The rumours and hype surrounding blockchain have been circulating for a little while now but, at this stage, few in the industry have adopted and are actually leveraging the technology to its full extent.
However, with its capacity to completely overhaul and improve traditional real estate procedures, now is the time to explore how your business could benefit from it as it rises to prominence and exerts what will be considerable influence over industry practices and processes.
WHAT IS IT?
Blockchain is the technological foundation upon which cryptocurrencies like Bitcoin are built. In short, it is a public digital database secured by cryptography that captures all the information about a transaction without the need for central authority from bodies like credit unions, brokerages or banks. By decentralising and distributing transaction information with no one entity owning the data or the system, the network can’t be taken down or corrupted.
HOW DOES IT WORK?
Every time there is a purchase, sale or transfer that uses cryptocurrency, a new “block” of encrypted data is generated and automatically added to the database. The blocks link up to form a chain with other blocks carrying similar information, essentially building on top of one another to create an overlay of datasets.
Once entered, information held in a block is permanent and can’t be altered, and any attempts to do so are impossible without having to change every subsequent block in the chain. So, in effect, each block strengthens the previous one, providing protection and security for the system.
WHAT ROLE WILL IT PLAY IN REAL ESTATE?
There are a range of potential applications for blockchain within the industry, with more being identified as the system matures and grows. Here are just a few examples of how it can be used:
- Smart Contracts
Typically, any transfer of ownership needs to be reviewed, confirmed and verified by a lengthy list of stakeholders including agents, solicitors and government bodies. Smart contracts are a computed protocol designed specifically to digitally facilitate, verify and enforce contractual agreements without the influence of any external factors or governing organisations –effectively removing any middleman and saving precious time and money.
- Improving Transaction Speed and Lowering Costs
Usually, when there is a funds transfer – particularly to or from an overseas account – financial institutions charge a fee for the transaction and there is a time lag of a few days before verification. With blockchain, assets can be transferred digitally without the need for this verification from any authority. In real estate, this translates to faster settlements and a reduction in legal and title-related fees.
- Fraud Prevention
As technology has advanced so to have the efforts of fraudsters trying to forge documents and advertise fake properties. Because it is completely incorruptible, blockchain can solve the issue of fraud by storing details of transactions from sender to recipient and then generating impossible to duplicate “digital ownership certificates” linked to a single property. Any changes or inconsistencies in one of these certificates are immediately picked up by the chain exposing the attempted fraud.
- Making Fractional Ownership More Accessible
An exciting possibility opened up by blockchain is the tokenising of physical real estate into digital assets, creating the option for investors to purchase a percentage of tokens that represent a partial stake in a property. This would allow people to invest in properties that otherwise would have been out of reach due to expense. It also provides an accessible entry point to the real estate market for young players.
The ability to reconcile multiple transactions in real time and facilitate a smooth transfer of assets makes blockchain a tantalising proposition for everyone in real estate. The fact that it is secure, transparent and removes the need for centralised institutions means that it will be the option of choice for consumers, and therefore the quicker it is adopted by the industry, the better.
In part two of this article we will explore some start-ups built on the foundation of blockchain and how they are leveraging this technology to improve real estate buying and selling processes.