Why is the Cryptocurrency Crisis not a Blockchain Crisis?
The crisis that has just hit the cryptocurrency market worries investors. However, we must be careful not to put everything in the same basket.
The crisis that has just hit the cryptocurrency market with the collapse of the FTX platform has investors worried, and this is quite normal. Nevertheless, we must be careful not to put everything in the same basket, not everything related to blockchain is toxic, on the contrary. Let’s get back to basics.
Not all tokens are cryptocurrencies!
What is a token? A token is a token, a unit of account, that exists in a decentralized ledger: this ledger is called a blockchain. This unit of account can mean whatever you want. There are countless signs, they can be utility, service, safety… They are simply linked by common characteristics and must be especially transferable and divisible. NFTs (Non Fungible Tokens) are a kind of token, they have the same properties but cannot be changed, they represent something that cannot be broken like a work of art.
The first token was bitcoin, the most popular cryptocurrency, and that’s where the confusion comes from. In other words, all cryptocurrencies are tokens, but not all tokens are cryptocurrencies! Cryptocurrency is only one application of blockchain, and not the most interesting one.
An example of tokens in real estate
Real estate tokenization involves dividing and selling a property into several fractions. Since a building or house cannot be divided, you create a company backed by property. The company can then issue shares. Thus, the investor is the owner of the share, which represents a part of the property. Tokenization simply means that these actions are represented by tokens and recorded on their blockchain: the previously mentioned decentralized digital ledger.
The security token, or in good French, the security token, therefore has nothing to do with cryptocurrency and therefore will not be directly affected in any way by the crisis raging in this market. This token has the same rights, requirements and restrictions as stock. Security tokens are RWA, “Real World Asset”. Unlike cryptocurrencies, which are based on nothing, here tokens are backed by a very real asset.
Solve the real estate crisis with security tokens
Today, we also fear the coming real estate crisis. Household purchasing power falls, interest rates rise, banks lend less and less easily, and so on. So how do you act in this context of the threat of a real estate crisis?
- Residential property, an investment to fight inflation
Real estate remains a large market and many asset classes are available. It is common to say that investing in real estate is important, but so is timing. Indeed, real estate cycles are longer than financial cycles, but they do exist. Depending on the timing, certain assets will be more suitable than others. You have to position yourself wisely, anticipate. If the housing crisis really explodes, people will still need housing and so it will simply level off, but the demand will still remain. Investing in residential real estate remains a good way to protect savings against inflation.
- Liquidity, removing barriers to entry and compound interest
There is no magic: the value of a security is tied to the real estate market. Nevertheless, it has some advantages. Tokens are extremely liquid. They make it easy to enter, but above all, to be able to exit without an intermediary at the moment when the investor needs liquidity. Tokenization also makes it possible to issue shares at lower prices, so entry barriers are removed, as you can invest from 50 euros. The security token is also a good tool for diversification, as the blockchain allows investing in real estate around the world.
Investing in stocks allows you to benefit from compound interest. This mechanism is theoretically impossible with a real estate investment that offers only simple income, rent. However, rents collected with tokens can be automatically reinvested into other tokens, which will themselves generate rents.
We can choose to believe in cryptocurrencies or not, but tokenization is a virtuous movement that is not about to stop.