single Earth is a platform that tokenizes nature for its ecological value – carbon sequestration, storage, and biodiversity.

Then there’s also Sustainable Impact Token (SIT), which utilizes algae biomass to generate tokenized carbon credits.

Sport Teams, Race Horses, Race Cars, etc

Companies like My Race Horse and The International Racehorse Owners Network (IRON) want to allow the general public to have fractional ownership in horse races. This can be new and exciting for race horse fans, but also can open new financing opportunities for horse owners, trainers, etc.

Books, Intellectual Property, Patents, etc

Late last year, True Return Systems LLC and Accu 2.0 LLC were seeking to auction US Patent No. 8,538,860, as an NFT, with a starting bid at around $7.5 million. This is believed to be the first patent auctioned as an NFT.

Car Rentals and Mobility Services

Asset tokenization has the potential to disrupt the car rental industry and mobility service providers like Uber and Lift.

In late 2020, Fetch.ai announced the launch of Mobility Framework. Fetch aims to provide decentralized mobility service solutions to local economies, delivering a hyper-local service through a common user-focused experience.

Luxury Goods Like Cars, Wine, Cigars, etc

The luxury good market is prime for asset tokenization. It is easy to imagine a world where luxury goods can be represented by a unique token that can also serve to trade (either whole or fractionalized), provide authentication, and even track the history of each unique item. Below are a few examples.

Late last year crypto startup CurioInvest began selling tokens for a limited-edition 2015 Ferrari F12 TDF. The car was originally valued at around with a $1.1 million. See When Ferrari? Tokenized Supercar Gives European Investors Exposure to Asset Class.

The tokenized Ferrari F12 TDF up for sale see CurioInvest

Vinsent, an Israel-based company combines blockchain technology with the concept of “wine futures.” Each wine bottle has its’ “token,” residing on the Ravencoin blockchain.

Conclusion on The Best Assets to Tokenize On the Blockchain

Above are just a few examples of the best assets to tokenize on the blockchain. The fact is that you can tokenize almost anything, including gold, gold bars, gold coins, silver, and other precious metals. You can tokenize collectible items, historical documents, important documents, etc. In fact, anything that benefits from a barcode could probably benefit in some way from tokenization.

Watch Out! Turmoil in the OpenSea NFT Marketplace

Guest
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Watch Out! Turmoil in the OpenSea NFT Marketplace

The Death of OpenSea

It was a Sunday morning, and I was in my garage working on my car, while listening to a Twitter Space call about the OpenSea NFT marketplace.  There was something different about this call.  The audience was huge, well over 2,000 people were participating in the call.  And there were a lot of Twitter users with those blue checkmarks. By the time I joined in, the call had already been going on for several hours.

The title of the Twitter Space call was “The Death of Opensea.”  What a great title!  That’s what drew me in.  As I listened, it became evident people were fed up with the persistent problems with the Opensea NFT marketplace. 

Hosts and listeners exchanged thoughts and ideas on how to make things better and how to replace Opensea with something else.  Much of the conversation revolved around the problem of having such a centralized NFT marketplace. 

After 30 minutes or so of listening I couldn’t hold back any longer.  I felt compelled to speak. People needed to know that there already is an answer to almost every problem being discussed on that call.  I had to share this answer with the 2,000 people or so listening. 

So, I pressed the button requesting to be allowed to speak.  And I waited, and waited, and waited.

The Opensea NFT Rapid Growth Created Huge Challenges

It isn’t difficult to understand why there’s so much turmoil in the Opensea NFT marketplace.  The reality is Opensea is a victim of its own success.  Opensea grew so fast that keeping up with growth alone was probably a monumental task. 

However, Opensea was perhaps destined to fail from the start for a different reason.  The host on that call could sense it, and many others on that call could sense it also.  But they couldn’t put their finger on the issue.

