1 *Nothing contained herein is intended to be legal and/or tax advice and is offered - PowerPoint Presentation

1 *Nothing contained herein is intended to be legal and/or tax advice and is offered solely for instruction. Any legal and/or tax questions should always be addressed to licensed legal and/or tax professionals. Further, nothing herein is designed to replace or modify, in any way, the policies, procedures and instructions of any licensee’s managing broker

2 BLOCKCHAIN AND BITCOIN : WILL THEY TRANSFORM REAL ESTATE BEYOND RECOGNITION? ( VREB Approved for 2 Hours of Broker Management CE*) (*Virginia Salesperson licensees to receive 2 Hr Real Estate-Related CE) By Ann L. Johnston Director of REALTOR® Education & Training *Nothing contained herein is intended to be legal and/or tax advice and is offered solely for instruction. Any legal and/or tax questions should always be addressed to licensed legal and/or tax professionals. Further, nothing herein is designed to replace or modify, in any way, the policies, procedures and instructions of any licensee’s managing broker

3 The advent of blockchain and bitcoin is already here and poised to be major “disruptor” in real estate Blockchain and bitcoin (and other crypto-currencies) have been making inroads into real estate for 10 years In sale and purchase of real estate not only in Europe but also in the United States since 2014 Blockchain being evaluated by industries & governments; since 2016, reportedly has been used to transfer and record a deed in the public records Some brokers and agents embracing crypto-currency (and thereby blockchain) as a new viable way to sell (rather pay for) real estate A number of brokerage companies whose websites operate as quasi- mls ’ or brokerage firms, offering properties for sale for Bitcoin or other acceptable crypto-currency Many applications for blockchain and crypto-currency! Appears to be the biggest transformer in the world since the gas-powered engine But will it entirely transform the transactional and records-keeping systems of real estate, business and government ? Let’s see….

4 Brief History and Description of Blockchain Blockchain was first invented and introduced by Satoshi Nakamoto in 2008 for use with cryptocurrency bitcoin, as its public transaction ledger. The invention of the blockchain for bitcoin made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server. https://en.wikipedia.org/wiki/Blockchain . The idea was to develop a system that could process transactions safely, reliably, transparently and not involve intermediaries such as brokers, banks, credit reporting services etc. The other objective has been to make these transactions (of any goods including real estate) as efficient, fast, transparent, secure and inexpensive as possible. In many ways, the inventors, developers and promoters of blockchain tend towards being anti-authority and anti-government regulation. Thus, they develop and advance this system that can work around and through the laws of government if not also offer to replace some government systems. (Emphasis Added) https://en.wikipedia.org/wiki/Blockchain  “Ultimately, the blockchain is not just about cryptocurrencies and faster peer-to-peer (P2P) payments. It is also part of an ecosystem of advanced but young technologies, including artificial intelligence, robotics and crowdsourcing, that look to play a fundamental role in the future of commerce and society. Blockchain will affect the way that individuals and organizations interact, the way that businesses collaborate with one another, the transparency of processes and data, and, ultimately, the productivity and sustainability of our economy.” From Deloitte website https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-blockchain-vision-to-reality.pdf A blockchain is ‘a technology that allows people who don’t know each other to trust a shared record of events.’ This shared record, or ledger, is distributed to all participants in a network who use their computers to validate transactions and thus remove the need for a third party to intermediate.” From Deloitte: https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-blockchain-full-report.pdf

5 AND MORE ON BLOCKCHAIN ……. Blockchain can only be updated by consensus between participants in the system, and when new data is entered, it can “never” (well not quite “never”) be erased. It contains a true and verifiable record of each and every transaction ever made in the system. Because of its technological structure, blockchain has a very high level of trust (reliability), validation (accuracy and reliability) and efficiency! Transactions, conducted much more quickly than current real estate with high level of reliability. T housands of ideas for blockchain applications, also known as “Proof of Concepts” (“POC’s”). Many of these are moving towards real estate quickly. Estimated that blockchain and cryptocurrency will be a part of the real estate world within 5 years (or 2023)! The current trust model with “Trust Brokers” includes the REALTOR®, the loan officer, the title company, the land records and abstractor, credit reporting services, public records at courthouse and so on. The new “Trust” model with blockchain relies on the system described above. Another term in “blockchain/crypto land is “smart contracts.*” These set out the terms between the buyer and the seller (for whatever widget they wish to negotiate for purchase and sale). When the terms of the “smart contracts” are verified via the blockchain system (nodes, ledgers, blocks which themselves are the smart contracts), the transaction can be completed. *From the original developer of “Smart Contracts”, Nick Szabo in 1994 who is quoted as saying: “New institutions, and new ways to formalize the relationships that make up these institutions, are now made possible by the digital revolution. I call these new contracts "smart", because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises”. From Wikipedia “Smart Contracts” https://en.wikipedia.org/wiki/Smart_contract)

6 What is blockchain and how does it work? It is a system of algorithms which use a ledger system to add data in a step-like manner—ensuring a high level of security and accuracy in the transfer of said data Blockchains are operated on P2P (Peer-to-Peer) platforms such as those provided by Propy , Ubiquity and Bitcoin and are facilitating a big “disruption” in real estate. In this highly competitive market among blockchain experts and purveyors, the options, tools and services provided to use their blockchain platforms are highly touted by these various businesses. From offering “wallets” also known as the portal to purchasing cryptocurrency for use in a blockchain transaction to real estate listing sites, these various companies ballyhoo all their many offerings.

