Advancing Real Estate into the digital domain: Blockchain Technology and Cryptocurrency

Bitcoin. Cryptocurrency. Blockchain Technology. Often used interchangeably, these terms have become part of the lexicon for investors and entrepreneurs. However, it is essential to remember that they are not one and the same. Bitcoin is a cryptocurrency that utilizes blockchain as its technology to operate. As we find ourselves at the height of the digital age, technology continues to reshape the way we conduct business and transactions. No longer are we limited to purchases by traditional means. This is especially true for the real estate industry. While blockchain technology and cryptocurrency aren’t exactly new, they are becoming increasingly mainstream avenues for buyers and sellers looking to purchase or sell property, but agents, brokers, property managers, and everyone else in the realm of real estate. 

The technology has transitioned from theoretical application to reality in recent years. Home sales, rental payments, mortgage loans, and refinances are just some of the real estate transactions consumers can complete with cryptocurrency. Locating properties, expediting the home buying process, improving trust and transparency are just some of the benefits blockchain technology promises.

Understanding the basics of Blockchain Technology

We’ve all heard the term “blockchain technology,” but what exactly is it? According to Forbes.com, “blockchain is a distributed digital ledger that stores data of any kind.” As the name suggests, it is blocks of data that are then chained together. The purpose of blockchain is to allow digital information to be recorded and distributed but not edited, making it immutable. Blockchain offers a simple and secure way to perform complex real estate transactions, from title transfers to price negotiations. Additionally, it allows for building a platform for all parties for a secure, transparent, and faster communication, automation, tokenization, and access to real-time information, all of which are highly valued for real estate. Lastly, blockchain enables cryptocurrencies by:

  • Verifying values
  • Managing and recording transactions, and
  • Facilitating the value conversions (USD to Bitcoin)

The key benefits of blockchain technology in real estate

Now that we know what blockchain technology is let’s examine the key benefits it brings to the real estate industry. 

Smart Contracts and real estate transactions

A smart contract is a computer code that can be built into the blockchain to facilitate, verify, or negotiate a contract agreement. Smart contracts operate under a set of conditions that users agree to. When those conditions are met, the terms of the agreement are then automatically carried out. 

Since the initial application ten years ago, blockchains have matured well beyond the single-use case of transferring value and can now be used to verify, secure, and automate significant parts of a real estate transaction. 

Decentralization creates trust in property sales and management

Decentralization in the blockchain refers to the transfer of supervision and decision-making from a centralized association (individual, corporation, or group of people) to a dispersed network. Blockchain commands trust and security as a decentralized technology. Information stored in the blockchain is accessible to all peers on the network, making the data transparent and immutable. 

The power of trading platforms and marketplaces

Real estate has traditionally been primarily concerned with listings and with connecting buyers and sellers. However, blockchain introduces new ways to trade real estate and can enable trading platforms and online marketplaces to support real estate transactions more comprehensively. There are a growing number of platforms and marketplaces that help facilitate those real estate transactions, from connecting buyers and sellers worldwide, to locating property, and recording deeds. 

For example, Propy, a San Francisco based start-up, allows anyone to buy or sell real estate from anywhere in the world. Propy’s platform uses blockchain technology to simplify the home-purchasing experience and eliminate fraudulent transactions. Propy also has a transaction management feature that allows you to upload and store your documents to a secured cloud to be accessed anywhere. This allows you to save hours on each transaction by allowing you and your clients to access offers in real-time, instantly accept, deny, or counteroffer. 

ShelterZoom, named Company of the Year – Blockchain, by CIO Applications, is yet another in a long list of blockchain-based platforms that assist real estate transactions. Built on the Ethereum platform, ShelterZoom includes a dashboard, a widget, and a mobile app that the buyers and buyer agents can instantly submit offers from any online real estate listing. 

It’s safe to say that whatever your digital real estate needs might be, there’s a platform out there to help. 

Fractional Ownership, Tokenization, and Liquidity

Fractional ownership or tokenization in real estate represents an ownership stake in various classes. In this case, it could be equity, debt, or cash flow. So how does this help buyers and sellers in real estate? By breaking up the property into fractions or tokens, buyers can now purchase property for smaller amounts than they could previously afford. The advantage for sellers is that expensive properties are now quicker to liquidate since it is sold off into more affordable pieces. A seller doesn’t have to wait for the buyer who can afford the whole property to get some value out of their property. 