I don’t pretend to be an expert.  But, I have stumbled into some knowledge that opened my eyes to the problems with most NFTs and the problems with Opensea.  Better than just seeing the problem, what I actually stumbled into was the solution. This is what I wanted to share with those 2,000 listeners.  So, I kept waiting for my turn to speak. 

Numerous Problems with Opensea NFT Marketplace

When doing research for this article, I did online searches for problems with Opensea.  It takes but a few minutes to grasp how bad things are. 

There’ve been so many problems with OpenSea that a person could write an entire book on all the different issues. Again, some problems can be attributed to how fast OpenSea grew. However, other problems are fundamental.

The Problem People Don’t Want To Hear About

I had waited for over an hour and it was finally my turn to speak on the Twitter Space call.  Finally, this was my opportunity to let the audience know that the biggest problem with Opensea was its use of smart contracts.  I was also eager to let everyone know that I knew of a simple solution to this problem.  

Up to this point, speakers on this Twitter Space call had not been interrupted by other hosts or speakers.  But the moment I said that the problem with Opensea had to do with smart contracts, others were quick to interrupt.  I had to fend off several attempts to derail my exposition. 

Could people not see what was so obvious to me?  I did my best to present a cohesive argument, but I wasn’t allowed to engage in a real discussion.  The host and co-hosts moved on as fast as they could to the next person. Other speakers had been allowed 30 plus minutes to speak. I was given little time, despite presenting a very different perspective to the group. 

The call continued for what seemed to be over 12 hours long!  I had only listened for maybe 3 hours.  A few Twitter friends were listening when I spoke.  They agreed with me that for some reason the host and co-hosts didn’t want to hear my argument.  But why?

Well, it should have been obvious to me.  The influencers leading the call profit from the use of smart contracts.  They don’t want to hear me or anyone else speak of why smart contracts are the problem. They would love to have a decentralized alternative to Opensea, but it would need to be an alternative that doesn’t disrupt what they are doing.

The problem with Smart Contracts

Where do I begin? 

Smart contracts are too complex to be understood by the average NFT collector.  Smart contracts can be hacked, can have errors, require upkeeping, etc.  Most importantly, smart contracts don’t allow the NFT owner to have full control of their NFT.  The latter reason, in my opinion, is the biggest problem with smart contracts.  

Here’s the thing to remember: Smart contracts are the wrong tool for handling NFTs. 

I’ve written a couple of articles on some of the problems with smart contracts, which I am linking below, in case you want to learn more about this.

With all these problems, why DO we use smart contracts for something so simple as transferring digital images?  Answer: Because that’s what Ethereum did and that became the default answer.  And let’s not forget that thousands of people are earning millions of dollars in the NFT ecosystem involving Ethereum, smart contracts, NFTs, and marketplaces like Opensea.  Obviously, these savvy entrepreneurs have little incentive to truly solve the Opensea NFT marketplace problems.

The problem with Centralization

The other problem with the Opensea NFT marketplace is its centralized nature.  During that Twitter Space call numerous speakers made the case for decentralization.  Yes, a decentralized NFT marketplace sounds great!  But how do you create decentralization when dealing with smart contracts?  I argue that you can’t. The video below by an Ex-Google, Ex-FaceBook TechLead supports my point, at least in part.

The bottom line is that if you could create NFTs without having to rely on smart contracts, then decentralization of the NFT marketplace would have a chance.  I realize true and pure decentralization is probably unlikely, but I believe we can definitely get away from the extreme level of centralization occurring at Opensea today. 

Other NFT Marketplaces Dealing With Smart Contracts Will Experience Similar Challenges

Other NFT marketplaces such as Looks Rare, Rarible, etc will likely experience similar challenges to the challenges OpenSea is facing. Namely, these marketplaces are also dealing with smart contract based NFTs. And this alone forces these marketplaces to be more centralized than is desirable.

Also keep in mind that these marketplaces are trying to become an alternative to Opensea. To a large degree, they must be compatible with OpenSea. As a result, they have little incentive to be fundamentally different or to explore significantly different technologies.

