Zain Jaffer is the founder and president of Zain Ventures, a family office that invests in real estate and proptech.
For many people who are not digitally savvy or grew up in an analog world prior to the internet, much of their investments are traditional. Some avoid investing in or even talking about digital assets or blockchain. Instead, I’ve found that many prefer real estate like houses and buildings, fine art, luxury bags and watches, corporate stocks, treasury and corporate bonds, gold, silver and other tangible items.
As the founder of a family office focused on real estate, I’ve heard a common refrain from these investors, and a common reason why they are hesitant with digital assets, is that they want to invest in things they can see, feel, touch and understand.
Technically speaking, though, while some of the assets mentioned above do pass that “physicality” test, for treasury and corporate bonds, even if the investor holds a physical or digital certificate, all they are holding is a promise to pay the bearer. In the case of company shares of stock, the value is based on a market premium on discounted cash flows. So if Company X will earn $1 billion a year and keep rising for the next 10 years, how much is that worth to the market right now? A bond is simply a loan with interest from the borrower, whether government or corporate bonds. Derivatives and options are essentially betting on price changes and pre-agreed prices.
For the sake of simplicity, let us lump all of these traditional investments into the term “real-world assets,” or RWAs. Where does blockchain come in? Most houses, land, cars, ships and airplanes have some sort of paper certificate of ownership or title to prove who the owner is. In the case of blockchain, this ownership can be tokenized, which has the potential to give the owner “improved liquidity, fractional ownership and reduced fraud risks,” per Cointelegraph.
Understanding RWAs And Blockchain
There are things we do in the real world that can be perfect for blockchains. For example, if you send or accept payment via a digital currency, it is generally in exchange for something. Often, you need to not only deliver the item physically to the buyer but also transfer ownership. Blockchains, which are distributed ledgers, can help with this process.
Think of it this way: If you sell your house, car or other asset, you accept the payment from a buyer. This can be a digital asset payment. In turn, if the blockchain runs something called a “smart contract,” once the digital payment has been received, the digital proof of ownership needed by the new owner is sent to their digital wallet. So, as they await physical delivery of something like a new car, they already have digital proof of ownership. The entire transaction is on the blockchain.
There are already some good examples of this. The California Department of Motor Vehicles has already put 42 million car titles on the blockchain to fight fraud. Large global companies, like Siemens, for example, have started to issue corporate bonds on the blockchain.
Overcoming Fears: Advice For Investors
I’ve noticed that many of the misconceptions about the blockchain are similar to the fears people had when the automobile, airplane, telephone, internet, credit cards and other new technologies first came about. But once developers make RWAs on blockchains easier and friendlier to use, I expect more people to become comfortable buying and selling their real assets through this new technique. I believe it is just a matter of time.
Blockchain and the tokenization of real-world assets cover a wide scope of knowledge that encompasses legal, political, economic, technical, monetary and other areas. What I suggest for investors who are curious about RWAs but unsure of where to start is to ask experts you trust about blockchains to teach you how to set up a digital wallet and how investing works. This soft introduction can give you an idea of how the world of asset ownership is changing and help you start adapting to it accordingly.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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