There is a lot being written about blockchains, bitcoin and related technologies, and for many real estate professionals, this is part of a brave, new, confusing world of technology. Like the original internet, the blockchain is a revolution in technology that will touch all people and all businesses. So people are paying attention, but many still don’t understand what the blockchain is.
Imagine that you and your best friend Bob are standing on a stage in an auditorium, and there are 1,000 people in the audience. In front of these 1,000 people, you hand your car keys to Bob, and Bob hands you his Rolex. You declare, “Bob, you now own my car.”
Bob declares back to you, “You now own my Rolex.” There are 1,000 witnesses who can each declare, without doubt, that your car now belongs to Bob, and the Rolex belongs to you. If anyone in the audience later tells a conflicting account of who owns the car or the Rolex, the other 999 people will refute it. And, if you take a spare set of your keys and try to give that same car to someone else, the 1,000 audience members will confirm that Bob owns the car, as each of them witnessed the “transaction.” This is the essence of how the blockchain works.
In its most simple sense, the blockchain is a series of computers (thousands to potentially millions of them) that each keep the same record of an event or transaction in a ledger that is open to the public. Each record is encrypted, and the ledger is virtually hack-proof. Since all these computers see the same thing, they offer consensus that the recorded event or transaction is valid. The most important value of the blockchain is that it allows two or more parties to interact with, say, a financial transaction, with no middleman.
Bitcoin
Bitcoin is merely an application of the blockchain. You buy a bitcoin with cash. You transfer ownership of the bitcoin to someone else with the consensus of thousands of “witnesses,” and that someone else can then sell the bitcoin for cash. It’s one way to transfer money without a bank or other third party. There no physical coin, however; it’s not like a subway token. It’s a digital asset, assured by the blockchain.
Interestingly enough, when people buy homes with bitcoin, they really are still buying with cash. It’s just being converted to bitcoin first. So, the next time you read about a bitcoin home sale, it is generally still a traditional cash sale.
The Blockchain Has Many Applications
What makes the blockchain universal is how it can be implemented for just about any kind of transaction, record-keeping or agreement between one or more parties. These can include:
• Smart contracts.
• Voting and elections.
• Supply chain management.
• Intellectual rights, patents, trademarks.
• Property rights.
• Criminals records.
• Medical records and history.
• Personal records and credit history.
As long as there is information that represents an agreement or record, the blockchain can record, encrypt and protect that information for eternity.
Real Estate And The Blockchain
For real estate, the blockchain has the potential to change the way we do business. We are developing smart contracts, which will enable real estate contracts, escrows, property records (deeds, for example) to be completed and monies distributed without title companies or attorneys. These contracts are often compared to a vending machine concept: You deposit your money, and the machine spits out a product with no human intervention.
In the near future, it may be possible for a homebuyer to buy a home and complete the sale (along with escrow and title insurance) by clicking on a shopping cart on a website. The blockchain will ensure that the buyer gets the title or deed and the seller gets the cash (via a cryptocurrency). The blockchain will also record the title or deed to the appropriate public records, such as a county in the United States or similar.
Real estate professionals will continue to thrive in the era of the blockchain. The advice, knowledge and hand-holding of real estate professionals will always be an important part of a buyer or seller’s process. However, the handling of money and transactions will inevitably change, and that change is already underway. Brokerages will need to adapt their business models to understand and enable smart transactions but otherwise will continue to thrive in the era of the blockchain.
