MARCH 20, 2022 | Issue 07
RESIST THE HYPE AND URGENCY FROM CRYPTO EVANGELISTS
For about a year, I've been learning about crypto, blockchain and its progeny – NFTs, deFi, DAOs, and the metaverse.
The technologies are intellectually stimulating and it's been fascinating to watch politicians, the mainstream media, banks, corporate executives, crypto industry leaders, celebrities, presidents, and prime ministers talk about crypto.
Crypto has been front page news since I started this newsletter. My biggest challenge has been deciding which stories to omit.
However, in our little residential real estate corner of the crypto world, there is not much breaking news. When there is, I've noticed something troublesome.
There are a handful of entrepreneurs that dominate the crypto real estate news and their messaging often has an air of superiority.
"You can either join our movement and help create the future of real estate, or you can be a dinosaur and face extinction."
What really irks me is when they quote Satoshi Nakamoto, Bitcoin's creator. He wrote, "If you don't believe or don't get it, I don't have the time to try to convince you."
How obnoxious!
Ignore the taunts and don't let their demeaning tone dissuade you.
Any new technology has its pros and cons.
Read, learn, and ask lots of questions.
Be patient. Unless you are a software engineer or a super intellectual, this stuff is really hard to understand.
Don't feel rushed or pressured into jumping on the crypto bandwagon.
Also, we aren't alone. I'm happy that we have friends and colleagues in title, mortgage, and law who can work with us to understand how crypto, blockchain, and maybe even NFTs, can improve how we serve buyers and sellers.
Today, I read a wonderful academic paper on the promise and challenge of blockchain and whether it can abrogate title insurance. This 20 page, footnoted paper made me realize how vital it is for real estate brokerage needs to dive deep into crypto issues.
Do you think I should create a working group with brokerage, mortgage, title, and law to discuss these issues?
I'd love to hear your opinion.
As always, reach out to me if you have any questions about crypto. I'm here for you. Enjoy this newsletter, share it with your colleagues, have a great week, and stay crypto curious! Rich Hopen richard.hopen@compass.com 908.917.7926 PS. You can find all CNR newsletters here.
CRYPTO & REAL ESTATE
▸ Challenges of Using Crypto in Real Estate Transactions
As a real estate agent aspiring to be "crypto savvy," I'm humbled by the challenges of using crypto in a deal.
One of the biggest misconceptions among crypto holders looking to buy real estate is the lure of tax avoidance if they buy a property directly from a seller with crypto. While a direct buyer-to-seller transaction could be done privately on the blockchain, it doesn't insulate either party from tax liability. The IRS states that a buyer who exchanges their crypto for property must recognize a capital gain or loss. The same tax rules apply to a seller who receives payment in crypto. The seller's basis in the crypto is the fair market value at the time it's received. Given the wild swings in price, that presents an interesting timing issue. When will the crypto change hands from buyer to seller? In addition to tax issues, some of the other problems are ensuring conveyance of the deed and payment, preparing the title documents, lack of title insurance in states prohibiting title insurance for crypto transactions, and paying other parties, such as real estate agents, counties, and states. If you're working with a buyer or seller and crypto is involved in the transaction, I'm happy to answer any questions and help you navigate the challenges.
▸ HSBC Follows JPMorgan Into the Metaverse
A few weeks ago, I wrote about JPMorgan's purchase of a virtual space in Decentraland. This week, HSBC announced its acquisition of virtual real estate in The Sandbox metaverse.
HSBC said, "When you think about the of the metaverse – or metanomics – there are opportunities in almost every market area."
CRYPTO NEWS
▸ Ethereum Creator Graces Time Magazine Cover
Vitalik Buterin, (see Crypto Influencer in Crypto News for Realtors, Issue 01) laments how scammers, hucksters, and wealthy crypto investors who flaunt their ostentatious lifestyle could lead crypto down a "dystopian" path.
Reporter Andrew R Chow writes: "Buterin hopes Ethereum will become the launchpad for ... 'fairer voting systems, urban planning, universal basic income, and public-works projects.... If we don't exercise our voice, the only things that get built are the things that are immediately profitable.'"
The article is an interesting biography of Buterin's life beginning in Russia and then emigrating to Canada where he learned how to read before he could sleep through the night. At 4, he started playing with an old IBM computer and coded at 12 in Microsoft Office Suite. At 18 Buterin started Bitcoin Magazine and wrote the Ethereum white paper in 2014.
▸ Eight Members of Congress Call Out SEC Chair For Using Excessive Enforcement Against Crypto Firms
Following last week's executive order from President Biden that called for a coordinated federal approach to crypto regulation, a bipartisan group from the House questioned the Securities and Exchange Commission.
The Representatives sent a letter with questions about onerous SEC document requests. US Rep. Tom Emmers tweeted "Crypto startups must not be weighed down by extra-jurisdictional and burdensome reporting requirements. We will ensure our regulators do not kill American innovation and opportunities."
