Advancing Perceptions Beyond Crypto-Currencies

Blockchain technology can be a hard concept for the average person to grasp, which can be a major obstacle to any new technology’s widespread adoption. However, the same could once be said for the internet, and although most people still wouldn’t be able to explain how the internet works, they have no problem today trusting the infinite user-friendly apps that allow them to tap into it. Blockchain proponents would envision a similar fate for their own technology.

(You can go here for an excellent primer on cryptocurrency and the underlying blockchain technology that is pertinent to this article.)

For the 10,000-foot view…a blockchain is a decentralized and ‘trustless’ database capable of facilitating direct peer-to-peer transactions without the intermediators that traditional transactions have typically required. Verification is achieved by a consensus of the distributed nodes resident on the chain, each maintaining its own protected ‘copy’ of the database. Cryptocurrencies are but one type of asset transaction that can be managed on a blockchain.  In that instance, the blockchain acts as a digital ledger capable of transferring funds directly between entities (in the form of cryptocurrency native to the particular blockchain), thereby removing banks as the traditional verifier and trusted third party to the transaction.

The Bitcoin blockchain is the figurative patriarch of the blockchain family and likely what comes to mind to most of the general public at the mention of ‘blockchain’.  That’s not necessarily good news for acceptance of the technology given the volatile valuation of bitcoins in the past twelve months.  Bitcoin increased nearly 1,900% from its value at the beginning of 2017 to its all-time high of US$19,783 per bitcoin in December 2017.  It’s since plummeted about 80% from that figure (US$3,964 as of this writing), and November 2018 saw the worst monthly decline for bitcoins in the last seven years.[1]  Every other cryptocurrency has essentially followed suit.  Several have experienced internal strife within their communities, resulting in ‘forks’ – the descriptor for when a blockchain breaks into a different variation of its original.[2]  There have also been several high-profile hacks and thefts, increasing perceived associations with illicit organizations and stoking the fears of potential investors that centralized governments will reign-in the technology with over-regulation.[3]  With these factors taken together, it is no wonder that many are inclined to wait-out blockchain development or write it off altogether as just another fleeting technology fad.

But it is important to understand that a blockchain is not intrinsicly linked to cryptocurrencies; it is merely the underlying technology allowing cryptocurrencies to be exchanged between members.  As mentioned earlier, a blockchain can be designed to support any type of transaction.  While the founders of Bitcoin prioritized the relative simplicity of tracking financial transactions, those blocks that assemble the chain can be packaged with a multitude of other data if so designed. That conceptual variation enables such inventions as ‘smart contracts’, and unalterable registries, for example. Once assembled and collectively verified by a consensus of the network’s nodes, these blocks become an immutable part of the digital record. That is exactly what later varieties of blockchains have set out to do, Ethereum being the pioneering blockchain in that regard.[4]

This has unleased nearly limitless possibilities for uses across many industries where transactions are prominent, real estate obviously being a major candidate. Just as blockchain users are assigned a unique digital ID, any real property has the potential to be assigned an ID that has a permanent and tamper-proof digital history attached to it (Think of it like a Vehicle Identification Number that allows you to look up the accident and service history of a car you are looking to purchase.).  It would be akin to a global title system for real property; something like a record-keeping ‘courthouse’ for the world.

Real property could be tokenized and exchanged on the blockchain, just as any other asset or commodity, allowing for an easy splitting of interests and ownership ‘slices’ of real estate.  Here are a few examples of what this could portend for the industry:

Simplified, reliable and transparent property searches; a reduced reliance on brokers and/or Multiple Listing Services that may present biased or fragmented information.
Underwriting and due diligence processes reduced to a matter of minutes.
Sales and lease agreements entered via smart contracts that are instantaneously recorded.
Automated payments and cashflow management by smart contract between tenants, landlords, contractors and/or service providers.
Advanced property data analytics when combined with Internet of Things (IOT) technologies, improving owner decision-making as well as property transparency and valuations.
Introducing greater options for shared property ownership through asset tokenization, reduced barriers to trans-nation investments, and increased liquidity within the real estate asset class as a whole.