18 Defects of Real Estate as a Store of Value "Education will cause people to gradually demonetize their real estate and move it into bitcoin. Land Inflation If you're a rich family in the 20th century and didn't make [your] money in technology, [chances are] you made it on property. And the property you bought was probably very desirable commercial real estate in the middle of London, Paris, or New York City. People will say things like ‘They're not making any more land!’ The truth is, they are making more land. Over the last 300 years, half of Boston was made. I live in Miami Beach; three-quarters of it was manufactured in the last 100 years. It's all made, they dredged it. In Dubai they make land. In Amsterdam and Rotterdam, they made land. Given enough money, you can make land. You'd be surprised how much of it you make. Most people don't think about this. But at the end of the day, storing all of your economic energy in land is not truly going to be effective, because it's going to inflate and be impaired by a whole set of other challenges. [1] Demonetizing Real Estate An interesting discussion is how bitcoin demonetizes real estate and what will it demonetize. What does it mean to demonetize? Well, there's a utility value to real estate to [the person] using it (the true rental value) and that doesn't matter whether it's a consumer or a business. The extent to which the price of the real estate is beyond that is the monetary premium. There's a whole lot of commercial real estate that has a monetary premium. The way to know that is to think about all the people who have excess cash but don't want to [hold] cash. Their view is they’ve got to buy an investment property. It could be: ‘I bought a second home to rent out’, ‘I partnered with three friends to buy a piece of commercial real estate’, or ‘I'm an investor in real estate because that is the place that I wish to store my money’. But, in a hard-money environment, the average person isn't an investor. The only people who really should be investors, in theory, are professional investors or venture capitalists who have spent all of their time analyzing opportunities to ascertain the true long-term value of the cash flows. But the world is full of people who are making investments to [simply] preserve their wealth. So, how does bitcoin demonetize that? Well, you just want to start from first principles and ask, ‘What is property?’ You can either get to pure property by taking away all the defects of real property or you can start from nothing. But let's start with real property and strip away every defect from it. Let’s say you have a piece of commercial real estate. It's a $2 million building called a warehouse (or a ₿100 building as of right now). Then I happen to pull a genie out of a bottle. The genie pops out and says, ‘Michael, I'll grant you 18 wishes.’ So I start [using them] to fix the defects in my warehouse. 1. Immortal What's the first defect? A warehouse has a finite life. It won't last one thousand years, and it [certainly] won't last one hundred thousand years. It's only going to last 100 years before rusting and falling down. So, I say to the genie ‘Why don't you make the building immortal so that it lasts forever.’ How do you do that? You make it out of pure energy. Stars last a billion years, so make it out of [the same material]. 2. Indestructible Buildings are prone to damage. If there's a hurricane or earthquake, or someone drives a truck into it, the building [can be] impaired. So I tell the genie to make it indestructible. Now it doesn't matter if it gets struck by lightning or crashed into it, it's not going anywhere. Remember, the building was worth $2 million. Well, is a building that's indestructible and immortal worth more or less now? Generally, a building that will last forever and that you can't destroy is more valuable. 3. Maintenance Fees Buildings have maintenance fees, oftentimes they’re 1-3% per year. If I have a building made of steel, I have to paint and repaint it to prevent rust. That [upkeep] goes away if the building is indestructible. Insurance is also a [type of] maintenance fee. Well, the need for insurance goes away too. So, without maintenance fees, my building is worth even more. 4. Property Taxes In Florida, the property tax on a building that's held as a residence is 2% a year. My $10 million building costs $200,000 a year [just] to hold it. So I tell the genie to make the property tax go away. How do we [achieve] that? We move it so that it's not in any city, it’s not in any state, and it's not in any country. We move it into cyberspace. There's no property tax in cyberspace. So now I've got an indestructible, immortal, maintenance-free building with no property tax. It's getting more and more valuable. 5. Teleportable What impairs the value of any building? A limitation on who you can rent it. Let’s say the building is sitting in California but all the customers are in New York City. So I blink and the building is teleported to New York City. Next, I want the building to be in Tokyo during the Olympic Games. So I blink and the building is there. The genie made my building instantly teleportable, to anywhere. I've just upgraded the property a bit more. 6. Jurisdictional Optimization The idea of teleportation is not just in [relation to] space, but also moving it through jurisdictions. Different jurisdictions place different restrictions on it, so I want the property to be unimpairable by [local] restrictions. Anything physical by definition can be impaired, but anything in cyberspace has a decent chance to [avoid] impairment, simply by moving it. 7. Rent at any Frequency [Generally], you can only rent a building [long-term], either by year or by decade. But what if someone’s willing to pay me $100,000 a day, but they only want to rent it for three days during the Monaco Grand Prix? That's an example of when there's infinite demand and people will pay 10x more. So I [command] the genie to let me rent it at any frequency. That upgrades the value of the real estate. 