Lucas Whaley

EPISODES


Episode 25.

Lucas Whaley, Sr. Director of Technology at Lima One Capital

00:00:00 – 00:02:00

Episode Twenty Five. We made it. I think most people here blockchain and think cryptocurrency. That’s a rightful connection, but the current and future capabilities of blockchain have the high potential to truly revolutionize the mortgage and real estate industries. Lucas Whaley, senior director of technology at Lemolin capital, sat down with me for a good old blockchain school and thanks for listening. You’re listening to the real estate of things podcast. Welcome to the real estate of things podcast. I’m your host, Dalton Elliott, a very special, very tall guest today too, is like eight feet twelve. Lucas Whalley, senior director of technology at Lem one capital. We both show up to the same mother ship five days a week. Lucas, thank you for joining. Appreciate you having me Dollon. decided a shot a little bit, for sure. We have very complex but very interesting topic, blockchain. Right. So the first question. Explain to me in five words or less what blockchain is. That’s an impossible question. So so how do you? How? Yeah, how do you? How do you answer the question? If somebody comes to you you’re a you’re a tech genius, how do you answer the question? What is blockchain? Explain it. Be Like I’m five, because I feel like my level of knowledge around this is kind of par for the course for a five year old. So have at it. Well, I mean I think most people’s experience with blockchain when the here, it has to do the cryptocurrency. Obviously, you know, at this point Bitcoin is kind of a household name. You see one every finance channel or comes up a conversation a lot. So you know, bitcoin really applies to one of the concepts around blockchain. So…

00:02:00 – 00:04:01

…bitcoin, for examples, a currency or token on a blockchain network. And I know that really doesn’t answer the question yet, but really we kind of think about blockchain as a distributed database. So you know, as part of this distributed network we have a recording of transactions that happen and these transaction, if transactions, will accumulate in blocks and that’s reported out to every member of a of a network, which, in the case of something like Bitcoin, it’s the actual recording and transactions bitcoin being exchanged. But the blockchain technology it it’s the buckets of transactions and the important thing is these are chained together, which brings in the concept of these transactions are immutable. So if you were to change one block in the chain, it would affect all the the blocks around it, much in the same way if you destroy a chain and an actual physical chain, it would break the chain. So brings in a really important concept that, you know, you can kind of shrain together these blocks of transactions to form a chain and that chain, you know, has approval for everyone involved in the network and can’t be changed. So can’t tamper with level of transparency. All right, like at a high level, that seems to be one of the one of the bigger benefits, or more actionable benefits of blockchain right. Yeah, certainly so, fact that these transactions are immutable once they’re all on the network and then there is a consensus or agreement on the transactions that are that are part of of the chain. Got It. And you know, talk a little bit about you know, especially in this first episode. We’re going to do two episodes on this, because I just feel like one episode we’re going to barely scratch the surface and we’ll just barely…

00:04:01 – 00:06:01

…barely scratch the surface through two episodes. But going through the terminology or like a lot of words that are used here, centralized versus decentralized, like what how does that play a role? What does what are those terms mean? Yeah, so we we certainly can go down down a rabbit hole here, but I guess what’s relevant or some of the relevant concepts for a discussion about how this can be applot to real estate. You know, really you kind of think about how how open or closed this can be, how centralized world be centralized it is. So, you know, on one end of the spectrum you have something completely decentralized, where basically anyone can join a network, anyone can participate in a network and there’s no central authority there. And then on the other end of the spectrum you have something much more centralized. They do want to get up more into because it believe it’s more relevant for for our industry, and that’s where you have these these networks that are pretty well defined, like your identities defined, whether you’re a company or an individual. There’s permissions about who can be a part of this network. As certainly a much more comfortable state than complete openness, but definitely relevant and that the definitely brings up a couple other concepts is as well. Yeah, so you mentioned blockchain is made of individual blocks, right. Is there finite number of blocks? Is there kind of an infinite number of blocks, and what implication does the answer to that question have? What pros, cons, what benefits specifically tied to the real estate world? Yeah, so, I mean it depends heavily all in the network technology or technology or, I guess, even the token being change. Really So, if you think about, you know, the each of these blocks will house up to a certain number of transactions that we in which case a new block will be will be created and which the…

