The True Definition of “Money” and “Homeownership”
Exploring the Past and Future of Both
In the previous post, we identified the four key components to bringing real estate on-chain and the limitations of the current models attempting this today. Before we dive into the nuts and bolts of how we addresses those building blocks, we’re first going to tackle some of the more philosophical questions surrounding the current understanding of money and homeownership.
What is “money”?
This question has gained a lot of attention over the past decade. According to Investopedia, “money is an economic unit that functions as a generally recognized medium of exchange for transactional purposes in an economy”. When you want to get a new shirt, you don’t have to bring a physical object like a wrench to the store to trade. Instead, you bring money with an agreed-upon value to the store and trade your money for the shirt.
Money is the liquid asset that is transactable for any desired product. Some examples that we are most familiar with include: USD, Euro, Japanese Yen, etc. This money is most commonly referred to as fiat currency and is controlled by the government (lucky us!). Fiat currency means that it has value because the issuing government says it does, not because of some actual intrinsic value.
Why does this matter?
A key consequence of the government’s role in fiat valuation is that one dollar does not actually cost one dollar. The value of each dollar (or Yen, Euro, etc.) is an agreed-upon amount equal to the goods or services provided in exchange. I’m sure you have heard the quote: "It is only worth what someone is willing to pay for it.”
To illustrate, consider the cost of a Big Mac from the golden arches. In Los Angeles, it will cost you $6.99, but compare that to the exact same menu item in Tulsa, Oklahoma and it drops to $4.82. The same scenario plays out when you look at the cost of buying a Coke at the grocery store versus buying the same sized bottle at an airport or movie theater.
The more extreme consequence of a fluid money supply is, of course, inflation. Each dollar is worth less today than it was a year ago. Said another way: one dollar today will buy you less than it will one year from now. If the value of one dollar was truly fixed, then you would be able to exchange it for the same amount of goods and services regardless of time or location.
What are the alternatives?
Having an established currency or “token” that is fungible and durable allows for future transactions to take place without the need for both parties to receive an immediate gain, eliminates the need for a barter economy, and allows for continued use of the token in a recognizable and stable manner.
So, something that is fungible... durable… portable… recognizable… and stable… sounds like a perfect fit for a digital asset created on an immutable online ledger (i.e., blockchain) that has a global reach with endless potential use cases. Cryptocurrency anyone?
What is “homeownership”?
Homeownership in a physical sense currently is equated with holding “the deed to the house” for many people. But what does that deed give you? Why is that piece of paper so important? It is not something we frame in our house or place on the mantle or right-click save and make it our Twitter profile picture as a digital flex.
So really, what does that deed give you that makes you feel like a true homeowner? It comes down to three things:
Unlimited Rights: Put simply, homeownership is “my house, my rules.” It is the idea that you are in control of your house/land and you have the freedom to do what you want on and with your property.
Predictable Costs: When you purchase your home, the terms of your future payments are set up-front. (Yes, there are adjustable-rate mortgages, but we saw how that played out in 2008/2009). Each payment you make covers the cost of ownership (insurance, property taxes), compensates the party that loaned you money to purchase the home (interest), and transfers a portion of the home’s value from the lender to you in the form of equity. These payments are fixed and predictable – no one can increase your cost of ownership by 20% on a year-over-year basis. (Yes, we understand that taxes and insurance will increase over time, however, we are focusing on the primary costs of principal and interest here.)
Access to Equity: The money being paid each month goes into the value of the home, which you will get back if/when you decide to sell the property. Money In (equity) + Appreciation (property value) = Benefits to YOU the owner, not a landlord, government, or another party. This asset appreciation is why homeowners are in a much better position than renters over the long term, assuming asset appreciation beats inflation.
Some will argue that your bank really owns your house as long as you have a mortgage, but this largely misses the point. Even with a mortgage, you have full rights to your property, and you build equity (financial ownership) of the property with every monthly payment. Moreover, you are able to access that equity as you see fit and own all appreciation of the value of the property. At worst, having a mortgage could be viewed as having a partner in ownership.
Where Does T-Homes and Theopetra fit in?
Having a deed and title in hand has long been the way of identifying homeownership. This isn’t because it is fundamentally the best way to confirm ownership, but rather, it is the “established” way of doing so, something that was agreed upon generations ago.
Furthermore, the process of obtaining said deed comes with an elongated series of operations filled with interaction, waiting, and of course, costs. Players such as title companies, financial intermediaries, and local government all have to agree to produce this piece of paper, and the financial implications of this coordination are significant.
Now, imagine if we could achieve the traditional benefits attributed to homeownership, without having to struggle through the hassle and hoops that are currently set in the way?
Our solution to this arrangement is T-Homes. This will include a renewable agreement that you, the homeowner, have with T-Homes, guaranteeing you unlimited rights as a resident of the property for 99 years. You will have predictable fixed payments over a set term and build equity you can benefit from if/when you decide it is time to sell.
Unlimited rights, predictable costs, and access to equity are all accomplished under this alternative, (which we have fondly nicknamed the T-Homes Trifecta). How is this possible? In one word: Technology. Cryptocurrency has provided us with a landscape for financial re-imagination, and what sector of finance is in greater need of some TLC than real estate?
History Repeats Itself
Expectedly, there will be pushbacks until the concept is proven. But history has taught us that efficiency in relation to finance has lasting power.
For example, consider the concept of entering your personal bank account or credit card information over the internet circa 1995. Initially, everyone thought the idea was ludicrous and people were hesitant to accept it. However, once the world became accustomed to the concept, there was mass adoption of this time-saving online action. And today, it is so common that most people are appalled if a business does not have the capability to pay online.
Similar to the adoption curve we saw with online payments and the curve that has begun in cryptocurrency, we expect the superior solution in on-chain real estate to slowly build and then explode, as the cost-savings with T-Homes overcome people’s natural resistance to change.
Just as cryptocurrency overcame the initial skepticism from the public and is now a major investment vehicle for many, T-Homes will become too compelling to ignore.
Putting It All Together
T-Homes reinforces the ideologies of homeownership as we know it - all at a lower cost.
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