It’s still a cold war, and it is waged between the old school real estate industry and the future blockchain real estate industry.
I might be one of the few who knows both worlds.
The old school real estate world usually doesn’t know much about the blockchain, bitcoin, and co.
And, as with everything we don’t know well, as humans we are suspicious about it and don’t have much trust in it, and more so if we don’t know how to apply something we are not familiar with to something we know well (real estate).
In this article, I will try to build a bridge between the old school real estate industry and the blockchain real estate world.
I will start from scratch and show you what you already know, explain the basics of the blockchain, and take what you know to the blockchain world.
What The Heck is The Blockchain
Nowadays, everyone and their mom uses the term “blockchain” for some purposes.
Sometimes it really relates to the blockchain and more than sometimes it’s just some form of “hype” marketing language. Because “blockchain” sounds kind of cool.
But what is it?
Imagine you are about to do a real estate deal, where you are the buyer. After you closed the deal with the help of a notary office, the title is transferred from the former owner to you.
In order to transfer the title, the notary must record the deed in the county where the property is located.
In the US, the name of the county office varies from state to state and can have different names like land registry office, the county recorder’s office, or registrar of titles or registrar of deeds.
In Costa Rica, this is called “Registro Nacional de Costa Rica” and cars are also registered here, not only properties.
So, we can agree that this is some sort of archive or database.
Now, imagine that you don’t have a physical office somewhere, like the land registry office in County XYZ or the “Registro Nacional de Costa Rica” with a lot of people sitting behind computers, and moving papers and documents from one side of the room to the other.
Rather, imagine having all this as a digital version on top of the internet.
This description approaches to what the blockchain is. It’s a public ledger of information collected through a network.
The large potential of the blockchain is how the information is recorded.
While in the registry someone can have a leading role like the head of the registry office and somehow indirectly or directly influence the recording process, this isn’t possible for the blockchain.
Hence, it’s not a company, or an app but a new way of documenting data on the internet.
Unlike the registry office, it is not limited to only properties or, in the case of Costa Rica to properties and cars.
On top of the blockchain, you can develop a wide array of things, such as blockchain applications like social networks, games, messengers, exchanges, storage platforms, voting systems, online shops and much more.
Now, back to the very special way information is recorded in the blockchain (this is the key):
Putting information there is not just like pressing the “save” button on your device of choice.
No, to record something on the blockchain, confirmation from several devices (e.g. computers) connected to the network is needed.
It is like you, the real estate buyer, and the seller come to an agreement, which is recorded in the deed and then in the registry office with the help of the notary.
In order to do the transfer of title to you, the seller, the notary, and the registry office clerk need to work together and have a consensus.
The same consensus between at least two parties to record information in the blockchain must exist.
The information to be recorded can be of any kind:
- Transfer of money
- Transfer of ownership
- A simple transaction
- Someone’s identity
- How much electricity a lightbulb has used
- An agreement (e.g. contracts/smart contracts) between two parties
Once a consensus between two or more parties is reached to store something on the blockchain, there is no return.
It is recorded there and cannot be disputed or altered without the knowledge and permission of all parties involved.
Let’s now imagine the register office has all documents digitalized in their database or even in a cloud.
If they are on a central computer in a database or even if they are in the cloud, the blockchain still has an advantage over the register office system. Why?
Once information is recorded on the blockchain, it is not stored in just one place.
Multiple copies are always stored in different locations and on different devices on the network. The term used for this is usually “peer to peer network”.
So, when one point of storage is lost or damaged, there are still several copies remaining safe elsewhere.
The same happens when information is changed without the agreement of the rightful owners – there are enough other versions with the correct information available.
How Real Estate Transactions of The Future Could Look Like Using the Blockchain – 6 Use Cases
As soon as you can liquify and record properties on the blockchain, the way business is done in real estate will change a lot.
Here are a few examples of how real estate would look like:
- Properties can be traded like currencies or stock on exchanges.
- Transactions become easier and notaries or registry offices aren’t needed anymore, or only in a very reduced way compared to today.
- Real Estate can be sold in different ways. You can still do it “old-school” (the whole property) or in fractions of shares (like time-sharing, but less complex), thus lowering the barrier of entry to invest in it (Decentralized Property Ownership).
- Quantifiable Smart Contracts could cut out additional inspection costs, registration and loan fees, as well as property taxes, and streamline real estate processes like releasing ownership, or rental documents after a cryptocurrency (e.g. bitcoin, ether etc.) transfer has been completed.
- Better decision-making in leasing transactions can be achieved with a shared database, where owners, tenants, and service providers have access to ownership information or transaction history.
- Decentralized payment projects.
You might think “well, this is still far in the future, so why bother with this topic”.
Not so fast! The aspect of smart contracts applied to real estate is already being recognized by different private institutions and government bodies.
In the United States, for example, Vermont and Arizona have already passed legislation that helps to recognize smart contracts in real estate transactions.
It is very likely that the blockchain will be the better and safer “registry office” for properties and real estate transactions in the future.
This future is not as far away as you might think, and smart contracts and already existing cryptocurrencies like bitcoin will be one of the first elements of the blockchain enabling faster and easier real estate transactions with lower barriers of entry to real estate investors, and retail buyers.
Since I didn’t want to overwhelm you with information from the “crypto-space”, I will leave it at that, and write about Bitcoin and smart contracts and their application in real estate in one of my next articles.
Real Estate Dealmaker | Crypto-Trader | Author
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