The world is constantly changing as new technologies promise to make life—and business—easier. This truth is a constant in the real estate world, as professionals strive to make their businesses more profitable, more efficient, and more customer-friendly. One of the latest advancements in real estate is the use of blockchain and cryptocurrency, and while these technologies have been in use in other industries for some time, they are becoming more popular and accessible in the real estate world. Read on to see what impact blockchain and cryptocurrency could have in real estate and if they have a place in your future real estate business plan.
But first, in case you’re new to all of this, let’s break it down:
What is blockchain? “A blockchain is, in the simplest of terms, a time-stamped series of immutable record of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) are secured and bound to each other using cryptographic principles (i.e. chain).” So basically, a blockchain is a decentralized ledger used for many aspects of business.
What is cryptocurrency? “Cryptocurrency is a form of payment that can be exchanged online for goods and services...and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.” A common example of cryptocurrency is Bitcoin, and cryptocurrency is the currency used in blockchain.
Blockchain as it Relates to Real Estate
As aforementioned, blockchain is essentially a decentralized ledger. It’s being used around the real estate world—both in the US and, more often, internationally—for tasks such as escrows, financing, purchasing, leasing, selling, investing, property and title searches, cash flow management, payment management, MLS searches, asset management, and others.
But if you’ve already got a satisfactory process in place, why would you want to switch to blockchain?
4 ways blockchain can be an asset for real estate professionals:
- Saves time and money: Since no intermediaries (banks, stock exchanges, governments, etc.) and/or third parties are needed to process and verify transactions using blockchain, there’s a faster processing time and exchange of data (including payments and paperwork), which not only saves time, but also saves money.
- Fewer errors: Blockchain alleviates the need for human-involved transactions (property record management, for example), decreasing the potential for human errors. Likewise, since any computer-made errors would only affect one block of the blockchain instead of tainting the entire system, as can happen without blockchain in place, the possibility of system-wide errors is nearly impossible.
- More secure: Since blockchain is decentralized and consensus-based, the risk of system-wide hacking or the occurrence of other internet security issues is almost negligible with blockchain, especially due to extensive verification processes that are in place. Not utilizing third parties or intermediaries also decreases the risk of fraud or other crimes.
- Increased transparency and traceability: Since blockchain utilizes both public and private digital identities and operates as a decentralized ledger, information and activities are transparent across the blockchain, allowing all parties to view any needed information, while any private information is kept secure and invisible. These benefits also allow for better decision making capabilities since all activity is transparent and traceable.
The Current State of Blockchain for Real Estate
Blockchain implementation issues are tremendous right now. It’s very difficult to regulate, and legal issues are a problem because blockchain is a global system that doesn’t work at the local level and doesn’t adhere to local laws. Generally, control, regulation, and compliance issues are what is holding blockchain back from immediate use in the real estate industry.
Some other issues holding back blockchain from being more widely embraced in the US real estate industry are the complex technology involved, trust issues between unfamiliar entities using the same blockchain, challenges with collaboration, and the high energy consumption (and related expense) required to create transparency.
While there are some difficulties to blockchain utilization in the US, this is not the case in other countries. The first ever European property sold entirely through a blockchain transaction took place in France in June 2019, with Thailand and the UK making inroads into blockchain utilization for real estate.
The Future State of Blockchain for Real Estate
In addition to the benefits listed previously, there will likely be a big push in the future to use blockchain in order to make real estate easier to buy and sell. Currently, the real estate purchasing process is time consuming and expensive, especially where overhead is concerned, and it’s often unapproachable or inaccessible for individuals and smaller companies. The minimums to invest for smaller entities make real estate a risky short-term investment and a problematic long-term investment because it can be difficult to get your equity out.
Blockchain will help solve this problem for individuals by breaking properties into smaller pieces that are easier to buy and sell. For firms, transactions will be smoother, and it will be easier to secure funds.
Some companies in the US are already using blockchain technology for certain real estate-related activities like home sharing, offers and acceptances, other secure real estate transactions, reducing risks, identifying issues, marketing, and others.
Currently, the only vehicles for RE investing in the USA are through private equity and REITs (Real Estate Investment Trusts). But we’re starting to see more in crowdfunding (outside of the US), which will be the first step toward more completely integrating blockchain into real estate.
Blockchain—and its associated cryptocurrency—definitely shows promise as far as benefits to the real estate industry. It will be interesting to see how blockchain impacts real estate in the months and years to come and how widely spread that impact will be. Will blockchain be completely embraced? Or will it be used as another segmented tool in real estate management? Only time will tell.