7 Blockchain trust model has no “intermediaries” but rather “chains.” Every ledger record “chained” to the previous record. If record tampered with, becomes invalid. Public vs private blockchains. Sole distinction between public and private blockchain: ..persons invited to participate in the network who execute the consensus protocol and maintain the shared ledger. Public blockchain network completely open; anyone can join and participate in the network. Network typically has incentivizing mechanism to encourage more participants to join. (Bitcoin is one of the largest public blockchain networks in production today.) Drawbacks of a public blockchain: --Must use large amounts of computational power to maintain a distributed ledger at a large scale; to achieve consensus, each node in network must solve complex, resource-intensive cryptographic problem called a “proof of work” to ensure all are in sync. --Openness of public blockchain, means no privacy for transactions-- not good for data security. Private blockchain system security that real estate transactions will likely follow. --private blockchain network requires invitation to participant and validation by either the network starter or by set of rules put in place by the network starter. --businesses who set up private blockchain, set up a permissioned network. This places restrictions on who is allowed to participate in the network and transactions. --Participants must obtain an invitation or permission to join. The access control mechanism could vary: existing participants could decide future entrants; a regulatory authority could issue licenses for participation; or a consortium could make the decisions instead. --Once entity has joined the network, it will play a role in maintaining the blockchain in a decentralized manner. From Medium.com website at https://medium.com/@s4saif.121/demystifying-ethereum-private-blockchain-74f78ddf76fb    

8 Examples of How Public/Private Keys & Crypto/Blockchain Work In order to engage in a blockchain-cryptocurrency exchange, buyer and seller must have a “public key” and a “private key.” These keys validate the participants’ identity and are required to obtain a “wallet.” “The Public and Private key pair are two uniquely related cryptographic keys (basically long random numbers). Below is an example of a Public Key: 3048 0241 00C9 18FA CF8D EB2D EFD5 FD37 89B9 E069 EA97 FC20 5E35 F577 EE31 C4FB C6E4 4811 7D86 BC8F BAFA 362F 922B F01B 2F40 C744 2654 C0DD 2881 D673 CA2B 4003 C266 E2CD CB02 0301 0001 The Public Key is what its name suggests - Public. It is made available to everyone via a publicly accessible repository or directory. The Private Key must remain confidential to its respective owner. **Because the key pair are mathematically related , whatever is encrypted with a Public Key may only be decrypted by its corresponding Private Key and vice versa. ** Ex: Bob wants to send sensitive data to Alice, and wants it completely secure so only Alice can read it, he encrypts data with Alice's Public Key. Only Alice has access to her corresponding Private Key; she is the only person with capability of DEcrypting the encrypted data back into its original form. “ As only Alice has access to her Private Key, only Alice can decrypt the encrypted data. Even if someone else gains access to the encrypted data, it will remain confidential as they should not have access to Alice's Private Key. Public Key Cryptography can therefore achieve Confidentiality; however, another important aspect of Public Key Cryptography is its ability to create a Digital Signature .” From Comodo Security Solutions, LLC at https://www.comodo.com/resources/small-business/digital-certificates2 .phpA private key in the context of Bitcoin is a secret number that allows bitcoins to be spent. Every Bitcoin wallet contains one or more private keys, which are saved in the wallet file. ... Because the private key is the "ticket" that allows someone to spend bitcoins, it is important that these are kept secure. Dec 21, 2017 Private key - Bitcoin Wiki https://en.bitcoin.it/wiki/Privatekey

9 SO YOU DON’T BELIEVE CRYPTO AND BLOCKCHAIN HAVE ALREADY WORKED INTO REAL ESTATE? See below… Manuela Londono -Osorio of Culture Estate, a small real estate brokerage in Scotch Plains, N.J, in 2018 brokered a small investment property transaction and accepted her commission check into her cryptocurrency wallet–an online system. This wallet allows one to convert dollars into popular cryptocurrencies such as ethereum and bitcoin. When the brokerage received the commission payment in regular U.S. dollars, they transferred her commission into her “cryptowallet ”. She accepted it in ethereum though she could have chosen Bitcoin as well as others. From Inman-- March 14, 2018 https ://national.wfgnationaltitle.com/2018/03/14/ why-one-real-estate- agent-accepted-her-commission-in- cryptocurrency/ Some brokerage firms have started offering high-end, luxury properties on-line for crypto currency- “We realized there is so much new wealth in the crypto space," said Andrew Canter, chief executive of real estate brokerage and investment firm Canter Cos in San Diego, CA. "There are a lot of new buyers and a lot of people that have seen their wealth fluctuate over the last year." Canter is selling his own home and his friend Alan Ezier's. He said accepting the bitcoin for the purchase was a different way of marketing the homes by getting the properties in front of an untapped group of potential buyers. From “L.A.'s real estate industry enters the age of bitcoin” LA Times, March 1, 2018 at http://www.latimes.com/business/realestate/hot-property/la-fi-hp-bitcoin-real-estate-20180304-story.html One of the first reported single-family home purchases using bitcoin took place in September 2017 in Austin, Texas. When Kuper Sotheby's International Realty facilitated the sale, bitcoin was worth $3,429. The firm said it converted the bitcoin to dollars in 10 minutes to give to the seller. “L.A.’s real estate industry enters the age of bitcoin” supra Other brokers in California have also recognized the potential for real estate sales involving cryptocurrency: In August 2014, a secret buyer contacted the realty arm of Martis Camp, a luxury real estate community in North Lake Tahoe in California, with an unusual proposal: a purchase of land for 2,739 bitcoins. “Many of our buyers are in the tech sector and are early adopters of bitcoin. We understand the importance of adapting to cutting-edge purchasing methods,” said Martis Camp sales director Brian Hull, who described the buyer only as a “Silicon Valley entrepreneur.” This bitcoin-financed real estate transaction was one of the largest, but not the first. Five months earlier, in March 2014, another secret buyer purchased a villa in Bali for 800 bitcoins, or roughly the equivalent of $500,000. Two months later, a suburban home in Kansas City, Missouri, sold for the same amount. From " From: “Cashing out: Bitcoin’s young investors put their digital currency to work in the physical world” By Andrew Zaleski, March 21, 2018, CURBED.COM at https://www.curbed.com/2018/3/21/17143564/bitcoin-buy-property-real-estate-cryptocurrency-blockchain Most of these transactions involved the buyer converting bitcoin into U.S. dollars to make the purchase—a liquidation of assets, much in the same way a first-time homebuyer might use investment dollars to afford a down payment. Zaleski, supra In late December, 2017, what was considered to be the first bitcoin-only real estate deal was accomplished when Ivan “Paychecks” Pacheco , co-founder of cryptocurrency website Bits to Freedom, transferred 17.741 bitcoins ($275,000) to a seller to buy a two-bedroom condo in Miami. In early February, 2018, bitcoin investor Michael Komaransky, a well known crypto-trader and dealer, sold his Miami mansion in a transaction where the buyer—again, anonymous—paid the $6 million listing price almost entirely in bitcoins (455, to be exact). From Zaleski, supra

