Bitcoin and Beyond
ORIGINALLY PUBLISHED HERE - FALL 2017
By now, you’ve probably heard of the cryptocurrency Bitcoin. While the future of cryptocurrencies as a fully and widely accepted form of currency is still unclear, one thing is for sure: the underlying technology—blockchain—is here to stay.
So, what in the world is blockchain? Without getting too technical, blockchain technology allows for an immutable and verifiable decentralized ledger system. Essentially, a transaction or some information is placed onto a “block.” Transactions are broadcast to each computer that has volunteered to act as a full “node” on that blockchain, and uninterested parties across the network (called “miners” in Bitcoin) can verify that the transferor has ownership of what he is trying to transfer. If a consensus is reached amongst the uninterested parties and the transaction is accepted, it’s recorded and linked to prior blocks of information (hence “blockchain”).
Thanks to a lot of complicated mathematics and cryptography, the blockchain is—practically speaking—unalterable. A recorded block cannot be changed without changing the block’s cryptographic “signature,” which would then affect all subsequent blocks. This will send red flags to those uninterested parties working to verify blocks as they’re added to the blockchain, and the transaction will be rejected.
Around the globe, blockchain in the real estate and property space is starting to take off.
One of the biggest implications for blockchain in real estate is the potential to transform the public records system. The conveyance records today are inefficient and difficult to navigate. Before a sale can go through, an attorney has to trace title and verify that the seller actually has the ownership he claims to have. With digitally recorded transfers on a public blockchain, however, the time spent tracing title is drastically reduced. This is because prior transfers of that property have already been verified by the outsiders and distributed to all nodes in the blockchain. It is then only necessary to compare the new transfer against the most recent historical transfer. Moreover, any attempts to defraud a purchaser will quickly be rejected, as there would be a missing link between the true owner and the would-be defrauder.
Taking it a step further, the real-estate sale itself could benefit from blockchain technology and what are often called “smart contracts.” Currently, if A wants to buy a piece of property from B, A needs to trust that when he transfers the money to B, B is going to deliver on his promise. If B chooses not to deliver, A has to then hire an attorney and get the court system involved. However, on the blockchain, you can code an automatic transfer upon the delivery of payment. In that case, as soon as A pays the price to B (via cryptocurrency or other electronic transfer), the contract has been publicly and verifiably executed and recorded, and the title vests in A.
Blockchain technology has significant potential to shake up the way real estate transactions are currently being done. It is moving beyond a niche cryptocurrency market and into the real world. Governments and the private sector alike are taking notice—you should too.