8. Subdivisible Someone comes along and offers to pay me quadruple the rent but they only want a quarter of the [floor space]. So, I want to be able to subdivide it. I want to subdivide the building into four pieces, ship it to four different cities, and rent it to the highest bidder. The ability to subdivide and recombine the property, at any frequency, [increases] the buildings’ value. What you're doing is morphing the building, day by day, place by place, to maximize the rents. 9. Transformational Now, the building is only a warehouse, it can’t be reconfigured. A flexible building sounds much better. The genie casts a spell and allows me to instantly convert the building [on demand] into a school, sports stadium, hotel, or even a container ship. [Suppose] someone needs a ship that can carry natural gas right now? My real estate would be a lot more valuable if it could become a different form of property. That's a big upgrade! 10. Development Rights The other thing you want from any property is to [be able to] upgrade it over time. If I've got a parking lot, it might be worth $1 million. But, what if I could develop a thousand-story building on top of the same [footprint]? My development rights are now worth a lot! In New York City, you often see parking lot operators that sold their air rights (the right to develop a property vertically) to an [adjacent] hotel or office building. The air rights might be worth $20 million, but the parking lot's never going to generate $20 million. So my property would be a lot more valuable [assuming] I have the right to develop it. Who controls that right? It might be your neighborhood, your city, or your state. But if I had property in cyberspace, I would have no limitations on my ability to develop it. 11. Transferable Property Rights You might say, ‘Wait a minute, Michael. What's the point of selling the rights to build a thousand-story building when the tallest building in the world is only 163 stories?’ I would say that’s the tallest building of this century, what about next century? What about when we have adamantium steel or some new construction technique? Do you really believe that the tallest building [in existence today] will remain the tallest building for all of humanity? Roll the clock back 200 years and the tallest building is six stories just about everywhere. So [I want] the ability to continue to upgrade my property or sell the rights. Do those property rights have value? Well, ask the people who own the Beatles music catalog. Intellectual property rights have value over time and so will [these] property rights. How many people have managed to sell their property rights? Not many, because we never thought of them that way. 12. Digitally Upgradable Real estate in the physical world is upgraded with tractors, machines, steel, and electricity. But what if I could upgrade my property using computer chips? If you look at the efficiency of a computer chip, they've improved by a factor of a million over the past 20 years. But, if you look at the efficiency of construction cranes, they have not improved [at a comparable rate]. So, clearly, moving out of the physical domain and into the computational domain for development [adds] to the value of the property. 13. Invisible & Private If there was a 100-story indestructible shining building in the middle of a city, don't you think the people in that city would start resenting its owner? I don't want to own a perfect piece of property in the middle of a city where there are malicious actors. I want the property to be in the middle of the Milky Way, a billion [light] years [away], where no one can see it and no one will resent the fact that I have it. The genie then says to me, ‘I have an idea. I'm going to make your property invisible to those who would do you harm.’ That is what privacy is. It’s having a property that is visible and accessible to my friends and family, but invisible [and inaccessible] to criminals, competitors, or [corrupt] state actors. 14. Zero Transaction Costs If you buy or sell a piece of residential real estate, it costs you 6% coming and 6% going. A $2 million property costs $120,000 in [transaction] fees to buy and $120,000 to sell. So I ask the genie to get rid of the oppressive transaction fees and make it possible to transfer it at zero cost. You can transfer bitcoin on-chain or on the lightning network at numbers that are anywhere from >1 to 10 basis points. No one's got a cartel on fees. 15. Unconfiscatable if you own a farm outside of a city and that city wants to build an airport, they can seize your farm by eminent domain. They can buy it at a [price of their choosing] and, if you don't [accept the offer], they can just pass a law and take it. In a [times of] war they can take it for nothing, [claiming it’s for the] public good. And in peacetime, they'll take it for whatever [reason] they want: an airport, a road, or a public park. Maybe they'll just take it because you’re the wrong religion or you've said the wrong thing. So how does the genie solve this problem? How do you make the property [immune to] confiscation? Well, if you put the title to the property in your head, as opposed to anywhere else, then it becomes unconfiscatable. Assuming they’ve gotten past your other defenses, you still have the option to keep it. It cannot be seized. 