Elsewhere on the Hill, Senator Warren held a hearing on sanctions and introduced a bill giving broad authority to the Department of Treasury to regulate the crypto industry.
In a widely tweeted exchange with crypto industry leader Jonathan Levin, co-founder of Chainalysis, Warren refused to learn from an expert.
▸ Miami and NYC Mayors See Huge Upside in Crypto
Crypto-friendly Mayors Francis Suarez (Miami) and Eric Adams (NYC) spoke at a Web 3.0 conference. Suarez likes the idea of surpassing other countries by investing and supporting the new technologies.
Adams said blockchain can fight income inequality. He is looking at providing food stamps on digital wallets and putting public records on the blockchain. Adams also said he's going to build a blockchain and crypto educational platform. He wants to give young people cryptocurrency so they can learn about the technology.
▸ Proof-of-Work Ban in Crypto Fails in EU
Below, Crypto Class explains PoW and how it is keeps the bitcoin blockchain operational. This week, a committee of the European Parliament deleted language that was targeting cryptocurrencies like bitcoin.
CRYPTO CLASS - Proof-of-Work
The Bitcoin blockchain is secure from hackers because of a mechanism referred to as Proof-of-Work.
Unlike a traditional database that is housed in a central location with someone ensuring its security, the Bitcoin blockchain is distributed around the world in over 15,000 locations.
As a distributed ledger, it is self-governing.
Each location is a node. A node is essentially a large bank of computers. They validate the blockchain and compete to acquire bitcoin. The operation is referred to as bitcoin mining.
The data in the existing blockchain and the new data that is added to it (in a block) is validated by everyone in the network.
Here's how proof of work ensures consensus. (This is a bit complicated, but if I could grasp it, so can you.) Every bitcoin transaction contains essential data – the two parties' digital wallet addresses, the transaction date and time, and other information that a sender adds. About 500 transactions, or 1 MB of data, is in each block. The blocks are sequentially "chained" together. All blockchain data is public and the miners continually access new transactions. They take the transactions and convert it into a string of alphanumeric characters known as a "hash." The hash is always 64 characters regardless how much data is fed into the SHA256 hash calculator. The hash for a new block is created by taking the raw data from the first transaction and converting it into a hash. The raw data from the second transaction is added to the first hash to create a new hash. This process continues until there is a hash of all 500 transactions. Let me show you how it works.
Imagine each paragraph of this Crypto Class contains data from a bitcoin transaction. 1) Paragraph 1 "The Bitcoin blockchain is secure from hackers because of a mechanism referred to as Proof-of-Work." becomes this hash:
c70de0ff57dd8b63106b5a996a82117242ccd6f93316ceddefdbbbc181796104 2) Paragraph 2 "Unlike a traditional database that is housed in a central location with someone ensuring its security, the Bitcoin blockchain is distributed around the world in over 15,000 locations" is added to
"c70de0ff57dd8b63106b5a996a82117242ccd6f93316ceddefdbbbc181796104" and it becomes this new hash: 23c5adc507b44fd4b353d834f5089133f8e2d57b0fe4b667980ec86f5de79b92 This is repeated for all 500 bitcoin transactions – the requisite amount for a new block in the blockchain. While the miners are doing this, they are also competing with each other in a contest that is essentially a lottery. They are trying to find a hash that matches a previously created hash for the current block.
The competing computers spit out randomly generated hashes until the winning hash is found. This requires massive computing power.
The winning computer gets the honor to "seal off" the new block of transactions with the block hash and assign the next block number. (As of this moment, 727,518 bitcoin blocks have been mined. A new block is mined about every ten minutes.)
The miner is rewarded with 6.25 BTC (about $250,000).
INFLUENCERS - People to follow
Brian Armstrong – @brian_armstrong
Armstrong (39) is the CEO of Coinbase, the second largest crypto currency exchange volume. Armstrong founded Coinbase in June 2012. He joined Y Combinator and his startup teamed up with former Goldman Sachs trader Fred Ehrsam, who later left Coinbase. The company launched in October 2012. The platform allowed users to buy and sell bitcoin with bank transfers. Today, Coinbase has a $37.2B market cap.
RESOURCES – Books, websites, podcasts, articles
Kings of Crypto: One Startup's Quest to Take Cryptocurrency Out of Silicon Valley and Onto Wall Street This book follows the story of entrepreneur Brian Armstrong whose vision was to take bitcoin mainstream. Unlike many other crypto books, this is a page-turner that I read in two sittings.
CRYPTO WORDS – Crypto Whales
Whales are individuals, exchanges, or entities that own a large enough share of a crypto currency that when they place a large order to buy or sell, they can push the price up or down.
The site Unusual Whales tracks them.
OH, ONE MORE THING – Watch Mila Kunis masterfully explain the Ethereum platform...
Thanks for reading! See you next week.