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How Blockchain Could Change Real Estate Transactions and Industry

How Blockchain Could Change the Real Estate Industry

While it’s unlikely that blockchain technology is going to drastically disrupt the Canadian real estate industry this year, the potential applications of blockchain could seriously change how we conduct real estate in the near future.

Blockchain technology is taking aim at the real estate industry in hopes of solving some of the problems or difficulties encountered during real estate transactions. Just like any other technological advance, the blockchain solutions are intending to streamline the process and make things easier for people doing business.

 

What are some difficulties in real estate transactions?

 

1) It can be difficult to transfer ownership of property

 

2) It can be difficult to find out how much a property is worth

 

3) It takes a long time in due diligence to know if a property is a good investment

 

4) Data is kept private and access to it can be expensive (that is changing)

 

5) A lot of middlemen in real estate cause high transaction costs

 

6) There are legal inconsistencies across provinces, states, and countries

 

7) There is potential for fraud such as white-collar mortgage fraud

 

Could blockchain improve the real estate industry?

 

According to some advocates for blockchain technology, the real estate industry is fragmented between different institutions and players that don’t always work well together, or not as well as they possibly could work. When thinking of mortgages lenders, realty brokerages, banks and lawyers, the fragmentation can be hard to deny.

The blockchain solution is to build decentralized open source software to unify the real estate process with blockchain and distributed file storage. All the applications and processes would ideally work better together. But what does that really mean?

 

What is blockchain?

 

Blockchain is a protocol of rules that you can build applications upon. It gives you the ability to create a digital scarce asset. One of the most popular forms of that asset type right now is Bitcoin. Just like Bitcoin has shown, a digital scarce asset can act as a form of currency for peer-to-peer trading without the need of a third-party institution like a bank. Best of all, a currency like Bitcoin has very low risk of counterfeit fraud.

Blockchain also allows for smart payments or contracts to conduct business, and it acts as a public ledger, tracking transactions with time stamps, that is (mostly) immutable.

 

How would blockchain change real estate transactions?

 

The best application of blockchain has been creating a form of money, which could easily transfer to real estate transactions. You want to buy a condo in Toronto, transfer some Bitcoin! As we’ve discussed before in a blog post about money versus currency in real estate, there is no perfect form of money. Money is a store of value, a unit of account, and a medium of exchange. Most crypto-currencies meet those requirements with the added benefit of being globally accessible.

When it comes to actual real estate transactions, blockchain has the potential to unify the whole process digitally with tokens and smart contracts.

With blockchain you can create scarce digital assets, commonly called tokens. Blockchain tokens can act as a representation for a real-life asset or a right. A condo for sale in Toronto is a physical asset. Using blockchain, you could create a token to represent that condo property, which could then be traded. Similarly, the token can represent a right to ownership or revenue in a company or as a right to access a service. Security tokens can be used to represent equity or stock.

With those tokens ready to trade, blockchain allows for smart contracts between buyers and sellers. Bitcoin transactions are smart contracts. In the most basic sense, a smart contract is a transaction between a human and a piece of software, like a vending machine (watch the video at the end of this post). You put in your change, you enter the code, the software runs the transaction, and you get your bag of chips. Smart contracts in blockchain remove the need for middlemen and third-party institutions.

 

Does blockchain change real estate day-to-day?

 

The expectation is that buyers and sellers can do business directly. You want to sell your home, so you create a multi-signature smart contract with Bitcoin. You create the contract with two security keys, the buyer transfers the money, you see the money, buyer inspects the property, both parties enter their keys, transfer of the property – no bank, etc.

The blockchain ledger of transactions allows you to track the ownership of an asset. Since the public ledger is (mostly) immutable with time stamping, you can track the full history of an asset. This asset existed as early as this time stamp – full financial history time stamped 5 or 10 years ago. It’s very powerful and difficult to fraud. The same function could allow the tracking of property title and equity.

It may be a while before everyone and their aunt is buying and selling real estate with blockchain transactions, but the potential for change is on the horizon. With the rise of new proptech companies such as Knock and Opendoor offering alternative, consumer-direct real estate services like the iBuyer, the real estate industry is in the spotlight for disruption and change. Just like the design of new condo buildings, consumer demand and home-buyer preferences are having a more significant impact on what’s being built. If everyone did switch over to blockchain currency transactions, could the real estate industry be changed forever? What do you think?

To learn more, watch the full video Blockchain Real Estate 101 In-depth by Ragnar Lifthrasir, Founder of International Blockchain Real Estate Association.