With the advent of Bitcoin and Ethereum’s adoption on a global scale, blockchain real estate applications have transitioned from theory to reality. In fact, the technology behind today’s most popular cryptocurrencies has the potential to revolutionize the real estate industry. By using an advanced network of computers and algorithms, blockchain real estate applications will disrupt the housing sector for the better. As a result, it may be wise to learn exactly what blockchain real estate is, what it can do, and how it may be used sooner rather than later.
What is the Blockchain Technology and How does it relate to the Real Estate Industry?
The relatively recently coined term “blockchain” has become synonymous with today’s most popular cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), just to name a few. However, it is worth noting that the use of blockchain in real estate isn’t relegated solely to crypto assets. While each cryptocurrency takes advantage of blockchain’s ability to act as a ledger across a vast network of computers, the ability to track transactions and records may be utilized by just about any and every industry, not the least of which includes real estate.
In its simplest form, blockchain real estate will utilize a network of computers and nodes to act as a more advanced and secure escrow company. Instead of simply trading closing documents for cash, however, blockchain real estate capabilities may be extended to almost every facet of the real estate industry. Consequently, blockchain real estate may help participants in the real estate sector exchange currency, records, legal contracts, and other types of information over a safe and secure network.
More specifically, here’s a step-by-step example of what the industry can expect from blockchain real estate exchanges:
Blockchain Tokenizes Real Estate
The concept of blockchain real estate can be easier to understand when viewed through the lens of tokenization. As its name suggests, tokenization is the process of turning someone’s equitable interest in a property (or other asset classes like debt or cash flow) into a token. Not unlike a store of value, the token is a digital representation of said equitable interest.
Let’s say, for example, that two partners buy an apartment complex. If they tokenize their equitable interest in the asset on a blockchain, they will receive tokens equal to their ownership of the asset. If the partners split the investment evenly down the middle, they will have the same amount of tokens. However, if their equitable interest is different (one partner invested more), the tokens will reflect the difference. Added together, all of the tokens will equal the asset’s value; separately, each investor’s tokens represent their share of the property. Either way, the tokens are used to document, store, and verify ownership of the asset.
Once “tokenized,” real estate may then be easily traded, sold, and liquidated over blockchain real estate applications. The process isn’t all that different from a traditional transaction, where assets are being exchanged for capital. That said, tokenizing real estate and utilizing blockchain to facilitate transactions is quicker, more secure, and doesn’t require an expensive third-party escrow company.
Why Is Blockchain In Real Estate Important?
Blockchain in real estate is important because it represents a shift in the way things are done throughout the industry. Blockchain technology allows almost all components of a transaction to take place online. This will not only increase the accessibility of information, but it could also lead to the automation of different components of a traditional sale.
Blockchain has the potential to radically speed up typical real estate transactions, circumvent the traditional escrow process, and provide additional layers of security for involved parties. These benefits signal a departure from the way things have traditionally been handled within the industry. It is important for investors to keep an eye on the ways blockchain is implemented throughout the industry, and even the economy, to keep up with current practices.
How Does Blockchain Change Real Estate?
Blockchain has the potential to change the entire foundation of the real estate industry. In particular, blockchain real estate applications can democratize the entire industry, and make it available to just about anyone; all while facilitating faster and more secure exchanges. If that wasn’t already enough, let’s take a more in-depth look at all the ways blockchain can change the real estate industry for the better:
Trading Platforms & Online Marketplaces
No Need For Intermediaries
Real Estate Becomes A Liquid Asset
Blockchain Allows Fractional Ownership
The advent of technology has enabled online platforms and marketplaces to change the way we look at real estate. Sites like Zillow and RedFin have made transactions more readily available and feasible to everyone interested in participating in the market, especially when the globe is on lockdown from a pandemic. That said, the evolution of trading platforms and online marketplaces is just beginning. Using blockchain for real estate is just gaining mainstream exposure. Thanks to blockchain real estate applications, more people will be able to participate in the real estate industry without fear of malicious exchanges. Consequently, trading platforms will be more secure and quicker, saving everyone a lot of headache and holding costs.
One of the many industry experts who believe blockchain real estate will disrupt how transactions are carried out, Tal Shelef, Realtor and Co-Founder of Condo Wizard, is convinced “middlemen” will be the first to be impacted. “Blockchain is guaranteed to disrupt the real estate industry or any industry for that matter as it will solve the murky and expensive process of negotiating with a middleman in the market,” says Shelef.
For years, blockchain has been touted as one of the most secure methods of exchange. Each data set’s absolute nature has proven (up to this point) to be infallible and immune to tampering. As a result, blockchain technology has become a superior form of escrow; a digitized marketplace allows parties to exchange goods without fearing the other side’s intentions. Blockchain real estate applications will enable people to exchange everything from legal documents to payments, all without worry. In eliminating intermediaries, buyers and sellers will get more for their money. Commission and fees will no longer be a hindrance, and exchanges will be carried out faster.
The ability to tokenize real estate inevitably makes the whole asset class more liquid. Before tokenization, and even now, real estate assets were not particularly liquid. To tap into the cash behind an asset, investors or homeowners would first need to entertain the idea of selling. Once a decision has been made, the asset would need to be marketed to buyers and endure what is typically a lengthy closing process. All things considered, selling a physical real estate asset is time-consuming and costly. Of course, that was before real estate could be tokenized. Since digital tokens on the blockchain represent ownership in a property, owners could sell their tokens and avoid the hassle that comes with selling a house using traditional methods. Instead of waiting weeks or months, it’s theoretically possible for investors and owners to cash in on their tokenized real estate in a matter of minutes.
Not only does the tokenization of real estate grant owners and investors quicker access to capital, but it can also give prospective owners and investors a lower barrier of entry. Thanks to tokens, it’s no longer necessary to spend an exorbitant amount of money by yourself on a single investment. Instead, tokens allow buyers to practice fractional ownership. If, for example, five tokens are representative of an apartment building’s equitable interest, buying every token would transfer complete ownership of the asset. However, if a buyer were only to acquire two tokens, they would own two-fifths of the asset’s equitable interest.
Blockchain real estate applications have the ability to act as their own escrow autonomously. In fact, executing transactions over the blockchain could eliminate the need to hire several professional services that thrive on facilitating deals. As a result, those who find themselves dealing on the blockchain won’t have to pay the exorbitant fees that have become synonymous with escrow agencies. Instead, each side of a deal may trust the algorithms carried out by nodes across the advanced computer network that houses blockchain. While the concept sounds scary, it’s important to note that blockchain real estate applications would be one of the most secure ways to complete a deal.
As an entirely digital platform, blockchain real estate will be able to operate through smart contracts. As their names suggest, smart contracts are better than traditional contracts in almost every way. According to Nick Clare, Head of Project Management, JLL UK, blockchain can “create, authenticate and audit contracts in real-time, across the world and without intervention from a middle man…[and] have instructions rooted in the transaction so that payment can only be taken as long as the instructions are fulfilled, providing complete transparency to all parties and reducing the likelihood of payment disputes.”
Blockchain real estate applications, in essence, will revolutionize the way the entire real estate industry. At the very least, the applications proposed by the groundbreaking technology have the capability to disrupt the entire real estate industry. From more secure transactions to shorter closing windows, blockchain real estate is the way of the future, and one thing is for certain: We are just getting started. Now is as good of a time as any to start considering implementing your own blockchain real estate applications and strategies. Those who embrace the trend early could benefit immensely.