00:06:01 – 00:08:03

…next batch of transactions will go into. To actually just take get take a step back further than that. What’s actually more element for real estate is the idea of, you know, this acts as a distributed ledger of transactions, the idea that no one has to centrally maintain a database of these records. And even further than that, which we’ll talk about, and that’s the the tokenization of assets. Coming on to that, no, to that ledger or network credit. I know kind of jump aside from your question there, but really, if we go back to some of the problems in real estate itself, you know, barring some kind of modular home construction or the construction element of this, there’s not really a lot of logistics around, you know, the properties not going anywhere. Basically it’s a it’s kind of a distributed data problem around the around the property. You know, we’re trying to verify title. There’s a verification you know if this is are, if this is bought with leverage, the everything to do that trupport partial portion the transaction. So there’s just a lot of verification in different parties involved and all of the costs, economic cost, of all those parties trying to align, reference and verify each other as so you know, something like these concepts with distributed ledgers, even ex Indi, which I guess we’ll get into outside of this real estate transaction, but the capital market side of things really could improve the economics a lot of these transactions. Yeah, so let’s just take a generic real estate transaction and could take today’s example how a real estate transaction runs. You have so many third parties involved, there’s so much verification. Like a real estate transaction is kind of nothing but verification, right, like underwriting for your lender.

00:08:03 – 00:10:01

That’s verifying a bunch of stuff. Title Companies Verifying Chain of title. Want to get clean title, like verify, verify, verify, like there’s so much due diligence wrapped up because generally these are relatively large transactions. It’s not, you know, gum at the checkout counter. So there’s a need for that, but it takes a significant amount of time and these things are not instantaneous at all. The number of parties involved is as many on every single transaction. So you kind of just pick out some pieces of a standard transaction that, you know, we see kind of an our day jobs at lemoan capital and how that compares to where blockchain is, in theory, going to take real estate transactions. Yeah, I mean it certainly it’s eating an elephants. So people are taking bites from different directions on how to solve that, you know. I mean when we think about the ideal what that would look like, you know again all of the costs associated all that verification. You know, really this is not somewhere where I think we’re just going to be there tomorrow just because the technology exists. This is a five to ten year process, I’m sure, and so I don’t want to sound too pessimistic, but a lot of people always trought out title in the complications of dealing the title and how blockchain could be the blockchain technology and could be a solve for that, but I don’t think that’s the best case and I’ll actually come back to that, you know. But really it’s core. There’s the problem is that there’s a lot of cost and and complexity dealing with a physical asset. So how can we reduce the complexity and transacting the physical asset? And that’s in the concept of Tokenization, where a digital representation is created of the physical asset. So everybody runs in runs into this and their day to day…

00:10:01 – 00:12:01

…with credit card transactions, for example. I mean you know when you go buy something at the store, when you go buy gum with the counter with your credit card, you know your credit card information in full is not being sent to the payment process or payment gateway, on and on and on. A representation of that of your information in a token is actually what’s being sent across the across that network. And so when we talk about how that can apply to real estate, you know it’s just much, much easier to transact information between parties of a digital asset that represents a physical asset than trying to transact around the physical addic transactor on the physical asset. Itself because it give you know, these digital assets can be signed to ledgers. Hypothetically they can be the rare. The verification of this is all easier, but again there’s a lot of complexity there. Back to your question. So I want to talk about title, I guess. So in an ideal state you have all of these these records associated with ownership, a full title search is all digital. But there’s a lot of barriers to get there. And I’ll probably say this a few times, but the complication with implementing a lot of this is the commercial problem, but it’s also the political problem, and so I don’t mean fully it’s a regulatory issue, but also aligning interests across industry and across firms. So with the case of the title, I mean what really would you solve? The media, you already have analog, physical records of property ownership at a counting level. Your first step is you would have to digitize all that. You know just the reason we have title insurance is how often that can be wrong. Right. So the the value of throwing a lot of incorrect analog records onto a digital platform is is doesn’t really solve anything in…

