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March 21, 2018

Blockchain and The Lease

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We are seeing a mass amount of pent-up demand for shared-living/coliving experiences across generations. Every day, we see homeowners of all ages renting out a room in their home for mid to long-term stays, and coliving developments are exploding worldwide.

WHY?

Platforms are springing up to create a sense of trust and commonality between tenants and landlords. The top platforms are focused on creating a good experience for both parties.

But going forward, we need to expand our supply beyond homeowners because the demand for such experiences is expanding at a far faster rate than we can add supply.

So what’s holding the market back?

The Lease

The construction of any lease is based on an archaic set of laws set by each individual country. Before cities became global hubs of commerce, before mobile phones existed to create new networks across peer groups, and before Airbnb rose to prominence, the lease probably seemed like a good idea.

But nowadays, neither the tenant or landlord are truly protected by the lease. Any real-estate asset must have a level of flexibility to enable the mobility of people in and out. There is too much complexity in the modern world to be bound to a set of terms and conditions in a Word document based on laws from last century.

Cities are becoming fluid, rapidly-evolving hubs of commerce, exchange, and innovation. The lease is like the horse-and-buggy of the real-estate market, restricting velocity, movement, and flexibility of demand.

The Blockchain

Blockchain, the underlying technology behind bitcoin, is a public ledger that is immutable (cannot be modified) and verifiable for all on-chain transactions. It’s like a giant spreadsheet that sits in the public domain, secured by powerful computers using complex cryptographic protocols.

The cryptocurrency itself (ie. bitcoin, ether) cannot be separated from the blockchain, as being able to transfer a unit of value is fundamental to how blockchain technology works.

But blockchain technology is not limited to just cryptocurrency transactions. There are hundreds of decentralized applications (dApps) being built on protocols such as Bitcoin, Ethereum, etc. every day in industries such as finance, retail, media, etc.

One of the principal breakthroughs of blockchain technology is the ability to decentralize a certain function (ie. banking) by streamlining complex legal requirements using a token. By holding the token, a user proves that they have a vested interest in the outcome of said function. The legal terms and conditions surrounding that token empower the user to take certain action without themselves having to writeup and verify the full legal terms and conditions.

The lease is the perfect application for blockchain technology and the right type of token.

Tokenizing The Lease

In today’s world, the homeowner looking for rental income needs to make several tradeoffs:

a) turn over control of the rental to a high-fee agent b) maintain control but rent rooms on a low-trust listings platform c) list on short-term, high turnover platforms

By tokenizing the lease, we can create future scenarios where the homeowner can earn rental income in a flexible way without sacrificing trust. Furthermore, cities will be able to turn many empty or partially empty homes into fully productive assets, reducing the need to slap punitive taxes on homeowners who aren’t given enough options for renting their homes.

How?

1 The legal terms and conditions of the rental contract will be coded onto the blockchain using a smart contract

2 All local laws, taxes and insurance policies will be layered into the agreement, ensuring compliance is both automatic and transparent

3 The landlord/homeowner will enter into the agreement with the guest/tenant if they are living in the home. The terms will be simple and transparent for both parties and will come into enforcement when the initial rent payment (and deposit if applicable) is made

4 If the landlord/homeowner wants to rent out their whole home, they can similarly enter into an agreement with a third party who will manage the guests/tenants based on the parameters of the rental contract. Similarly, this agreement will come into effect when the first payment is made

5 Payments can be made in any currency, but the ‘lease token’ will be used to codify the rental contract onto the blockchain. Holders of such tokens have the ability to arbitrate and manage the contracts in the events that disputes emerge

6 The protocol will evolve to become a set of local rental contracts published on a global shared ledger, meaning that a user or entity in one country can engage with a user or entity in another country to create a rental contract

In the end, tokenizing the lease will evolve to facilitate commerce in the global rental market in a way that homeowners have full control over their rental assets and cities are able to maximize the productivity of those assets. This will create an ocean of supply for young people moving to cities and a new set of incentives around trust and integrity, as the lease will no longer become a boilerplate, black box contract that has no traceability.

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