Imagine a cryptocurrency that was backed by real world assets, had mechanisms to stabilise the price, allowed property owners to borrow money against their properties at only 2% above the LIBOR interbank lending rate, were regulated by accredited government agencies and monitored by global, reputable legal firms and guaranteed a 15% return on investment after one year.
“Cryptocurrencies are dangerous!”, “Stay away from Bitcoin”, “Anybody who invests in Cryptocurrencies are going to get a rude shock one day when they wake up and realise that what they own is actually worth nothing!” …
What if Cryptocurrencies DID actually have intrinsic value and were backed by real tangible assets?
Many people are still very dubious about going near cryptocurrencies, especially in a business capacity due to some of the headlines that have come out of late. Before I get into what I think might be one very viable use of the blockchain in the real world, I’ll tell you a bit about my experience both good and not so good so far with cryptocurrencies.
In August 2017, a close friend who works in tech got onto the topic of Bitcoin and Crypto currencies. This wasn’t the first time. He had mentioned them to me on many occasions ever since around 2014. “In 2014 I invested around USD$35,000 in Bitcoin – just between you and me, out of all the investments that I’ve made, this has by far been the best”. He had invested around USD$35,000 buying what I estimate to be around 55 bitcoins back then. At the time of our conversation, that USD$35,000 had turned into over USD$200,000. By November of 2017, those same coins would have been worth over USD$1.1 Million.
Each time he had spoken about cryptocurrencies and in particular Bitcoin, I would go away with my mind buzzing and then go and research about blockchain technology, I’d be intrigued over the mystery of Satoshi Nakamoto and then go through a process of reasoning that ultimately led to my deciding not to invest in cryptocurrencies. Those words of warning at the top of this article always ended up getting the better of me.
This time was different. Since our last conversation, I realised how easy it was in Thailand to buy and sell cryptocurrencies, so that night I went and opened an account with a local exchange in Thailand and purchased an amount of cryptocurrencies -mainly Bitcoin and Etherium. The price then was around USD$3,200 per Bitcoin. By November, that price was almost seven-fold, hitting over USD$20,000! The bubble eventually kind of burst and every morning the $USD amount I would see in my wallet deflated day after day – just like they warned us. Overall however, the price of Bitcoin is still up above USD$10,000 today after spending several weeks closer to half of what it is worth today.
I must admit, with the price of Bitcoin and other cryptocurrencies going on a roller-coaster ride over the past months, my mindset has fluctuated as to how I actually feel about crypto investment. I managed to get through the turbulence of the past few months relatively unharmed – however there were days that were admittedly more harrowing than others. In my mind, the main downside from my experience is the amount of fluctuation in price from day to day and even minute to minute. If there was something that could stabilise the risk, it would be a much more comforting investment solution.
Anyone who has dabbled in cryptocurrencies would have most likely traversed the well trodden path of hours of Youtube videos teaching about immutable ledgers, public and private keys and of course the blockchain. Along with people who have bet the farm on Bitcoin and can’t be convinced that it isn’t the saviour of the planets financial woes, you’ll also come across many in the financial and other industries that despise cryptocurrencies saying that they are not viable as currency, transactions are slow and are becoming more and more expensive, not to mention price fluctuations that make it impossible (or insane) to use cryptocurrencies for regular commerce. In their minds, the whole cryptocurrency space is dodgy and lends itself to malfeasance.
Even many of these same people in the financial sector including JP Morgan’s Jamie Dimon who declare their disdain for cryptocurrencies will still say however that while they hate Bitcoin, they do** see potential in the technology.** Blockchain technology eliminates the need of central, ‘trusted’ 3rd party institutions like banks to be gotten rid of when it comes to keeping a ledger of money and dealing it out to people, recording transactions. Whether a financial transaction, or a smart contract that has been made on a network like Ethereum, the way the technology works is that every single transaction is stored on many different people’s servers around the world and then those transactions through the use of cryptography become set in stone on a ledger – and that ledger just like an egg being beaten into a bowl of cake batter, becomes an integral part of the next ‘block’ of ledger transactions in the chain. Once agreed upon by several different machines in the network that the transaction is legitimate, that transaction is confirmed and can never be deleted. That means that we don’t need to trust any 3rd party anymore. The system takes care of the need to trust anyone. With technologies like Ethereum or ‘Ether’ for short, rather than just having ‘trust’ built around financial transactions, people or companies can make ANY kind of agreement and have all the required data, information etc. that needs to be verified as part of a digital ‘ledger’ record that is verified across the network, so that when certain criteria are met, then some kind of action could be triggered. One example the purchase of a car or a house. Rather than having to check with all the relevant bodies to make sure the seller actually owns the property, no outstanding monies are owed on the property, the zoning is verified and the funds are in Escrow, all of this information can be uploaded to a ‘smart contract’ on a property and as long as everything is in place and the funds are present and ‘trusted’, the contract can execute, the deed can be transferred and all paperwork updated in a way that cannot be erased or ‘fudged’ in the future. Just imagine if your vehicle’s entire history – every nut and bolt, engine part, chassis etc. was all traceable and part of that vehicles digital ‘identity’ and purchase / payment history was stored within a blockchain system. When it came to purchasing that car, you would know everything about the car and as long as everything checked out, there would be no need for a middle man. This has started to happen now, and some companies are working on getting all motor-vehicle data accessible by such systems in a move to decentralise car sales. Likewise with homes and properties. Ethereum is one technology that is making all of this possible.