10 Then there are international brokerage websites offering properties for sale—just a few of them listed below... Florida: Brown Harris Steven Residential Sales / One Sotheby’s International Realty Listing agent Stephan Burke, of Brown Harris Stevens, reported that the seller of a 9,500-square-foot Miami mansion is accepting Bitcoin . The home is worth approximately $6.5 million. The seller has also reportedly said he will accept either Bitcoin or Zcash , another type of cryptocurrency. Burke had this to say about the transaction: Industries, businesses, and careers are being affected by this dramatic globalization and modernization, and real estate is no different. It seems clear to me that banks and title companies will be doing everything in a crypto-recorded fashion within the next decade, and our transactions will eventually become faster — and safer — under this system. Sand Key Realty A Clearwater, FL mansion, designed by a student of Frank Lloyd Wright, is also available to be purchased with Bitcoin . Nehad Alhassan is marketing the sale of the 4,000-square-foot home. Alhassan noted that since there are so few agents working with Bitcoin, a close relationship between buyer and agent is vital. He went on to say:   I think the seller has to grasp and understand it, and be comfortable in doing the transaction with me. You have to have that trust. New York: Magnum Real Estate Group Magnum Real Estate Group believes the use of Bitcoin in real estate is linked to a younger group of home buyers — those who have invested in cryptocurrencies and are searching for alternative forms of payment. Ben Shaoul , President of Magnum, spoke to CNBC about his company’s use of Bitcoin and the relationship of cryptocurrency to the overall global market: I think the demographic of the crypto user is a younger millennial, but, that being said, you have a lot of people coming over from other countries, who are buyers from different places, who like to trade in different types of currency. Not everyone wants to trade in dollars or yen or euros. Blooming Sky According to Blooming Sky , a New York City brokerage also dealing in Bitcoin, the majority of transactions require cryptocurrency to be exchanged for USD. Blooming Sky works with a team of real estate lawyers to help their prospects navigate the Bitcoin exchange process. Bernard Klein, Co-Founder of Blooming Sky, explained the practice this way: We will help clients facilitate transactions with [cryptocurrency]. Underwriters who review the sources of a down payment tell me they increasingly see transferring Bitcoins into cash as similar to transferring stocks into cash. Blooming sky has also published a guide on how to buy a NYC apartment with Bitcoin. Texas: Kuper Sotheby’s International Realty The first real estate transaction involving Bitcoin in Texas was brokered by Kuper Sotheby's International Realty, a real estate brokerage firm operating in Central and South Texas. The broker associate, Sheryl Lowe, who represented the buyer remarked on the seamlessness of the Bitcoin process: I honestly couldn’t have expected something so unique to go so smoothly. In a matter of 10 minutes, the Bitcoin was changed to US Dollars and the deal was done!

