What is blockchain?
First, you can understand blockchains without a computer science degree. Continue reading, and we’ll explain it in terms anyone can comprehend.
Isn’t blockchain the same as a database? They both have the same function of data storage. Blockchains have a robust security system due to their use of encryptions. Databases are simple to alter and compromise. Once data is entered into blockchains, it cannot be changed.
Let’s dissect it a little more. A blockchain, also known as “blocks” that hold data sets, gathers related information and groups it together. A particular storage cap applies to each block. A block is chained onto the one that was filled first once it is full. As a result, a chain of data-filled blocks is created; hence, “blockchain.” The data is unchangeable and unbreakable because of the chain surrounding the blocks. This chain also creates a verifiable ledger of transactions that anyone can review without being able to change because the data is distributed via a network of computers. Blockchains differ from databases because the latter typically just store data in tables without secured encryptions.
On blockchains, fungible and non-fungible tokens coexist. A blockchain encrypts data and records information, making it impossible to alter or hack. Blockchains can be thought of as digital transaction records. And on a specific blockchain, those transactions are dispersed across a network.
The difference between bitcoin, cryptocurrency, and blockchain
How do bitcoin, cryptocurrencies, and blockchain differ from one another and relate to one another?
As a type of cryptocurrency or digital currency used to speed up transactions, bitcoin is first. Every kind of cryptocurrency has a different set of identifying codes. Like buying chips at a casino, you’ll have to exchange real money (like USD) for cryptocurrency to purchase products and services from a business. There are currently more than 6,700 distinct cryptocurrencies. Of these, Bitcoin is merely one.
Cryptocurrencies are made possible by blockchain technology.
The data stored on blockchains for a particular cryptocurrency does three things:
- establishes its value
- controls and keeps track of transactions
- helps with value conversions
One of the main draws of blockchains and cryptocurrencies is increased security. Central banks are no longer required when purchasing and selling goods and services using cryptocurrencies, making the payment system more direct. Continue reading to discover how this relates to real estate.
Tokenization is the process of converting physical assets—like bonds, pieces of art, and real estate—into safe and secure digital assets. Tokens contain ownership rights, rules, and transactional history, just like cryptocurrencies and title registration does. The support is divided into several pieces after tokenization. A token can therefore be divided up among different owners.
How is blockchain useful in real estate?
The use of blockchain technology in real estate has many advantages. Blockchain technology as well as a blockchain dApp development company offers a quick and secure way to complete complicated real estate transactions, from title transfers to price negotiations.
Think about how apartment tours have changed in recent years. You can arrange a self-guided tour and see an apartment without speaking to a leasing representative. Similarly, blockchain technology offers safe and virtual solutions that digitalize and streamline many steps in buying a property.
A brief history of blockchain technology in real estate
Real estate agents have served as middlemen between the seller and the buyer since the 1910s. The agent facilitates the property transaction and fosters trust between the two parties. The agent is knowledgeable about the local rules and laws. This way, they can verify that the seller does own the property and that the buyer has the money to pay for it. The business sector continues to employ the same strategies and procedures.
However, blockchain is gradually but significantly changing the procedure. A person or group operating under the pseudonym Satoshi Nakamoto released the first version of bitcoin and the subsequent blockchain database on January 9, 2009. America oversaw the first-ever blockchain real estate transaction in Vermont nine years later, in February 2018.
A pilot project with Propy included the transaction. Anyone can buy or sell real estate online through Propy, a San Francisco-based startup, from any location in the world. From expressing initial interests to signing contracts to transferring ownership titles, its blockchain technology documents every step of a real estate transaction.
What lies ahead?
Despite its youth, blockchain technology in real estate is innovative and full of potential. Several startups, including Redfin and Propy, are already completely digitizing all real estate transactions. By avoiding paperwork, audits, and insurance whenever possible, these tech-enabled brokerages lower the costs of intermediaries, such as realtors and bankers.
The real estate sector will benefit from blockchain in three exciting ways, as follows:
- Blockchain-based smart contracts
- Making property investing accessible
- Property listing services that are transparent and secure
1. Blockchain-based smart contracts
A self-executing contract known as a “smart contract” specifies the terms of the deal between the buyer and the seller. The times are encoded as lines of code and stored throughout a decentralized blockchain network. The blockchain codes track the contract’s execution, and these transactions are irreversible and transparent.
Contracts that can be digitized on blockchains include offer sheets, listing agreements, letters of intent, and closing papers. The entire transaction process can be significantly sped up by signing smart contracts instead of paper ones. Additionally, it removes the requirement for face-to-face negotiations with brokers, bankers, and attorneys while assuring that the transactions are legal and secure.
2. Making property investment accessible
Real estate investing has historically been time-consuming and exclusive. You need to involve several parties in the due diligence process, whether you’re investing in a single-family home or a complex of buildings. Additionally, you must be financially stable before considering real estate.