00:12:01 – 00:14:01

…itself. Yeah, so I think we’re we’re always from solving that one. Yeah, that’s when you put it that way, the the obstacles start to stack up and make more sense. All right, like just something is seemingly granulers, digitizing a bunch of records like that’s a massive amount of records across a massive number of different offices and institutions that have different levels of sophistication and resources and actually capability to even execute on something like that. And you mentioned five, ten years as kind of a rough timeline, like do you just speaking more on the timeline piece, like it’s whenever you break down just the title part of it and all the obstacles there, it seems like it’s it seems like this is like a mini decades transition, and maybe maybe not, just because of you know, how quickly technology is adopted over time. Like you look at you know, we’ve had the iphone since first I phone was two thousand and seven, and you look at that iphone versus this iphone. I scroll through. was just looking at old pictures the other day and I was like it looked like I took this picture with a calculator compared to the quality of pictures that you have today on a device that’s thinner, quicker, smaller, and that was not that long ago, right. You’re run fifteen years ago. So maybe I’m just being too much of an old man here. But before we even break into any more of stickles, it seems like this is a ways away. Like what’s your what’s your gut feeling on the timeline for seeing like meaningful changes where we’re like blockchain has a really started to materially change real estate transactions across the board? Yeah, so, I mean, I don’t have a crystal ball there. For sure, there’s a lot of people taking steps at this, a lot of firms out there, you know, and again not to be a pessimist about any of this, but you know, the benefit obviously that I’m sure investors will care about. Real…

00:14:01 – 00:16:00

…estate investors are you know, we’re the increases your possibility of increasing the quidity. I don’t want to to understate that part. I will get to the second part of your question there. Just given that we can keep break property down into really what reach try to solve and fractionalized ownership, that does increase liquidity heavily and that that seems to be possibly a little bit closer than than one might think. So say titles probably the extreme case, but I guess to go back and answer your question, there’s definitely an order of operations here. Yeah, so you know, the first part of this is okay, we actually have to have digital assets that represent all of this, all of these physical assets, before we can start trans that again. And then, in your iphone case, you really bring up a really important point, and that’s Inter opting interoperability. So if every iphone that came out didn’t work with the prior versions that I know that’s not a perfect analogy because of the generations of dullgard technology and everything, but we really have to get to a place where traditional assets can be organized transacted alongside tokenized digital assets, which I think the approach is probably more to attack them from the other end of the capital market side, which I know where we’re get into in the second part of this. But really there you really start to see some of the efficiencies in the market and at that point I think you can get to where you’re actually trend processing transactions in this way. So it may not come from the consumer side, it might come from the capital market side. Got It. Do you think you know? I all theoretical, but it seems like there could be a case where you have kind of state by state adoption. So like one state has moved more quickly, you know, states that are already further…

00:16:00 – 00:18:00

…ahead and don’t have massive trunches of foul cabinets everywhere just sitting around and that’s how they go off of it. That that is like, Hey, we’re going to we see the benefit in costs, security efficiency go down the list and we’re gonna create our state real estate transactions to you know, contemplate block chain through and through. Does it seem like that’s like a one of the higher likelihoods as a is to just like a broad across the country and not, you know, just just being focused on US real estate? Yeah, it’s opposed to that kind of slow trickle out. Yeah, that’s a great question. We’re already seeing movements in some states, like even I think why? I mean has legislature around, you know, transacting digital assets and it differs, you know, a lot by state, but you know, really at at a national level, I think this is starting to be taken very seriously, given the congress just had a hearing for the first time on really digital currencies which is actually the snippets are worth watching for anyone curious on Youtube. There there’s definitely some some insight on how this is being being thought about. But you know, and I know we’re just talking about US real estate, but there’s a lot of other countries trying this as well, because it really does help having a centralized body guide this. And you know, I think we start for talking about what this could do for markets and how efficient it can make things. We wouldn’t want the US to be left behind in any way by ignoring the emergence of this for sure. One other peace that comes to mind like smart contracts, and I think you and I chatted about a scenario where blockchain smart contracts can really disrupt purchase and rental agreements. Right, like the smart piece comes in, where contracts could immediately dissolve of conditions…

