How Blockchain Could Change The Real Estate Industry Forever
Released in 2009 by an anonymous coder, Bitcoin forever changed the world and it did so with no central governing body or authoritative entity deciding who could do what on the network. For the first time in human history, value exchange was borderless and permissionless, allowing people to trade and interact without having to pay a middle man exorbitant fees for recording and maintaining the transaction on a privatized ledger.
If Bitcoin had stopped there, if the only accomplishment generated by this distributed ledger technology was financial freedom from large institutions that have been controlling the global wealth for hundreds of years, one could consider Bitcoin revolutionary.
Luckily, Bitcoin’s blockchain technology didn’t stop at revolutionary and with the introduction of the Ethereum Network in 2015 and the implementation of smart contracts, a new paradigm was created for seemingly every market in existence. No longer is it necessary to rely or trust a third party for a transaction. No longer is it deemed safest to store information in one central location, protected by a single entity.
Autonomous protocols are faster than humans, validating transactions in real time. These protocols are safer than humans, as immutable ledgers cannot be rewritten to fit the desires of one single player and all but abolishes fraud in current systems. These protocols are also fair to each individual who, by choosing to use said system, automatically and voluntarily chooses to follow to the rules written within the code. These native characteristics of a blockchain directly combat the inefficiencies plaguing current markets and aim to disrupt many careers built on the need for third party trust.
One industry in the crosshairs of a technological overhaul, is the real estate market. With a global valuation of over 200 trillion U.S. dollars, real estate far outweighs any other market in the world. Thousands of transactions occur each day, meaning billions of dollars are traded and an unimaginable amount of data is recorded, traded and stored on a multitude of different ledgers and databases. Real estate has many moving parts and, up to this point, required intermediaries of all sorts to properly transact and record this information in the safest and most reliable way.
The implementation of blockchain in to the real estate transaction will render many of these intermediaries inefficient, even useless. By digitizing the process and setting the transaction up in a self-executing way using smart contracts, an asset can be listed, paid for and legally documented autonomously through the use of digital signatures.
With publicly distributed ledgers, information is decentralized and can be verified by all parties, bringing more trust and security to a transaction. Fraud attempts would be lessened and the increase in transparency would dramatically decrease costs associated with these failures in security. One needs to look no further than the housing market crash in 2008 to understand how institutional greed and lack of transparency can lead to a catastrophic outcome for the average homeowner and investor.
Blockchain also offers the ability to tokenize real assets, allowing fractional ownership of property. Whereas before, investing required a large, up-front cost to the investor, tokenization allows small scale investors to take advantage of the largest market in the world. Before a seemingly illiquid asset, real estate can now be fractionalized and traded like stocks in a company. A homeowner can sell portions of their home’s equity and investors can buy parts of many different real estate assets in real time, around the world, from a laptop.
Fractional ownership also allows investors to tap-in to the rental market without having to assume the responsibility of maintenance and leasing. Various platforms created in the future could streamline the job of a property manager, further increasing profit margin and requiring less attention and leg-work. Costs associated with upkeep would be spread across all investors leaving no heavy burden on one single entity.
To conclude, blockchain technology is here and its functionality in our world has only begun to be realized. For many in the real estate world, this will mean a fundamental shift in how a transaction is processed from the listing of an asset to deed conveyance and ownership. Many intermediaries will be obsolete, the horse and buggy to the automated supercar that is distributed ledgers. Those looking to secure their job in the industry will find themselves competing with computers, rather than fellow man. For investors in the real estate world, this fundamental shift will offer increased inclusion and transparency in the largest global asset class. While it’s hard to predict what the future might look like for real estate, it’s easy to see that change is coming and it’s coming fast.
About the Author
Skylar Cobb is a CCG Consultant and the MC of the podcast, "The Crypto Current". His connection to real-estate dates back to 2016 when he worked for a real-estate franchise company, Keller-Williams.