11 2018 – 14 states have proposed and/or passed legislation related to blockchain/crypto and/or promoting the development and use of blockchain. Airzona —HB 2602—Defines nodes in blockchain technology and encryption and prohibits any interference with use of blockchain technology by local government California—AB 2658—In part proposes a blockchain working group to research and report on uses/risks of blockchain technology by state government and California based businesses Colorado-S.B. 86—Use of cyber coding cryptology for state records. State Dept required to research and implement encryption and data security systems including blockchain Connecticut—S.B. 443, 513—directs that a working group will review blockchain and ways to implement it and also impact of digital currency (crypto) Delaware—S.B 182—blockchain systems to be used in keeping records for limited partnerships and other limited liability entities and statutory trusts Illinois—HB 5553—Creates the Blockchain Technology Act designed to allow for different uses of blockchain technology in government with some limitations Maryland—HB 1100 & SB 893—Authorizes some corporate records to be maintained in blockchain type systems Michigan—HB 6257—Relates to Crimes involving forgery etc and references any altering of a record by use of distributed ledger technology HB 6258—relates to crimes involving credits cards including references to crypto-currency and distributed ledger technology Nebraska—LB 691-695—Legislation adopting the Nebraska Virtual Currency Money Laundering Act with references to distributed ledger technology and authorizes smart contracts New Jersey—AB 3613/SB 2297—Establishes NJ Blockchain Initiative Task Force AB 3768/SB 2462– Corporations allowed to use blockchain for certain recordkeeping New York—AB 8780/SB 8858—Records and contracts secured thru blockchain and allows smart contracts to exist in commerce AB 8792/AB 8793—Establishes task force to study and report on implementation of blockchain technology in state recordkeeping AB 10854—Development and creation of distributed ledger technology for records and transactions Ohio—SB 220 –provides legal safe harbor for entities that implement a specific cybersecurity program using blockchain technology SB 300--provides for records and contracts secured by blockchain and allows the use of smart contracts Tennessee– SB 1662—Recognizes legal authority to use blockchain and smart contracts in conducting electronic transactions; protects ownership rights of information secured by bc Vermont—SB 765—proposes to implement strategies re: blockchain and crypto to promote business/governmental efficiency SB 269—provides for wide range use of blockchain systems for different types of records, including limited liability companies VIRGINIA!– HJR 153—(Jan 2018) Establishes one-year join committee to study potential of starting blockchain for state record keeping, information and service delivery Wyoming—HB 1, 70, & 101—Provide for a wide ranging exploration of use of blockchain in records keeping, securities, corporations records and more.

12 SO WHAT’S DRIVING THIS EPIC TRANSFORMATION? What’s really driving a transformation in the real estate industry “… is the high cost of real estate, monopolies, and the over-complicated/regulated process that real estate professionals must follow to buy and sell homes. It raises prices and slows transactions. And younger consumers don’t like the ring of “ million dollar homes .”  They like this new technology because they think it will save them money . “From smart contracts to Bitcoin currency to fractional ownership, and artificial intelligence- driven buying and selling, the entire real estate industry is about to be streamlined. From finance to construction, blockchain technology, in particular, is about to override the sector. Real Estate will be hard to recognize.” From : “The Future of Real Estate | AI Blockchain Software Cryptocurrency Bitcoin and the Housing Market 2018” May 2, 2018, by Gord Collins at https://gordcollins.com/real-estate/ the-future-of- real-estate ” “Brokers, marketing, banking, retail agents and others facing sudden disruption may enjoy their monopoly and legal power to keep the old system intact.” Collins, supra “This new wave of well-funded cryptocurrency, blockchain and Realtech startups change the game and playing field. The new blockchain based system is a completely new approach to transferring ownership of property from one party to another. With Cryptocurrency, the banks, mls associations, forex companies, and others could be completely bypassed.” Collins, supra “Even the mortgage industry is seeing new startups that offer reduced costs, fees and reduced fraud, and improved efficiency, speed, and transparency.” Collins, supra**********************AND ENTERING THE WORLD STAGE AS A MAJOR PLAYER, DISRUPTER….AND INTERLOPER?................................... PROPY! A company founded by Russian blockchain experts who have already persuaded the Governor and State of Vermont to pass legislation for the exploration of using their blockchain system to replace the state land records system…..more on that later See their mission statement below: About Propy Propy is a global real estate marketplace with decentralized title registry. We aim to solve the problems facing international real estate transactions by creating a novel unified property store and asset transfer platform for the global real estate industry. Propy allows buyers, sellers, brokers, and escrow/title agents/notaries to come together through the utilization of a suite of smart contracts on blockchain to facilitate transactions. We provide a network for these actors to connect with each other and conduct real estate purchases online. The culmination of the transaction is a digital transfer of ownership on the Propy Registry. For more information about these processes and smart contracts, please refer to our white paper. Propy is responsible for one of the most significant transactions in the US: the Burlington property transfer of title recordation via blockchain in February, 2018Set up through a relatively new blockchain/cryptocurrency/real estate transaction company ( Propy at Propy.com) this transaction transferred a deed to a property in Burlington Vermont. The deed was signed by its owner on February 20, 2018 and it was recorded using blockchain to transfer the deed to the blockchain land records on February 21, 2018.

13 THE BIG MOVERS AND SHAKERS IN BLOCKCHAIN REAL ESTATES SALE AND TRANSFER SYSTEMS: NUMBER 1 is PROPY.COM -https://propy.com/-- where you can list properties around the globe for sale using blockchain and Bitcoin. (The Propy Listing platforms) Propy offers Transaction Platform which facilitates the processing of paperwork, payments and conveyances then records all steps on the blockchain; Propy offers a Blockchain Registry which = set of smart contracts which store land records on blockchain. (also known as Blockchain Land Records Management System—LRMS) This Registry designed to replace existing government-controlled land records systems in the US—at the county and municipal levels. Propy is pursuing several pilot programs one of which was conducted in Burlington Vermont in February, 2018. (See Purcell transaction earlier mentioned) From https://blog.propy.com /first-government-sanctioned-blockchain-recorded-real-estate-deal-in-the-us-bb83e8292a7f ) Propy’s technical process for the transfer and registration of the deed was as follows: A property smart contract for the property was developed for the blockchain land records registration system. The Deed contract was then developed by sending the public address to the closing team so they could print it on the instrument of conveyance (paper deed). Each transfer of rights for the property has its own unique Deed smart contract deployed so it’s easy to inspect historical data for the legal transfer of rights as is typically conveyed by a deed. The conveyance data along with the hash of the recorded deed is written into the Deed smart contract as a separate transaction. See the blockchain and the QR code on the deed Deed smart contract was registered in the Propy Registry . The Propy Registry fee for the transaction was paid in PRO tokens. The property contract is responsible for storing and updating property information while the Deed contract stores the metadata of the actual ownership transfer and links to the related smart contracts. The system also uses PRO tokens to unlock the transfer functionality of the Propy Blockchain System. https ://blog.propy.com/first-government-sanctioned-blockchain-recorded-real-estate-deal-in-the-us-bb83e8292a7f Propy’s website (Propy.com) is also set up specifically for the posting and sale of properties from around the world using their online blockchain system also has a website for the purchase and sale of real estate around the world. Propy Video https://www.youtube.com/watch?v=Sjn2h68dNsc