00:18:00 – 00:20:03

…aren’t at right now. It’s a, you know, manual horse training back and forth, and we see that all the time. Right. There’s there’s great inefficiency there. How you know what explain smart contracts to me and really the implications in the purchase and rental agreement side of the fence? Yeah, so I think rental agreement’s a really really good example to back up. You know, smart contract. All a smart crime contract really is is just the rules that are set forth with how someone can transact with a blotching network or distribute letter technology, I guess, because, you know what, it’s baseless. Let’s think about what makes a contract legally blocked binding, and that’s just how you need two parties. There’s some financial consideration or agreement there and this contract has terms. If you beat those criteriores as a contract, and you can, you can actually build that as an application to a to a blockchain networks. So I guess with rental agreements, you know, the term set forth there would apply easily. You get into the work a lot more complication with actual purchase, because it’s not necessary that how the and as set would be token eyed would be the same thing as transacting assets value, and I know that doesn’t make a lot of sense and it kind of gets down a rabbit hole, but how we how a unique and asset would be versus how easily it can be transactor broken up are kind of different properties and so there’s a lot to kind of considered work out there. But certainly anytime we think about an actual contract a smart contract could be applied and and uses US solved. And in that case, so if we, while you were talking, I thought smart contract, dumb contract. And so if we, if we for a moment teach our this and say what if smart contracts of the future,…

00:20:03 – 00:22:00

…then today we have dumb contracts. And in my mind a dumb contract is something that requires people to very manual, a right like like, whereas on a smart contract piece the ability to auto execute whenever certain conditions are met. It’s like you lay out the terms and then there is the capability, theory, for whatever has been laid out to be executed upon without any individual human party doing anything. Right. So is it that eventually we would get to a place where you know, you and I draw up purchasale agreement and I’m buying your house and as soon as the tin conditions we outlined, you know, the bank gives financing approval and the appraisal value comes in and title is clear, and go down the list of the you know however many check boxes there need to be. As soon as that last box gets checked, is it like a snap of the finger? This is done. Now I on the property. Money flows out of my account into your account. Everybody gets paid, is it? Is it that type of kind of instantaneous everything gets covered? Is that kind of the in the end? I mean a state in the in the Utopia, ideal state. I mean, yeah, you just laid it out perfectly. You know, you get into a couple of things. They are where’s the same problem with title. You know, your contract may be on chain, but some the information it’s verifying, say about liquidity or certain things to do with one eligibility, if those are not also on the chain, right, it becomes more and more difficult to also verify that you did to automatically execute that smart contracting. So then you know you’ve really really increased the barrier here, because now this entire process needs to be on chain. So yeah, I mean that in a perfect state that’s…

00:22:00 – 00:23:59

…exactly how this would work. Yeah, that’s that’s the issue. In the obstacle, though, I like every as many conditions are in a real estate contract, which is usually a decent number, and so many different parties, everybody has to be, you know, their piece of the Pie has to be on the blockchain. Otherwise there’s no ability for communication, Verification and execution on that. Yeah, so the the other important point you kind of bring up, though, it is the number of parties. And so ultimately what this does is anywhere there is an intermediary in a transaction, this does have the potential to disrupt intermediaries because you are making the transaction more efficient, and so that’s something you know, as an originator, as a service or or even as an investor, we need to be conscious of as this moves as is progress is basically, yeah, did this could be a dangerous question? Maybe, maybe not, but so inefficiency is costly. Like they’re they’re very much intertwined. And where do you see the you know, I’m I’m sure to some degree it’s happening now, but where do you see the most inefficient and costly barriers that are going to be first affected by this in a real estate transaction? Does that question make any sense at all? Yeah, it does. It’s hard to give just one answer there because there’s there’s so many pieces. But you know, really I would say the confusion around funding and settlement, okay, could be pretty quickly disrupted if you had parties like politically aligned. You know, I don’t. I think we’re a long way from a state where you’re just going to get in red go red fin and pay bitcoin for a piece of property you find. Then you know your boat, you’re done. Yeah, I mean I think, like I said, it’s…

00:24:00 – 00:26:00

…going to iterate more towards the transaction purchase. But yeah, I would say that that piece for sure. As far as what I would think about as an individual investor, I mean this is only positive in that case because, again, you know, liquidity is increased and the more illiquid and asset is right now, the the benefits of this are are greater, right, and that that increase in liquidity that you’ve referenced as because of the certainty around the security of the Assad like what you have, and the speed to execute and the removal of inefficiencies and intermediaries like. Those changes create that liquidity gain, right. Yeah, yeah, that and you know, I mean even if we’re talking about especially larger properties or the role often filled by by reads, where you’re breaking down real estate and shares of ownership, if we’re talking about, you know, transacting with some kind of credit occurrency, I. Yes, in this case, or a tokenized asset, a piece of property can be fractionalized into multiple parties and so it begets it’s very easy to pull and and by properties that way without the the base or the sophistication that a actual, you know, a more specificated party would need. How much land do you own in the metaverse? Do you got a few acres? I’m not the metaverse at all. Nor in my you know, on the nft thing now, you don’t have any cats or monkeys or other no, no, I see it on, I’ll see it on social media all the time, but I’m very scared people there. But I could be I could be missing some. Yeah, my my take on that. And again, I’m I’m like a six year old man. I’m I’m not. I’m saying this own…