No Intermediaries in your real estate transactions

Traditional real estate involves many players throughout the process. Brokers, lawyers, and banks all have a part to play in the transaction. Blockchain technology offers a way to cut out these middlemen. Cutting out the intermediaries means that buyers and sellers alike will get more out of their money as they save on commissions and fees they would have had to pay. Additionally, the entire transaction process becomes expedited as there is less back-and-forth.

Trim costs significantly with your real estate transactions

The transparency associated with a decentralized network can also trim down costs associated with real estate transactions. Beyond the savings made by cutting out intermediaries’ professional fees and commissions, there are other costs such as inspections costs, registration fees, loan fees, and taxes associated with real estate. These costs even vary depending on the territory that has jurisdiction. Like intermediaries, these can be reduced or even eliminated from the equation as platforms automate these processes and make them part of the system.

Buying a house with crypto

Now that we’ve discussed the benefits, how exactly DO you buy a house using your crypto assets? Currently, there are two ways to do this, and the first is a crypto-to-crypto transaction.

Crypto-to-Crypto Transactions

Using cryptocurrency as a form of payment in a real estate transaction requires agreement from both the buyer and the seller. One of the primary advantages of using cryptocurrency in real estate is that it makes it easier and faster to transfer funds directly between two parties without the need for a trusted third party. Funds are securely transferred through the use of a public and private key. A user’s “wallet” or account address has a public key, while the private key is known only to the owner and is used to sign transactions. 

Turning Crypto into cash

The second method of using crypto for a real estate transaction is converting it to cash. While cryptocurrency is a non-fiat currency, there are platforms, such as BlockFi, Celsius, and Salt that allow you to use your crypto assets as collateral for USD loans at low interest rates. Some notable advantages of using securing loans this way:

  • Credit score isn’t taken into account
  • Retaining your crypto assets
  • Avoid paying any capital gains tax

Solving the volatility problem

With the growing popularity of crypto investing and the promise of increased trust, efficiency, and lowered costs, one might wonder why it hasn’t caught on more? One of the reasons is that crypto is considered volatile. On the one hand, the fluctuations in the value of cryptocurrency can be appealing to many investors as they stand the chance of making a lot of money quickly. However, those same fluctuations do not translate well for the real estate industry. Why? When using cryptocurrency for real estate purchases, the value of the crypto put down today may not be the same at the time of closing. Enter the stablecoin. 

Stablecoins are a type of cryptocurrency that is backed by assets like the U.S. dollar or gold. The first stablecoin was created in 2014 and users receive one token for every dollar they deposit. In theory, the tokens can then be converted back into the original currency at any time at which means that they keep an almost 1:1 ratio. Since many of the cryptocurrency exchanges didn’t have access to traditional banking, stablecoins were used primarily to purchase other cryptocurrencies. This makes them, in effect, more useful than country-issued currencies because you can use them 24 hours a day, seven days a week, anywhere in the world. 

The surge in mass adoption of cryptocurrency, from governments to banks and hedge funds 

Regardless of the reservations held by many when it comes to accepting cryptocurrency for completing transactions, there is increased adoption and support from large corporations, government institutions, banks, and hedge funds. In 2021, several leading financial institutions took big steps towards the adoption of Bitcoin, other cryptocurrencies, and blockchain uses. 

  • Goldman Sachs relaunched its trading desk for digital assets and aims to offer a “full spectrum” of investments across the emerging asset class to its wealth management clients.
  • Morgan Stanley announced it would offer its clients exposure to digital assets.
  • JPMorgan is developing a digital token and blockchain platform which allows its clients to transfer payments instantaneously.

The shift towards mass adoption of blockchain and digital currencies is imminent as the innovative and creative ways to save, store, send and earn money using institution-focused DeFi tools gains traction among the leading financial organizations and even international governments.

How crypto and blockchain can help with your real estate transactions

Cryptocurrency and blockchain technology both stand to lend significant value to the real estate industry. Cryptocurrency creates a new class of investors who are looking to create a more stable asset. Real estate is one of the most well-known and lucrative forms of investment. Blockchain technology promises to enhance many of the processes and procedures currently used in real estate transactions. While each is far from perfect and subject to resistance, the benefits they provide are evident in the growing number of platforms, investors, and properties that have been sold all over the world.