With the help of blockchain technology, many people can jointly own a building by purchasing tokens for that building. Property has been tokenized in this way, allowing for partial or fractional ownership of the asset. Real estate can become a more liquid commodity thanks to tokenization, which makes it easier for owners to buy or sell their shares at a profit. As a result of democratizing and decentralizing the real estate market, this process draws in more potential buyers and investors.
3. Property listing services that are transparent and secure
Most current property listing services are privately owned and lack a centralized database for cross-referencing. In the past, keeping track of transactions and records in the real estate industry was done with a pen and a pencil. What’s worse, these services frequently charge users high subscription fees.
However, consolidating those real estate listing services onto a single server powered by a decentralized blockchain makes a uniform, secure database available to all. For instance, customers can use decentralized finance (DeFi) services to make objective investment or purchase decisions. Additionally, because the data has been verified and is stored safely, outside parties cannot tamper with it by inflating the price or publishing false information.
How you can benefit from blockchain technology
The advantages of blockchain technology for the real estate industry have been covered. Let’s now discuss how you can profit from it, whether you’re a resident, manager, investor, developer, or property owner.
There are significant implications for:
- Property developers
- Property owners and investors
- Residents and tenants
- Property managers
Developers can more quickly and effectively raise the capital required to launch a project when multiple parties can invest in it. Even though real estate fractionalization is nothing new, blockchain technology simplifies the process and expands the pool of potential investors. The project’s sponsors won’t have to worry about screening investors or dealing with a mountain of paperwork when asking for capital contributions from investors outside their immediate network. Blockchain keeps track of all the information, enables the execution of smart contracts, and communicates updates and briefings to all parties.
Blockchain safely and securely stores all engineering plans, appliance manuals, and architectural documents. This indicates that the information is easily accessible on the blockchain system if investors, owners, or anyone involved in the development project wants to access those materials. As a result, transaction time and costs are greatly decreased, freeing developers to concentrate on the actual project’s development.
Property owners and investors
Potential owners and investors can feel secure when purchasing real estate because blockchain technology eliminates the possibility of falsifying or corrupting data. In other words, they can be confident about the price and legitimacy of a property when investing their money in it.
Additionally, the industry is destroyed by the tokenization of real estate or the conversion of its value into cryptocurrency. Liquidation makes the entry point for potential buyers or investors more convenient. As a result, a seller must immediately realize a profit on their investment before a buyer can pay the property’s full value.
Residents and tenants
Renters benefit from better leasing and living experience with blockchain, from taking virtual tours and signing leases with smart contracts to submitting rent payments or making maintenance requests. All parties are informed that the property listing is legitimate, identities are confirmed, and personal information is encrypted, thanks to the security provided by blockchain technology.
Thanks to blockchain, moving across the country, or even the globe has never been simpler. Without leaving Tokyo, you could lease a property in San Francisco and conduct business without leaving the country, thanks to blockchain’s removal of all physical boundaries and prevention of privacy and data breaches.
Today, property management includes more than just repainting walls and installing new appliances. Processing paperwork, such as lease agreements or maintenance requests, makes up most of the job.
But when you use a single decentralized, blockchain-based property management system, all that paperwork transforms into nearly error-proof smart contracts. Rent amount, payment frequency, tenant and property history, and contractor agreements are all fully transparent in a blockchain-based system.
Should you accept rent payments in blockchain?
Blockchain technology is being used by some businesses to record rent and other related transactions, even though cryptocurrency has yet to be widely adopted in the real estate sector.
Even the adoption of online rent payments has been slow, indicating that cash and checks still maintain a very strong hold on the industry. We have yet to reach the point where residents pay their rent entirely in cryptocurrencies, though some condos and luxury buildings have begun to accept bitcoin as payment in recent years. Even though a few apps, like ManageGo, allow tenants to pay rent with cryptocurrency, the money is simply converted into U.S. dollars.
How blockchain technology can prevent subleasing
Dealing with tenants who illegally sublet their properties or units in violation of the terms and conditions of their contracts is one of a property manager’s biggest headaches.
Tenants can easily list their homes for sublease without the manager ever knowing because there currently is a needs for decentralization of information about property listings. However, a tenant wouldn’t get away with subleasing with a blockchain-based property listing service because the system will automatically flag the illegal listing.
What does this mean for the future of real estate?
Every aspect of the real estate industry could be revolutionized by blockchain. To put it bluntly, it is a disruptive innovation that will alter various industry players’ roles.
Every other technological development, however, at first seemed improbable or unreal. Think about smartphones as an example. It was unimaginable just a few decades ago that you would always have access to the internet in your pocket. Or even that such a device could buy things, start the car, or unlock your apartment door.
Invest in proptech
Your property can adapt to the blockchain-enabled future faster if you invest in proptech since most resident and property information can easily be transferred onto a secure blockchain thanks to protect devices like smart home technology and smart video intercoms already internet-connected. By integrating proptech into your entire property, you will outperform the competition.
All property management systems and proptech devices will be integrated and run under the control of a single database thanks to blockchain technology. Without additional programming, all your devices will communicate with one another and instantly verify the information. By doing so, you can easily incorporate all the moving parts of the real estate industry.