In the past few years, cryptocurrency has become increasingly popular, with various investors playing the markets, hoping to make a profit. While digital currency has gained popularity, blockchain technology, the driving force behind it, has only recently captured the attention of different industries. In blockchain technology, each member holds a copy of the blockchain, which automatically updates when information is added to the database.
It works in the same way a person would share a collaborative word document (think Google docs) with someone else, and as changes are made to the document, every copy is updated simultaneously. There is no remote location for the blockchain because it can be accessed at different computers on the network at the same time. This ensures that it cannot be hacked, stolen, deleted or duplicated by any single individual.
In the past, this ingenious technology has been used in various industries including banking, healthcare, and education. Now, it’s gradually making its way into the real estate sector. The introduction of cryptocurrency methods into this sector allows buyers to view and purchase property online using digital currency such as Ethereum (ETH).
Real estate transactions usually involve a lot of data exchange between the local government, realtors, brokers, banks, and buyers. The process is often long and grueling, but the use of cryptocurrency is easier and faster. Buyers can now buy property with the use of smart contracts online, which as mentioned above, make the process easier, quicker and eliminate the need for third party involvement.
Smart contracts contain written code with the terms and agreements between a buyer and seller. They are stationed across a blockchain network, where they self-execute, eliminating the need for a third party. Since the proposal of these contracts by Nick Szabo in 1994, they have advanced reasonably well and have since been adopted in several verticals including ticketing, escrow, record keeping and real estate transactions.
In this industry, smart contracts simplify the sale and purchase of property by eliminating the need for lengthy correspondence as well as reduce the amount of money spent on fees between third parties. A buyer exchanges cash for a cryptocurrency like Bitcoin, which, in turn, is exchanged for the property. The property title is encrypted using blockchain and given to the buyer. A record of the transaction is added to the registry.
Transactions using smart contracts are traceable because they are done on a peer-to-peer network and can be viewed by authorized parties at any time. This creates transparency as well as expedites the process of purchasing any real estate.
Records detailing the ownership of land have traditionally been paper-based, with some countries like Sweden, India and the United Kingdom recently making the transition to blockchain registries. Even with the use of databases, paper-based backup documents are often kept. The problem with this is that paper-based records have proven to be unreliable and they pose a myriad of disadvantages.
Firstly, paper-based records can be easily lost. In the event of accidents like fire outbreaks or merely moving them about, documents can go missing. They can also be stolen and manipulated for fraudulent reasons. The process of documenting records is too time-consuming and cumbersome due to the need for manual verification and collection of signatures. Due to the time lapse between signing contracts and the registration of the sale, the visibility of the transaction is also limited.
The use of blockchain technology to encrypt and store these records on a distributed ledger reduces the chance of losing them. There is an increase in visibility due to the transparency of the blockchain network where involved parties can view records at any time. Another advantage of using this technology for land records is that although stored information can be seen, it can’t be manipulated. This ultimately reduces the risk of fraud.
Traditionally, real estate is listed on multiple listing services (MLS), which real estate professionals control, making it difficult to access listed property without hiring an agent. Blockchain has recently been integrated with these listing services to ensure that private citizens can view as well as enlist property for sale or lease.
Real estate websites like Propy list multiple properties and allow users to pay using cryptocurrency and smart contracts generated by the company. Some of these sites also act as distribution platforms, sharing the property data across different real estate sites. Blockchain allows users to view property data such as ownership history, property age, locations and title details. The technology can also be used to compare prices, map real estate market trends and gather useful data that otherwise would be difficult to attain for research purposes.
The adoption of blockchain in the real estate market has opened up the doors to crowd ownership of property. Property is broken down into tokens which have a value and investors can decide to make an investment with as many tokens as they want for a particular property. For example, property valued at $5 million can be broken down into 100,000 tokens with each token having a price of $50. Investors buy these tokens which serve as shares, giving them partial ownership of the property. These tokens increase in value as the price of the property appreciates over time.
Investors who buy fractions of property can vote to decide what happens to it. Transactions are carried out on an open peer network, facilitated by smart contracts. These contracts contain the property rules and agreements as well as other relevant data. They also update government ledgers and enable the issuance of titles. Owners can decide to sell or transfer their shares to someone else at any time.
This method of real estate investment minimizes the risk of property ownership by allowing people to purchase shares in more than one property. This system also creates an advantage for real estate agents who may handle several clients for a single property.
Although it may seem like blockchain eradicates the need for real estate agents, that isn’t the case. The adoption of cryptocurrency in real estate isn’t a sudden move. It is generally slow because it may take a while for the public to adopt the technology. Although blockchain stands to save people a lot of time and money in agency fees, they may not quickly abandon the traditional way of doing business.
Even with the use of smart contracts and blockchain-based property listing sites, buyers will still need professional services. They will need advice and a way to inspect a property before purchasing it. The time gap between now and the full adoption of this technology gives realtors and brokers ample time to expand their knowledge base to include cryptocurrency transactions.
The real estate landscape is gradually changing, and blockchain is a massive catalyst for that change by eliminating traditional real estate business methods. Information can now be readily available to buyers and data can be stored in secure ways, minimizing the risk of theft and fraud.
The advent of smart contracts and the move from paper-based records to databases show that this technology isn’t going anywhere soon. These new uses of cryptocurrency in real estate result in a faster, streamlined process that will make transactions easier for all involved parties. Blockchain has the potential to disrupt the industry, and it’s exciting to anticipate the advancements that lay ahead.
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