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Mainstream adoption of the technology is slowly happening and you’ve probably at least heard the term “blockchain” by now; heck, just last week my 77 year old grandmother asked me to show her a Bitcoin. We talked for about 20 minutes about Bitcoins, blockchains and the rising world of cryptocurrencies and their blockchains. If she can wrap her arms around the concept, I firmly believe anyone can. Betty has never owned a computer but with a few clicks on her iPhone she now has CoinBase, and her birthday present was .0077 BTC

Following up on our last piece on the emergence of Bitcoin in Commercial Real Estate, let’s go beyond Bitcoin and into the underlying technology rapidly changing the world around us…

Just like my dear grandmother, about every industry is applying the technology, and yes, that includes real estate. Most real estate professionals are aware of using “blockchain technology” or the most well known crypto, Bitcoin, as a method of purchasing property. However, blockchain’s potential is beyond using a cryptocurrency like Bitcoin or Ether to buy something. New tech companies are launching with the intent to bring blockchain’s security and efficiency to the real estate universe.

Understanding blockchain

Let’s clarify the difference between blockchain and Bitcoin. The blockchain is a digital, distributed ledger system for recording and sharing information. Bitcoin is a digitized currency that uses blockchain technology for transactions. While Bitcoin and other cryptocurrencies need blockchain to work, a blockchain isn’t limited to financial transactions.

What blockchains can do for CRE

In commercial real estate, it’s not uncommon for information to be hosted on siloed systems. This results in reduced operational transparency and efficiency. Think about all the parties involved in a real estate deal. Every time an additional party is included in a transaction, the time to close increases. Concurrently, the potential for inaccurate information and real estate fraud rises. That’s why the due diligence process takes time, and time equals money.

Blockchain technology will revolutionize real estate operations. Transactions, leasing, and management can be hosted securely via blockchain. Deliotte’s white paper, Blockchain in commercial real estate: The future is here explains how blockchain allows for a shared database that allows for multiple entities to modify information while preventing real estate fraud. Take the MLS. Deliotte notes a blockchain-based MLS system would:

  • Create a standardized property database, or a “single source of truth”
  • Host all data on a single platform
  • Reduce errors caused by human entry
  • Present more reliable data for a fraction of the subscription cost

The same blockchain technology easily conducts due diligence and allows for transparent record-keeping. This cuts expenses for real estate professionals and saves valuable time in the process.

The blockchain of choice is trending towards Ethereum

Not all blockchains are created equal. While Bitcoin may be the current news-maker, it is limited to only trading cryptocurrency. That’s why Ethereum is quickly becoming the blockchain of choice: its Turing complete language can handle cryptocurrency plus smart contracts, which are agreements backed by digital code versus by law alone. These smart contract protocols are useful for contract negotiation and facilitation. They can have clauses that execute actions based on other actions (i.e., “transfer deed only after six verified signatures received,”) manage user agreements, or store application information. These contracts are powered with Ether, the blockchain’s cryptocurrency.

This same decentralized platform that allows for smart contracts lets developers use the Ethereum to build and deploy decentralized apps. Third parties cannot change the data. Developers can create digital tokens that represent virtual shares of a company or contract. Ethereum also uses a different security protocol, called a “proof of stake,” which does not reward miners for processing new blocks like Bitcoin. Instead, miners take a transaction fee.

Additionally, Ethereum processes blocks in significantly less time than Bitcoin. A single block averages 12 seconds, allowing for more confirmations and quicker transactions.

Companies working with blockchain in CRE Space

One of the challenges working with blockchain for real estate contracts is tying a digital address to one in the real world. Contracts must have a proof of location. FOAM is working to develop a proof-of-location protocol for the blockchain using beacon technology. The API should work for geospatial interactions on the blockchain and will be independent of other spatial services like GPS. Using FOAM’s crypto-spatial coordinates (CSC), any smart contract can make a claim to an address in the blockchain and matching location on a map.

REX caused a stir in the commercial real estate space with its decentralized and democratized MLS. The innovative startup even tapped into CRE tech advocate and influencer Duke Long, naming him REX’s strategic advisor and head of its global ambassador program.

Brokers, agents, landlords, and other parties can use REX to post listing information, which is then verified by the community and distributed on the blockchain. Users are awarded REX Tokens, the platform’s cryptocurrency, for uploading information. The Tokens can be used for payments or exchanged through digital marketplaces. However, REX also hit the news by losing $1.3M in Ethereum during its initial coin offering due to a coding error, now fixed. REX credited its investors with REX Tokens, and continued forward with building its decentralized real estate data network.

The MLS isn’t the only area standing to benefit from blockchain technology. Ubiquity applies blockchain to real estate record-keeping and is compatible with Ethereum, Hyperledger, and Multichain. It works with municipalities, title companies, and e-recording companies to reduce transaction costs and inaccuracies using blockchain through a SaaS platform. Users upload and record documents on the blockchain. Right now the platform is intended to work in tandem with the current paper-based recording systems.

Propy made news for the first peer-to-peer cryptocurrency sale of real estate and ownership transfer using blockchain. The platform transforms property ownership as a monetary value using the Ethereum blockchain. Propy is working with governments to legalize blockchain property transfers and issue title deeds for properties securely online.

Cautions about blockchain adoption

Blockchain advocate and real estate leader Ragnar Lifthrasir recently posted about applying caution with blockchain adoption. As he points out, though the technology purports security among its benefits, it is not infallible. Hackers have stolen cryptocurrency, and, as previously mentioned, REXmls lost over a million in investment money through its ICO due to a coding error. It’s essential new platforms follow smart launching practices: auditing code, running multiple tests, and scaling launches.

Investors considering investing in new blockchain companies or participating in an ICO need to conduct their own form of due diligence about the platform’s protocol and scaling. The International Blockchain Real Estate Association has resources and articles written the IBREA members about blockchain innovation and adoption inside the commercial real estate industry. While blockchain is definitely on the way for the real estate industry, its adoption needs a measured approach.

The future of CRE and blockchains

If the past is any indication, the CRE industry will slowly adopt blockchain technology and SaaS services. Since the application is still in its relative infancy, this is probably a smart approach.

Nonetheless, real estate professionals need to look forward and anticipate the inevitable disruption blockchain will bring. As Jason Ray wrote, “Blockchain will enable every property, everywhere, to have a corresponding digital address that contains occupancy, finance, legal, building performance, and physical attributes that conveys perpetually and maintains all historical transactions.” This will shorten the transaction time and reduce escrow costs. The escrow process as we know it, transfer of property ownership, and due diligence processes stand to flip on their head all thanks to this revolutionary technology.


Originally Published on Linkedin Pulse:

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