15 Another blockchain/title transfer/crypto site: UBITQUITy One Block At A Time ™. https://www.ubitquity.io/web/index.html “Ubitquity, LLC was founded on September 15, 2015. We are based out of Delaware, USA, with partners and advisors located worldwide. ….” “WHAT WE OFFER We offer a simple user experience for securely recording and tracking property with our Software-as-a-Service (SaaS) blockchain platform. We help e-recording companies, title companies, municipalities, and custom clients benefit from a clean record of ownership, thereby reducing future title search time, increased confidence and transparency. We've created a fully functioning, easy to use platform for inputting property information, including uploading and record documents onto the blockchain. The early adopters of Ubitquity have the most to gain from improved efficiency and reduced transaction costs.”………… “ OUR PLATFORM On September 15, 2016 we officially launched in private alpha within and outside the United States. On February 27, 2017 we officially launched alpha release v1.1 (v1.2 in Sept 2017), and version 1.0 beta with API in May 2018. We are currently piloting our SaaS platform with a Land Records Bureau in Brazil and our API is integrated with corporate clients. In addition we're working with incumbent players and trade groups to adhere to industry best practices/policies and to form brand new ones (i.e. ISO/TC 307 ). Our platform is meant to be a parallel recording and tracking system to the current legacy paper one. When transactions occur, all relevant information about the property are automatically recorded on a stack that is already interoperable with UTXO based blockchains.” Ubiquity claims to have transferred and recorded the first transaction in the US in 2016 (International Business Times, July 12, 2016,)--Blockchain-powered real estate platform Ubitquity has recorded the first real property ownership transfer on Bitcoin's decentralised public ledger. Using the Ubitquity platform, Marina Reznik of Atlantic Sotheby's International Realty in Virginia Beach, recorded her most recent purchase transaction on to the Bitcoin blockchain, using the Colu Coloured Coins protocol. [ But they don’t say where the property was located or the “local municipality” where it was recorded] The transaction was properly recorded with the local municipality, and was also turned into a digital asset and secured on to the blockchain via Ubitquity , which has already recorded existing parcels of real estate using basic information from some early users. This was the first real property ownership transfer recorded using the technology, said the company.

16 AND THEN OF COURSE, THERE’S BITCOIN at https://bitcoin.org/en/ “…uses peer-to-peer (P2P) technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part . Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system.” Bitcoin has the “Wallet” function—you learn to use and set up a “Wallet” so you can buy Bitcoin and trade in Bitcoin. This site makes the Bitcoin way very much user friendly and includes relevant technology updates designed to promote blockchain and the “Bitcoin way.” As if the foregoing weren’t enough, Bitcoin is also very much into real estate: to wit, they have an entire website devoted to global real estate listings, for sale and for rent—mostly for high end properties. Bitcoin Real Estate at http://bitcoin-realestate.com/ Here again, high-end luxury properties from around the world being offered for sale using cryptocurrency . May list a property for sale or rent on Bitcoin’s Real Estate site. Although the sales or rental transaction may be paid for via cryptocurrency, the title, documents, loan and other standard elements of a real estate transaction will still be handled by existing lawyers, lenders, realtors, title insurance companies, surveyors and the like. The difference is not only that the property is offered for sale or rent outside of an MLS (already happening via Trulia and Zillow) but is being set up to be paid for with crypto currency. Bitcoin Real Estate recommends several different cryptocurrency exchanges that it works with: Coinify , Coinbase, bitpay and btcc . And acknowledges acceptance of 16 different cryptocurrencies such as Bitcoin. Bitcoin Real Estate also includes the digital asset exchange GDAX for quick assessment of value in the currencies being traded. Then there’s Bitcoin magazine at https://bitcoinmagazine.com/ Bitcoin Travel, https://bitcoin.travel/ ; b elieve it or not, there’s a Bitcoin Barbie blog… https://twitter.com/bitcoinbarbie?lang=en ; And Bitcoin fashion…and on and on

17 The “universe” of blockchain and cryptocurrency, complete with their own vocabulary have created whole new worlds for merchandising, professional careers, money transfer and management, real estate sales and transfers to name a few Blockchain and crypto lingo (See attached listed of crypto words) Cryptocurrencies (See list of over 1600 cryptocurrencies) and exchanges that are happy to help you buy, sell, trade crypto currency National and International Crypto/Blockchain trade groups who have annual conventions (See List of Blockchain Conventions) See especially IBREA— the International Blockchain Real Estate Association—(Its Mission Statement) And just when you thought this couldn’t go further….it does… There are already Bitcoin clothes, Bitcoin magazines, of course, a Bitcoin website, and even… Bitcoin Barbie sites (largely containing blogs and articles about uses of Bitcoin) now see….