16. Mortgage Anywhere, at Any Duration I talked about renting my building at any frequency, but the other right you have with property is to mortgage it (borrow money against it). If I have a building in Atlanta, I can mortgage it to banks that are licensed to do business in Atlanta or the state of Georgia. But if someone has a cheaper mortgage on offer, but [they serve a different] country, I can't take that mortgage because I can't move the building. So when the property becomes teleportable, it becomes possible to mortgage it to anyone, anywhere. Any bank could become the counterparty. Now mortgages generally come in [standard durations] like 10 or 30 years. But what if I wanted to mortgage it at any frequency? What if I just wanted to borrow some money for the next 30 seconds? Here's a real-world example: I want to borrow money against my property and every month someone offers me a better offer. So one month I mortgage it to a bank in Singapore, the next month to a bank in London, the third month I mortgage it to a bank in Atlanta, and the fourth month I mortgage it to a different type of company [altogether]. It's a very flexible piece of property and in essence, it’s driving down the cost of my capital in the same way that, when I rent it at any frequency, I'm driving up the yield on my asset, and that makes it a better business. 17. Infinite Economic Density I ask the genie to let me store my entire building in the palm of my hand—the white dwarf of money in this particular case. With infinite economic density, I don’t need to [physically] manage a [whole] city block which my building [occupies]. So infinite density is more convenient and gives me more flexibility. 18. Hard-Capped Supply For my last wish, I'd like a guarantee that no one can sell more than 21 million blocks of this perfect property in the universe, forever. So if you actually could get the universe to agree that there will never be more than 21 million blocks of perfect property, that's the icing on the cake. When I did everything else I created digital property, but, when I capped it at 21 million blocks, I made it the ultimate scarce property (or digital scarcity). It's what happens to property values when the city passes a law [preventing] any more real estate development or [restricting] building more than 10 floors up within city limits forever. When you put a restriction on property development it drives up the value of all the property within the city dramatically. Here we're talking about putting a hard-cap limit on digital property in the universe for all time. Conclusion What I’ve now [demonstrated] with my 18 wishes, each removing a defect in the property, is that if I've got $2 million to invest, do I want to own a $2 million warehouse in any city in the world, or do I want to own a hundred bitcoin? It doesn't take a rocket scientist to it figure out. When you buy the $2 million warehouse, you are marrying the neighborhood zoning board, you're marrying the city, you're marrying the county, you're marrying the state, and you're married for life to the country. And if you think all of those will go on forever, you've still got the issue of Acts of God. It's pretty clear that commercial real estate was a good idea for capital preservation in the 20th century, but in the 21st century, it's an antiquated idea. It becomes antiquated as the government and the society around the property decay. For example, you wouldn't really want to own the most beautiful building in a country where the regime collapses. You could have a luxury hotel, but if the currency collapses and the government collapses your luxury hotel isn't going to hold its value. Look at what happened to luxury hotels in Cuba with the rise of Castro. It kind of peaked in 1960 and then for the next 60 years, all those properties gradually decayed. Whatever beauty or value that was there is gone because they can't maintain them, not without fixing the other economic ills. Bitcoin is the opposite of that. Whereas commercial real estate peaked at different points in different jurisdictions over the last hundred years, bitcoin is now just beginning to come into its prime. Every time a new lightning wallet is shipped, bitcoin is upgraded. Every time a new miner comes online, bitcoin is upgraded. And every time a new regulatory guideline is laid out, bitcoin is upgraded. So bitcoin is just continuing to improve as property. Real estate is continuing to decay as property. If we come back to the question: how does this get demonetized? You can see that the only reason that a casual investor wouldn't start to shift their allocation of savings from commercial real estate to bitcoin is they don't understand bitcoin. You don't understand the defects in your property until you see perfect digital property. The same is true with property holders, they don't understand what's wrong with their investment until they understand what perfection looks like." [2] —Michael Saylor [1] MicroStrategy World 2024: Bitcoin for Corporations, Keynote, Las Vegas, 2 May 2024. [2] Bitcoin As Property: What Perfection Looks Like, The Bitcoin Layer, 21 Oct 2022.

Welcome to #Bitcoin