An NFT Marketplace Void of Smart Contracts

Ultimately, the only real solution or alternative to OpenSea’s troubles is an NFT marketplace void of smart contracts. But is this even possible? YES!!!!

The answer lies within the Ravencoin (RVN) protocol.  Unfortunately, Opensea doesn’t want to hear this.  Why is that?  Well, it’s for the same reason the host and co-hosts of that call didn’t want me speaking.  They believe in the system that feeds them and they will die to protect it. 

As for me, I believe in the efficiency of the free market.  I believe a simple protocol, without smart contracts, is more efficient.  And I believe a higher level of decentralization is the best option. 

And it just so happens that that’s the ethos behind Ravencoin.  Ravencoin is a fork of Bitcoin and it is open source.  Ravencoin developers took the best crypto code and modified it exclusively for the purpose of creating assets and transferring assets.

The result is asset creation and transactions are handled at the base layer, without coding, without smart contracts. It is a simple and elegant solution.

With Ravencoin you can transfer an NFT as easily as you can transfer Bitcoin.  And when the NFT hits your wallet, all you have to do is to ensure you keep your keys.  If you have the keys to your wallet, then the crypto in the wallet and the NFTs in that wallet are yours. 

How Exactly Is Ravencoin the Solution to the Opensea Troubles?

First, when minting something on Ravencoin you can do it directly to the blockchain without having to deal with a third party.  You don’t need an NFT marketplace to do that for you. All you really need is the Ravencoin wallet with the minting feature.  I know of at least three wallets with these features, the Ravencoin Core wallet, the Mango Farm wallet, and the Stibits wallet. 

Second, once you mint something you can send it to anyone, directly.  All you do is transfer the asset, similar to how you would transfer Bitcoin. Below is a screenshot showing how easy it is to send an asset using the Mango Farm wallet.

But wait, where would that leave OpenSea?  You got it!  A Ravencoin NFT ecosystem could potentially be fully decentralized, therefore it could completely eliminate the need for OpenSea. But the reality is, users will still want an easy-to-use marketplace.  So I believe there will still be space for NFT marketplaces, but not fully centralized marketplaces like OpenSea. 

In fact, there’s one marketplace that is as decentralized as they come, Mellori.Market.  Think of Mellori as an NFT vending machine.  As a collector, you pick the NFT you like, you enter your receiving address and you send payment to the address provided.  At that point Mellori simultaneously sends you your NFT and sends the artist their payment for the NFT, minus Mellori’s fee. 

How cool is that?  No smart contracts, no code, no complex transactions.  This is extremely convenient and very decentralized. 

Below is a great video by my Twitter friend HypeManRVN showing you how easy it is to buy an NFT from Mellori.Market.

Conclusion

In conclusion, Opensea is in part a victim of its own success and in part a victim of smart contracts. Smart contracts are too complex and too vulnerable to hacks, attacks, etc. Ultimately, smart contracts make it very difficult for NFT marketplaces to be decentralized.

The real solution to Opensea’s troubles is for users to create NFTs without smart contracts. The only crypto protocol I know of that can do that is Ravencoin.

Unfortunately, Opensea NFT marketplace and other smart contract based NFT marketplaces don’t want to hear this. These marketplaces and the entrepreneurs becoming wealthy through the smart contract ecosystem aren’t incentivized to make significant changes.

In the end, I believe the efficiency of the free market will prevail and this will ultimately be the death of the Opensea NFT Marketplace.

Look! Not Your Keys, Not Your NFTs – Don’t Be Fooled!

JC Keen
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Look! Not Your Keys, Not Your NFTs – Don’t Be Fooled!