In the past, money was backed by something that had intrinsic value like gold. The money represented a proportionate amount of gold and could be redeemed for such if needed. Money is no longer backed by gold, and therefore in the eyes of some, has no real intrinsic value anymore.
Most people associate Cryptocurrencies with digital ‘mining’ which means that people around the world invest quite substantial amounts of money in building farms of specially built very powerful computers to run unimaginably complex math problems which eat up a lot of electricity and subsequently cost a lot of money (electricity bill). When the problem is solved, that ‘miner’ (owner of the computer that solved the problem) gets rewarded with a certain amount of the cryptocurrency that they were mining. This is where many of the crypto-naysayers jump in and say “See – the cryptocurrencies have no real value … they are just made up digital values that can’t be linked to anything of real value. The only thing of ‘real value’ in their eyes might be the electricity consumed, but that is hardly a tangible asset. In fact, it is something that might have caused more damage to the planet than anything.”
Last week we met the team from a new venture that have spent a lot of time trying to develop a system that takes advantage of all the crypto technology discussed in this and more, to solve the issue of both developing a currency that is backed by tangible assets that have real value, and developing a loan system that is removed from financial / banking institutions and offers real money back to land sponsors against their verified properties that have been scrutinised by official legal firms and other government accredited legal and compliance bodies, at interest rates that are way below the rates that banks will lend them money. The interest rate will be 2% above the LIBOR lending rate used internally by banks. The current USD$ LIBOR rate is 2.4%.
From the BIG Token whitepaper:
The properties that they have chosen will be branded properties and be run as hotels, spas and provide services that can generate revenues that can be paid for either in cash through normal payment channels, or through payment of BIG Tokens that they are obliged to accept. All of these transactions are done through the Ethernet system. The loan repayments are also transactions returning currency back into the system.
The business model is stated as such:
What is unique about BIG Token is that every face-value dollar of BIG token is backed by a dollar in the equity value of the physical underlying real estate assets. The number of BIG tokens will be limited by the equity value of the real estate assets (appraised value) held by the land sponsors.
*The land sponsors will receive up to ****80% ****of the loaned amount in fiat currencies. Another ****10% ***of the loaned amount will be borrowed in an equivalent amount of BIG tokens to be held in trust by BIG Grp Co., Limited until the loan is fully repaid. This acts as a safeguard should the land sponsor defaults on interest payments, the sponsor can use this 10% of the loan amount in tokens as interest payments. (The remaining 10% of the loan amount in the use of tokens is stipulated in point 6 Managing Stability.)
Should the price of these Ether facilitated tokens crash, they will never go lower than the value of the land that they are backed by. If the value goes up on crypto exchanges, then all owners of the tokens benefit from the raise in value.
The following diagram describing the ecosystem is taken from the whitepaper.
I have sat over the past week trying to poke holes in the system to see where it might fall down. Given that the BIG Grp Co., Limited which is registered in Japan has set up a very strong compliance / regulation component administered by the Japanese Ministry of Finance and has a very strong group of legal advisors from several firms in multiple countries, it looks like they have covered all of the bases that might otherwise be cause for alarm. They also have a mechanism built into the model to mitigate price volatility where up to 10% of the loan amounts are set aside in a common pool to be held in trust.
On the topic of speed of transactions, the system uses a combination of technologies, also taking advantage of the Hashgraph system. These technologies mean that transactions will be much faster than what people have experienced with say Bitcoin over recent times and the transaction fees will be much less and very secure.
Getting Your Hands on BIG Tokens
The group will be doing an initial ICO looking to raise USD$40 million (hard cap USD$32 million + USD$8 million in reserves and a soft cap of USD$3 million), which is the appraised valuation of the current properties in the pool. BIG Token will be releasing a total of 400 million tokens where 320 million will be available for purchase and 80 million will be kep in reserve for purposes of token volatility.
The carrot being dangled for anyone buying in during the ICO is that they guarantee a payback of whatever you made your initial purchase of during the ICO period + 15% after one year. That means, after one year, if the price of the token drops, you can get all your investment back plus 15%. It’s anticipated that the prices will rise, and if this happens, then all who hold the tokens get the reward. It also means less of a burden for the loans that have 20% of their value being held in tokens.
To learn more about this click here and also leave comments in the comments section. We will do our best to get people from the token engaged in answering any questions that I’m sure are buzzing in your mind.
This may well be one of those ‘use cases’ of the blockchain that can indeed the way the hotel market works as well as the financial and lending systems that we use on the planet, eliminating the need for the middle men along with their high interest rates, all the while ensuring compliance and making all efforts to mitigate against volatility, basing the value of the cryptocurrency on a real hard asset.
Let us know what you think.