Bitcoin, a currency created in 2009 by the anonymous pseudonym ‘Satoshi Nakamoto’, enables you to make financial transactions free of fees and the interference of banks. You can already use Bitcoin to buy everything from pizza to a manicure, but could this become a new way to purchase real estate?
How Bitcoin works and its impact on the real estate market
How Bitcoin works
Designed to be user friendly, there’s no need to have advanced technical knowledge to get a handle on how Bitcoin works. To get started with using it, you simply install a Bitcoin wallet on your mobile phone or computer. You’ll be given an address similar to an email, which you can use to send or receive money. Bitcoin transactions take place in the blockchain, a shared public ledger that supports the network. When you send or receive the currency, your Bitcoin wallet keeps a private key in the form of a small, secret piece of data. This serves as proof that you own the wallet.
What the benefits are
1. Creates new platforms for real estate
One of the most obvious ways that Bitcoin is bound to have an impact on the real estate market is by providing new platforms for sales. By passing the bank middlemen, buyers and sellers could potentially connect in real time, speeding up the process for transactions significantly. The blockchain enables transactions with new online marketplaces or trading platforms like ATLANT, which tokenises properties to permit asset trading online. Sweden’s land registry authority has been testing ways to record property transactions using this technology, which could theoretically save over €100 million each year by doing away with paperwork for speedier transactions.
2. Prevents fraud
One of the biggest benefits of the technology is built into how Bitcoin works, and it could have a far-reaching impact on the real estate industry. The blockchain can be used to prevent fraud by creating a private, fully certifiable digital ID. This offers a more current and reliable proof of funds than a bank’s letter. Digital IDs secured by the blockchain’s digital ledger can be used for deed transfers, mortgage payments, escrow or other financial scenarios.
3. Enables investment
By reducing real estate fees and enhancing online security, the blockchain helps encourage investment in real estate. Another way is through fractional ownership. Rather than saving a larger chunk of upfront funds to acquire a property, investors could buy and sell fractions of their real estate tokens instead. This would bring the property market closer in line to how the stock market works.
4. Boosts transparency
How Bitcoin works encourages greater transparency in the entire real estate purchasing process. With new online platforms, buyers and sellers can store their information securely and it would be instantly verifiable, which cuts out prolonged discussions with banks and lawyers (and thereby saves money). Individual properties could have their own digital identity, with a documented and verifiable chain of ownership. As the blockchain is decentralised, this information would be open, accessible and fully transparent.
A technology still in its infancy, the blockchain still has a long way to go before it becomes a significant real estate market disruptor. But with encrypted data and a high level of security, it could quickly become useful, particularly for transferring the large sums involved in luxury real estate. It's certainly a trend to watch in 2018.