By now, most of us have heard about cryptocurrency and blockchain technology. Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies have entered the mainstream. Financial institutions like JP Morgan and Goldman Sachs are trading cryptocurrencies and creating investment vehicles for customers.
With the mainstreaming of Bitcoin and Ethereum and their adoption globally, blockchain real estate applications have transitioned from theory to reality! Blockchain technology has the potential to revolutionize numerous industries, including real estate. By using an advanced network of computers and algorithms, blockchain real estate applications are already beginning to disrupt the housing sector in meaningful ways.
In this post, we will explore and define cryptocurrency, NFTs, and how blockchain technology impacts residential real estate and the real estate industry.
If you are not familiar with this new technology, we will start by offering quick definitions of three major components.
Cryptocurrency – Cryptocurrency is a digital, virtual currency secured by cryptography. This makes it nearly impossible to counterfeit or double-spend. As a decentralized currency, it can circulate without a central monetary authority like a bank. Bitcoin was the first and is the most popular cryptocurrency. Today, there are over 4000 different cryptocurrencies.
NFTs – Bitcoin, Ethereum, and Litecoin are examples of fungible tokens. Fungible means that there are many tokens, and all are exactly the same. NFT stands for Non-Fungible Token, and it is basically a one-of-a-kind digital asset that belongs to a single investor or small group of owners. Today, the most popular NFTs are artwork and music, but real estate can also be tokenized.
A Blockchain - A blockchain is a digitally distributed, decentralized, public ledger that exists across a network of computers and nodes. It is made up of blocks that contain many transactions. Every time a new transaction occurs, a record of it is added to every ledger. A blockchain is a series of connected data blocks. Blockchain is a system of recording information in a way that makes it difficult to change, hack or cheat the system.
Today, blockchain technology has become synonymous with popular cryptocurrencies like bitcoin, litecoin, and ethereum. However, the blockchain in real estate is not relegated solely to crypto assets. Cryptocurrencies take advantage of a blockchain's ability to act as an anonymous ledger across a vast computer network and its ability to track transactions and records. This technology can be used by cryptocurrencies and almost every industry, including real estate.
In its most basic form, a real estate blockchain uses a network of computers and nodes to act as a more secure and advanced escrow company. Instead of trading closing documents for s check, a real estate blockchain can extend to almost every facet of a deal. A real estate blockchain may help participants exchange currency, records, legal documents, and other types of information over a secure, safe, encrypted network.
Let's take a step by step look at a blockchain real estate exchange:
Earlier, we defined NFTs or non-fungible tokens. These are unique individualized crypto assets that can make the concept of shared ownership easier. The real estate blockchain concept can be easier to understand if you view it through the lens of tokenization.
Tokenization is the process of turning equitable interest in a property (or another asset like art, music debt, or cash flow) into a token. Like any store of value, a token becomes a digital representation of equitable interest.
For example, let's say two investors form a partnership to buy a commercial property. If they tokenize their equitable interest in the asset on a real estate blockchain, they will receive digital tokens equal to their ownership in the property. If they are equal partners, each gets the same amount of tokens. However, if their interest differs, for example, if one partner invested more, the tokens will reflect the difference. When added together, all of the tokens equal the asset's total value. Separately each investor's tokens represent their share of ownership. The tokens are used to document, store, and verify ownership of the asset.
Once a real estate asset is tokenized, it can be easily traded, sold, or liquidated via a real estate blockchain. The process isn't very different than a traditional transaction where assets are exchanged for fiat currency.
Homeowners are tokenizing their properties and, as a result, can gift a portion of their homes to family members using cryptocurrency and blockchain. Tokenizing real estate and utilizing the blockchain is already happening. Tokenization facilitates quicker transactions more securely and eliminates the need for an expensive third-party escrow company.
Blockchain, cryptocurrency, and NFTs have entered the mainstream, are changing the financial landscape, and can potentially change the foundation of the real estate industry. Blockchain and decentralization can democratize the industry and make it available to anyone!
Blockchain technology and tokenization are already changing the industry for the better. As the platform develops, blockchain technology will improve the industry by:
Blockchain is here and already changing the real estate industry. As this technology and decentralized finance go mainstream, many sectors, including the real estate industry, will change for the better.