18 AND WHAT ARE CRYPTO KITTIES??? It’s a blockchain based app that allows owners to buy, raise and sell ….kitties It’s the blockchain version of beanie babies….. https://www.cryptokitties.co/

19 Blockchain Benefits and Negatives BENEFITS: “Neither blockchain nor cryptocurrencies are regulated [as of 2018]—which can be a good thing if flexibility and speed are high priorities—but regulation is sure to follow—in fact, some countries have already made efforts to regulate cryptocurrency especially since there are so many cryptocurrency markets in the world and it’s a case of this genie getting out of the bottle, never to be returned again.” “Bitcoin, Along With Other Cryptocurrencies, Collapse Over Crackdown Concerns”, By Stephen Pope, Forbes , January 16, 2018 https://www.forbes.com/sites/stephenpope/2018/01/16/bitcoin-along-with-other-cryptocurrencies-collapse-over-crackdown-concerns/#5666d51c5612 Blockchain systems are largely tamper-proof so inspire high Trust. Crypto currencies also provide immediate asset availability and access to liquidity—no waiting period as is usually required with the banking industry; these transactions are fast and immediate with improved efficiency that avoids lengthy back-office reconciliation processes. BUT ONE BIG NEGATIVE! Aside from cost, Blockchain and Bitcoin (or the like) currently use an enormous amount of energy (not good). So engineers at MIT and other prestigious institutions are in a race to develop “green” blockchain systems. “The original blockchain, which underlies bitcoin, runs on an algorithm that could eat up more energy than Argentina this year, Morgan Stanley estimated.” From “Bitcoin and blockchain consume an exorbitant amount of energy. These engineers are trying to change that” February 23, 2018, https ://www.cnbc.com/2018/02/23/bitcoin-blockchain-consumes-a-lot-of-energy-engineers-changing-that.html

20 A word about Crypto The cryptocurrency world is and has been highly competitive with trillions of dollars at stake. Crypto coins have been and are being offered via Initial Coin Offerings (“ICO’s). They must be registered with the US Securities & Exchange Commission. These ICO’s may be legitimate, they do open the door to cryptocurrency fraud. The SEC has an entire page devoted to warnings about cryptocurrency scams and fraud*. Over 1600 different cryptocurrencies being traded…with more likely to be spawned The IRS considers crypto to be property, not currency, and is taxed accordingly The crypto using sites require you to create a “Wallet” which is used to buy, sell and trade crypto You can also buy, sell or trade crypto in some ATM’s in 7-Elevens or gas stations throughout the country (There are over 20 such places in Northern Virginia!) Of the many cryptocurrencies. Ethereum , has provided one of the most traded of currencies. Launched in 2015 by Russian-Canadian programmer Vitalik Buterin and collaborators, is a platform that hosts the cryptocurrency “ether”, which is traded through a “smart contract.” The smart contract allows cryptocurrency exchanges to take place through an “ if:then ” model. In other words, if a certain condition is met, then the trade takes place and is recorded on the ethereum blockchain — the master record of all ethereum trades and information that is stored across the internet, on the computers of ethereum’s users (more on blockchains below). The smart contract feature enables ethereum to be used for many other functions than just trading currency — it can store information about all sorts of transactions, including asset transfers and home sales . From Inman News, May 29, 2018 at https://www.inman.com/2018/05/29/the-essential-guide-blockchain-cryptocurrency-and-realestate/?utm_source=inbriefselect&utm_medium=email&utm_campaign=inbrief&utm_content=20180529%2B%2BREADMORE%2B1 *SEC in August rejected the applications to create Bitcoin Exchange Traded Funds (ETF’s) by 9 crypto companies The SEC stated , “Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.’ That failure is critical because, as explained below, the Exchange has failed to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, and therefore surveillance-sharing with a regulated market of significant size related to bitcoin is necessary.” (Emphasis Added) https://www.etftrends.com/sec-rejects-9-applications-bitcoin-etfs/

21 How blockchain and cryptocurrencies can (and might) transform real estate Blockchain and cryptocurrency technologies are disrupting what has been the real estate industry’s business as usual brokerage and MLS systems. The possibilities are remarkable but the potentially dramatic changes to existing systems could, though not likely, (because not all of the real estate industry players will adopt the blockchain-crypto system) render at least a portion of real estate sales and rental business, unrecognizable. As said earlier, everything from on-line listing offers, to blockchain transfers of cryptocurrency to transfers of deeds (title) to real estate and even recordation of the property transfer in a blockchain real estate registry or land records system is being offered up by this new and fastmoving technology. Real estate brokers are now being urged to be open to this digital real estate system via blockchain with the key advantage being that you’d be one of the first movers into this arena. “The Future of Real Estate / AI Blockchain Software Cryptocurrency Bitcoin and the Housing Market 2018” May 2, 2018, by Gord Collins at https://gordcollins.com/real-estate/the-future-of-real-estate/ Brokers might redesign their business model to utilize systems like RETS IDX listings. Now is the time to learn about it. Collins, supra Real estate is everchanging and its future will likely see “disruption” from many sources: technological, cultural, financial and political. The $36 Trillion US real estate industry is impacted by many factors such as affordability, housing development restriction, rising interest rates, competition, big data, cryptocurrency and more. Collins, supra At least in the opinion of Gord Collins above, (who is a digital and AI expert), while the new tech gurus are attacking the old megalopolies in real estate markets, they probably will not eradicate the existing institutions—at least not any time soon. Meanwhile, techno brokerage firms such as Zoocasa (Canadian agents), Zillow and Compass are developing fast and by-passing the MLS and some of their broker competitors—and offering reduced costs in so doing. Something consumers are especially pleased about. And, the process of settling transactions using the blockchain technology could be streamlined to be reduced to 10% of their current duration. And some techno start-ups will try to cover all bases—as Propy is doing now. Collins, supra And then there’s Deedcoin at https://www.deedcoinlaunch.com/ —a newer on-line site where consumers can find real estate agents and list their property for not much. Deedcoin issued its own coins in February 2018. Deedcoin is essentially a Compass entirely on-line. And Open Door (www.OpenDoor.com), Purple Bricks (PurpleBricks.com) and well, you name it…. With Millennials being the biggest and possibly wealthiest generation in play just now, their market power is ensuring that their special approach to branding and need for open sources on everything pervades the marketplace. Add also the influx of young, wealthy Chinese to this mix and one can see how the real estate tradition (as with the hotel industry by AirBnB ) is being replaced by the mostly on-line Uber culture. Collins, supra