00:26:00 – 00:28:06

…recorded video and audio, fully knowing that six months from now I could be shown to be a complete idiot, more so than I already am. But it seems like like everything, if everything goes the route of n FT’s then there’s no difference in value based on what is currently here versus. What is there like like the fact that it something is out in ft, like you take artwork for an example, right, yeah, it’s like if they’re if there is an nft of if art is trying to think out a word, this like you know, you have prints that get put out that are unlimited orders, right, and those have almost no value. Right, even, you know, like a big name like Andy Warhol, right, like there are prints numbering and the many thousands and even unnumbered editions that like big name attached to them, but the value is not is materially different from like a one of one work. And and so you’re kind of, in my mind, transferring that same concept just into digital format, which which the same principles apply. Right, if there’s something that’s one of one, like a Damien Hurst in FT, that there’s only one like he had had a popular kind of one of the first prominent artists to have a run of NFT’s, and those skyrocket in value, and I think a lot of that is kind of pop culture popularity with him at but also being kind of first to the plate on something like that. But eventually, you know, hype dies down around it and it just becomes no different than going to the store and buying a print for twenty bucks. In my mind. Yeah, I mean the eye and again, somebody maybe will take callers later and they can tell me why I’m wrong. You know, maybe one of the collegs or somebody could send me a white paper and tell me what I’m wrong. But I don’t get the application for artwork. I think that’s a very understainable concept. But you know the it’s not. That token is not as closely tied to that art…

00:28:06 – 00:30:00

…image on the Internet as you might think. And this does actually apply to real estate, because I do think when we talk about we talk about nfts or what a nonfundible token is, all that means is that as a unique token for a unique gasst yeah, which, if we think about real estate, that’s absolutely true. Problem is there’s people sorting this out and there’s a couple ways to approach this. For the most part, a nonfundubal token is not divisible. So everything I just mentioned as far as liquidity benefit is not as not applicable if it’s an NPT. And then there’s some crazy cases where they’re like, I’m a plane tickets, you’re going to be in FTS, and it’s like, why would delta give up their centralized travel database with all of your info on it so everyone can see it? They just wouldn’t. And so again, you know I’m going to be missing something, but I don’t don’t get the immediate sun interest in some of that, but people are making a lot of money off of it. So you know, yeah, the I think of Tulips, the exactly. Yeah, so print out. Yeah, bad news from Lucas, senior director of technology at lemoin capital. If you bought any NFT artwork, printed off, burn it. It’s useless. I’M gonna I’m gonna screenshot it cinema. There you go. I think a good point to end. will go for the next episode next week. Probably make it a fifteen hour episodes we can really just dive into the deep trenches of this and scratch the surface a little more. So, Lucas, good friend, good colleague, thank you for carving out time to chat with me. Genuinely learned me up on some of this block chain. It’s been fun. Thanks for having medal and it’s it’s been a pleasure for sure. Thanks everybody for listening. Take care. Are you a realistic investor looking for…

00:30:00 – 00:31:02

…the right lender that can finance all your deals and help you scale? Lima one capital has the best suite of loan products in the industry bar none, whether that’s fix and flips, fix and holds, built a new construction or buying rental properties. They have incredible financing solutions for it all. A reliable common since Linder, is one of the most important parts of your investment team, and that’s exactly what you get with Lima one. Let Lima one capital show you how they’ve helped thousands of real estate investor scale and increase their wealth. Check out Lima onecom or call eight hundred two five nine zero five ninety five to speak with the consultant and preparation for your next project. Thank you for joining us today on the real estate of things podcast. Subscribe and tune in weekly for new content from the industry’s best while we continue to unpack the nuances of this dynamic market. Follow US across social media for additional insights and analysis on the topics covered in each episode, and remember to rate, review and share the show.

Listen Now in Your Favorite Podcast Player

Apple

Google

Spotify

Stitcher

TuneIn

Follow Us on Social