As cryptocurrency speculators have ridden the Bitcoin wave up (and down) over the past year, a different group of global professionals has come to realize the potential benefits of this technology: real estate investors, developers, operators, and service providers. Their shared cautious optimism has very little to do with the rise or fall of cryptocurrency prices, but instead comes from the promise of the underlying technology that fuels Bitcoin and its offspring: The Blockchain.
A Blockchain is a type of distributed ledger that operates via peer-to-peer. This means that every participant has his or her own copy of the ledger and there is no central record of account. Once recorded, ledger transactions cannot be altered and every copy of the ledger is identical across the network. The network and all constituent parts act as a database that records transactions generating an immutable audit trail for transactional activity. The network can be either completely open or open only to trusted counter parties.
What benefits could Blockchain provide to players in the Real Estate industry? Here are two areas that suffer from efficiency problems where Blockchain technology could be an effective solution:
Leasing and Technology
In owning and managing a commercial or residential property, there are a multitude of service and payment transactions that must occur between the lessor, lessee, and other third parties. Cash flow, appreciation, and tax information must be tracked, recorded, and verified, and compliance maintained. Therefore, managing properties and tenants, and enforcing the agreements around lease terms requires a better platform for consensus and reference as well as payments.
Placing contractual agreements on a Blockchain can structure secure cash flows and automate payments with real-time reconciliation. Automating these actions via rules-based business logic is often referred to as “Smart Contracts” in the blockchain community. The term Smart Contract is usually a misnomer, as these documents are not very smart on their own and are typically abiding by software code, not legal agreements. In essence, a written code automatically executes a transaction depended on various conditions, similar to an IF THEN Excel function.