The media has been buzzing about the recent listing of a property in Notting Hill for circa £17 million where the reports state that the seller is only willing to accept bitcoin; as well as the recent property transaction, completed in three days, secured by blockchain digital encryption technology. In this blog, we take a look at the potential impact on the real estate industry of the blockchain.
So, what exactly is the “blockchain” and “smart contracts”?
In its simplest form, a blockchain is a digital ledger that records transactions between two or more parties in what is claimed to be an efficient, verifiable and permanent way. The users of that blockchain use mathematical proofs to dictate and validate transactions on that blockchain which (it is claimed) effectively eliminates the need for a third party to process or store the payment. Blockchains are referred to as “decentralised” because no single institution controls the network. Instead, the transactions on that blockchain are “verified” by the users themselves – sometimes referred to as “miners”, who receive a reward for verifying those transactions – often in the form of a digital currency, such as bitcoin.
Whilst bitcoin was the first and most well-known blockchain, newer blockchains such as ethereum have introduced the concept of “smart contracts”. A smart contract is a piece of software code which is stored in the blockchain network, which defines the conditions to which all of the parties using the contract agree. If the conditions of the contract are met, certain pre-defined actions are automatically executed. The assertion is that this removes a lot of the uncertainty that is typical of a traditional commercial contract.
What impacts could this technology have on the real estate industry in particular?
We are still in the very early days of adoption of this new technology. However, based on the examples already mentioned, theoretically, it is envisaged the technology could allow:
- Agreements for sale to be written into the blockchain, at which point they could automatically execute themselves upon the satisfaction of certain agreed conditions. This has the potential to significantly expedite transactions and reduce disputes between the parties.
- The instantaneous transfer of ownership of property – the Land Registry have recently announced plans to explore the use of blockchain technology as a means of decentralising their records. This has the potential to significantly reduce property fraud.
- The sale of a property in exchange for digital assets – as in the example above. Theoretically, it could be possible for an individual or company to “tokenize” their property asset – for example by splitting a property into 100, 1000 or even more individual tokens. Those could then be sold to individuals over a blockchain, who would each own their respective share of the property. There are already a number of companies who are looking to capitalise on the potential of these technologies.
What does the future hold for blockchain?
The technology is in the early stages but is developing fast. There are significant potential benefits but also risks and care needs to be taken in using this platform.
We don’t have a crystal ball but if we think about the impact the internet has had on our daily lives as a comparator, it is easy to imagine how blockchain could be just as transformational – and could revolutionise the way we all conduct business.
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