22 NOW FOR THE REALITY CHECK! Here’s the good news: Notwithstanding all of this new technology, devices and gadgets: It is expected that real estate professionals will still be in demand. Why? Because human beings buy houses!! (not computers, AI or Martians…yet) and human beings still need human beings , NOT computers, not Iphones , not Ipads , not Echo DOT or Alexa--- to help them buy and sell houses. Generally, about 80% of home purchases involve a real estate professional. That’s because human beings still look to other human experts to help them. Then there are other reasons why real estate professionals will still be in demand: They usually have a 3-4 dimensional knowledge of local neighborhoods. Unlike AI, they know the sights, sounds, smells, location, feel, look, etc. of a neighborhood and even of the housing there. Real estate professionals can give real time, more nuanced advice on the markets, strategy in writing a contract and the like. They can also provide good advice on the overall quality and value of a property based on more criteria than AI can…at least as of yet. For example, part of what will inform a buyer’s agent when deciding on a proposed purchase price for a property will be knowledge of the history of the neighborhood, its proximity to shopping centers, schools and the community in general; its systems such as wells/septic/natural gas—need for road repairs and capital assessments etc.. AI or data processing machines can’t bring all that together in way that is meaningful, let alone useful, to humans. Only human real estate professionals can understand how best to negotiate for a buyer or seller; And we all know that real estate professionals offer lots of hand-holding to help the human clients manage their anxiety and fears about the homebuying or selling process. A device can’t do that. So far, AI hasn’t been able to help with staging or coming up with the best way to market a property. Nor does AI know how to manage the selection of and scheduling of home inspections or home showings. (All of the foregoing from Collins, supra )

23 . Professionals and stakeholders throughout the industry—real estate title, realtor, lenders, etc also have many legitimate questions What happens if a mistake is made after blockchain started? How is it corrected? 2. How will identities of the parties be verified? Because the transaction is supposed to be conducted entirely via blockchain, it seems that it’s a set up for fraud. 3. How will we be certain that cryptocurrencies or other items of value will not be hacked and stolen (e.g. Korean crypto exchange was hacked Dec. 2017 and put out of business within months) 4. How can title work and tasks necessary for clearing title be worked out? This includes review of survey. Lots of time and effort to include phone calls and emails are involved in clearing title. How will that work in a blockchain transaction? 5. What about the cost? If a blockchain transaction requires that much electricity or power, how will it be paid for? 6. And how will the professionals who make their living doing these blockchain/crypto transactions be regulated? Are these on-line brokers not also to be required to be licensed by each state? 7. And when a sales/purchase contract is used on-line as Propy shows, how will that work legally when each state has its own laws regarding property, real estate, and the terms/conditions that should be included in the contract? And will the title company or attorney handling the transaction be licensed in the state in which the property is located? In other words, where are the checks on the system and its players? AND MANY, MANY MORE QUESTIONS HAVE TO BE ANSWERED WELL ENOUGH BEFORE CERTAIN SYSTEMS CAN EVER BE TRANSFORMED

Comments about Cybersecurity The National Association of REALTORS® has also been raising awareness with its membership for years about these email hacking scams which torpedo real estate transactions hurting many more people than just the folks whose funds were stolen. See NAR’s Cybersecurity Guidelines for Real Estate Professionals athttps://www.nar.realtor/law-and-ethics/cybersecurity-checklist-best-practices-for-real-estate-professionals When several transactions depend on the success of each prior transaction (domino structure), and one of those transactions fails because the seller’s funds were re-directed to a criminal’s bank account, more folks than the sellers are affected. Also the real estate brokerage firm and agent may have significant liability when a client’s funds are highjacked!!! The typical wire fraud scam affecting real estate professionals goes as follows: Cyber-criminals constantly surveil email exchanges of real estate sales professionals, tracking their contracts and transactions. They know when certain contracts will settle. By knowing the timeline for a transaction, these cybercrooks get good idea of when funds might be wired. They imitate the real estate professional’s email account so as to use it to send a fake email to the buyer or title company re-directing the wiring of funds. Too often the client (buyer or seller) responds to this fake email, which they believe is from their real estate agent—and directs their bank to wire funds to the new account shown in in the email. Once done, and if not caught within 72 hours, the funds are usually far gone. These cyber-criminals will adopt a similar email scheme to cause the recipient to click on a link and open a virus, malware or ransomware. 24