If you are into cryptocurrencies, then you’ve heard the saying “Not your keys, not your crypto,” or “Not your keys, not your coins.” Have you ever considered that the same principle should apply to NFTs? Yes, the saying “Not your keys, not your NFTs” should be an obvious principle. In fact, NFT marketplaces like Opensea could save a lot of trouble if they could just apply this very simple principle to NFTs.

What Does Not your Keys, Not Your Crypto Mean?

I am going to assume that if you are reading this article you already know the basics of what this means. In short, if you don’t have the private keys to your own crypto wallet, then most likely you are relying on someone else to keep custody of these keys. The most common situation is that you are relying on a third party (i.e. most cryptocurrency exchanges like Binance, Coinbase, Gemini, etc.) to handle the keys to your crypto.

The problem with this is, the said third party also has full custody of “your” crypto. Obviously, that party could take all of your assets, without your consent.

To learn more about what not your Keys, Not your Crypto means, watch the video below.

Crypto is Supposed to Remove Trust and Centralization

Satoshi Nakamoto said “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

Perhaps the two most important key elements of the Bitcoin experiment is that BTC aims to remove trust and centralization. Yes, Satoshi’s goal was to create a system where you and I could exchange crypto without having to trust in a third party.

So, why do millions and millions of users continue to trust in centralized third parties? I don’t claim to have the answer, but a few reasons come to mind:

  • Lack of education – Many users don’t understand the risk they are taking when they rely on custodial third parties.
  • Convenience – Many users understand the risk, yet they don’t want to be bothered with the hassle of keeping track of their keys.
  • Crypto is too complex – It may be that managing crypto is still too complex for the average user.

Regardless of the reason, the fact is too many people let others handle custody of their keys.

Not Your Keys, Not Your NFTs

When it comes to NFTs, the problem is much larger and complicated for two main reasons. Firstly, most NFTs are unnecessarily more complex than crypto. As such, users have a higher difficulty recognizing the risk of not owning their keys. In fact, most NFT users don’t even think about keys. Secondly, most NFTs are created using smart contracts and in said cases the party controlling the smart contract has full control of the NFT.

Collectors buying an NFT on Opensea don’t hold the keys to anything. Rather, they rely on a smart contract that tracks ownership of the NFT. Ultimately someone else has control of the NFT.

The Solana Banana Fiasco

Allow me to illustrate this problem with a real life example. Recently, a Twitter user reported a situation where collectors bought HotSpringMonkey NFTs and woke up one day to find out that their NFTs had been converted into images of bananas.

How could this happen? Fairly easily actually, if someone else controls the contract for those NFTs. My understanding of the situation is that HotSpringMonkey had a DAO (Decentralized Autonomous Organizaion) managing the contract. And the DAO voted to convert any HotSpringMonkey NFT that was listed for sale for less than 1 Sol to a banana.

The idea was to force the market to raise the floor price of these NFTs. But that’s beside the point. The point here is that someone else had full control of the NFT. And this was possible because the smart contract permitted all of this.

Smart Contracts Are The Wrong Tool for Handling NFTs

The biggest problem with trying to apply the Not Your Keys principle to the NFT market is that most NFTs are created using smart contracts. And as we’ll discuss below, smart contracts are the wrong tool for handling NFTs.

Think of how simple a bitcoin transaction is. You give me your receiving address, I enter it in the sending section of my wallet, I enter the amount, and then click send. And that’s all. Within minutes, the transaction is completed and recorded on the blockchain, without the need of a smart contract.

Sending a digital image shouldn’t be more complicated than that and it shouldn’t require smart contracts. Smart contracts may be a good solution for other problems, like decentralized finance (DeFi), but not for NFT sales. The fact is smart contracts are just too complex to be used for simple transactions. These complexities introduce unnecessary risks into the NFT space.

See article best crypto for asset tokenization – 9 Most Common Smart Contract Vulnerabilities, which include:

  1. Indirect execution of unknown code
  2. Reentrancy
  3. Incorrect calculation of the output token amount
  4. Interface / naming issues
  5. Dependency on the order of execution
  6. Time component
  7. Using the blockhash function
  8. Incorrectly handled exceptions
  9. Incorrect work with ERC20 token

Most people use smart contracts to mint NFTs, because that’s what Ethereum did and Ethereum led the way. But this precedence doesn’t mean that smart contracts and NFTs are the best fit for each other. The bottom line is smart contracts are the wrong tool for handling NFTs.

What If You Could Mint and Trade NFTs Using Bitcoin, Without Using Smart Contracts?

You can! Please allow me to elaborate. Bitcoin has been forked to create multiple other currencies. For the most part, these cryptocurrencies utilize major portions of the Bitcoin code, and modify other parts of it. In doing so, developers can create cryptocurrencies aimed at more efficiently solving specific problems. These cryptos could be faster, have bigger blocks, higher supply, etc. One such example of said cryptos is Ravencoin (RVN).

Ravencoin was forked from Bitcoin and modified specifically for the purpose of minting and transferring assets. Ravencoin’s developers modified Bitcoin’s code in order to handle asset creation and transfers at the base layer. RVN doesn’t rely on smart contracts. However, it can be integrated with smart contracts, but that’s not necessary, especially when dealing with simple things like NFTs. The bottom line is that transferring Ravencoin NFTs is as easy as transferring Bitcoin. All you really need is an asset aware wallet.

When you buy an NFT minted on Ravencoin the NFT can be sent to your wallet, just like Bitcoin can be sent to your wallet. The important part is that once the NFT is in your wallet and you have the keys to your wallet, then no one can touch your NFT.

The solution to the Not Your Keys, Not Your NFTs challenge is simple. When you wrap your brain around it you’ll wonder what in the world we were thinking using smart contracts for minting NFTs.

If you are interested in learning how to mint Ravencoin NFTs, this video shows you how using the Mango Farm Wallet.

If you are interested in creating a generative NFT collection, then this video showing a website called Ravenmint is a good place to start.

NFT Proof of Ownership And Proof of Authorship

Having said that, the NFT marketplace struggles with two other related challenges, proof of ownership and proof of authorship. When you buy an NFT, how do you know that what you are buying is the original NFT and not some copycat NFT? Or how do you know that the NFT you are buying was created by the artist you believe created it?

If the NFT you are buying was minted using smart contracts, then you won’t be certain of anything unless you can read code and understand what the smart contract says.

However if you are buying an NFT minted using Ravencoin, you can easily confirm the NFT you are buying is an original NFT from the artist you intended to purchase from. This is because when an NFT is minted on Ravencoin, the creator utilizes unique human readable asset names to create collections and NFTs.

For example, I created a collection called CryptoMona. This is an NFT collection based on Davinci’s Mona Lisa. You can go to Ravencoin Asset Explorer and see the name of the NFT, the name of the collection, and the image associated with that asset. And remember, there can only be one CryptoMona collection on the Ravencoin blockchain. And I am the only person that owns the CryptoMona name on the Ravencoin blockchain.

CryptoMona 97

Can you see how Ravencoin solves the proof of ownership and proof of authorship problem?

Don’t Be Fooled! Not Your Keys, Not Your NFTs

In conclusion, if you are buying NFTs from marketplaces like Opensea, Looks Rare, Rarible, etc then you are buying NFTs minted using smart contracts. If you are buying NFTs using smart contracts, then you don’t really own the keys to your NFT. And as I showed you above, Not Your Keys, Not Your NFTs. The Solana Banana example mentioned above tells the story.

The answer to the Not Your Keys, Not Your NFT challenge is to continue to educate people about the inherent risk of not owning the keys. But most importantly, this challenge would be so much easier to overcome if people stopped using smart contracts to handle simple things like NFTs. There are better protocols out there, like Ravencoin, for simple things like minting and transferring assets.

10 Great Reasons to Buy Ravencoin | Investing, Best investments, Cryptocurrency
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