LIABILITY AND IMPACT ON REALTORS® FOR DAMAGES RESULTING FROM WIRE FRAUD Real-life damages to our real estate clients, some of whom have sued real estate brokers, in addition to others in the last several years. In 2017, a couple buying a property in DC lost $1.5 Million due to wire fraud—(they thought the email telling them to deliver funds to a new account was a real one from their title company). In 2016, First American Title Insurance Company sued a California real estate broker for $513,000 alleging that the broker’s failure to secure his email account led to a fraudulent wire transfer. (First American Title v. Tanashi Zapat, et.al.) In June 2017, James and Candace Butcher sued their lender, title company and real estate agent when they lost their entire proceeds ($272,000) from the sale of their home to wire fraud. Claiming that all of the named defendants failed to employ proper email and anti-wire fraud practices, they allege that the real estate agent, along with the other defendants, had opened the door for the cybercriminal to succeed in having the wired funds sent to their own account. (Btw, the Butchers had to move to their kid’s basement to live while their lawsuit progressed). Anecdotally, we have learned that there has been at least one large title company in NVA which lost $690,000 due to a wire fraud scheme as outlined above. 25

So What Should REALTORS® Do?..Educate your clients… First thoroughly educate your clients about the threat of wire fraud and the things NOT TO DO! (Don’t put bank account or any other NPI anywhere on the internet—this includes emails and attachments)The listing and buyer agency broker agreements contain wire fraud warnings which should be reviewed with clients Remind your clients never to pay attention to any email directing them where to send any funds. Instead, they should be advised to speak directly to the contact person at the title company whose name and phone number you give them .You, the REALTOR®, should NOT send or forward ANY NPI of your own or your client’s via email. If bank account numbers and/or social security numbers or the like need to be communicated to a title company or a lender, such should be done in person or by phone. NEVER VIA EMAIL! You and your clients can call the contact person at the title company or the lender, verify that you are speaking to the person you were told to contact and then relate the necessary information . Be aware of fake emails AND scam phone calls designed to get private information from you which can be used to hack your accounts or those of your clients’! 26

NAR Cybersecurity Guidelines for REALTORS®:Email and Password Hygiene Never click on unknown attachments or links, as doing so can download malware onto your device.Use encrypted email, a transaction management platform, or a document-sharing program to share sensitive information. This means that your gmail, Hotmail, yahoo, aol , erols and other like accounts ARE NOT SAFE for the transfer of ANY sensitive information.Carefully guard login and access credentials to email and other services used in the transaction.Regularly purge your email account and archive important emails in a secure location. Use long, complicated passwords such as phrases or a combination of letters, numbers, symbols. Do not use the same password for multiple accounts.Consider using a password manager. Use two-factor authentication whenever it is available.Avoid doing business over unsecured Wi-Fi. Other IT-based Security MeasuresKeep antivirus software and firewalls active and up-to-date. Keep your operating system and programs patched and up-to-date.Regularly back up critical data, applications, and systems, and keep backed up data separate from online systems Don’t download apps without verifying that they are legitimate and won’t install malware or breach privacy.Don’t click on links in texts from unknown senders. Prior to engaging any outside IT provider, review the applicable privacy policies and contracts with your attorney. 27

Steps To Take if You or Your Client Are Victims of Wire Fraud ACT QUICKLY!!!!Immediately on learning of a wire fraud, or its potential, the owner of the funds (buyer or seller) should immediately contact his/her bank that initiated the wire to track it down. If done quickly enough, there’s a chance the wire can be reversed. The “fraud” account should be frozen. Contact the bank holding the “fraud” account immediately and at the same time contact local authorities.Simultaneously, contact the FBI and submit a “Financial Fraud Kill Chain” report.Known also as the IC3 or Internet Crime Complaint Center of the FBI, this unit takes complaint submissions regarding real or potential wire fraud and processes them for investigation. GO TO: https://www.ic3.gov/default.aspx (SEE FBI Flyer For IC3 Complaint Attached) ALL OF THE FOREGOING STEPS SHOULD BE TAKEN ASAP AND WITHIN 72 HOURS OF THE ACTUAL WIRE FRAUD. AFTER THE 72 HOURS, THE LIKELIHOOD OF RECOVERING SOME OR ALL OF THE FUNDS DROPS TO ZERO. These funds, once diverted, are sent to numerous foreign banks forever lost to any recovery. And there are few insurance carriers willing to cover these losses. In other words, once the funds are lost, there is little chance for recovery short of litigation.The hardships on the people who lose their money to wire fraud can’t be exaggerated. To make a complaint at IC3, see the following instructions required by the FBI: “The IC3 accepts online Internet crime complaints from either the actual victim or from a third party to the complainant. We can best process your complaint if we receive accurate and complete information from you. Therefore, we request you provide the following information when filing a complaint: Victim's name, address, telephone, and email Financial transaction information (e.g., account information, transaction date and amount, who received the money) Subject's name, address, telephone, email, website, and IP address Specific details on how you were victimized Email header(s) Any other relevant information you believe is necessary to support your complaint 28

29 SO AS WITH HUMAN MISSIONS TO MARS AND ELSEWHERE IN THE COSMOS WE’RE ADVANCING BUT NOT QUITE THERE YET…. Still blockchain promises new worlds and new ways of living for all of humankind; Yet another dawn in the evolution of life on earth and way beyond…….

30 Questions & Discussion FOR ALL OF OUR SERVICES, SEE US ON THE WEB AT WWW.THESETTLEMENTGROUP.COM

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