What is Blockchain and Why Should the Real Estate Industry Care?

[Editor’s note: This is a guest post from Tobias Briegel, a cryptocurrency and blockchain enthusiast and National Account Manager at Chetu Inc. As an experienced leader and communicator, Tobias offers commentary on the changing tides within the finance industry, offering predictions on how emerging technologies will rattle the pre-existing system.]

Blockchain, the decentralized ledger behind the cryptocurrency curtain, is a force to reckon with, offering a compelling alternative to traditional exchanges of all kinds. Rather than compiling transaction records in a central hub, blockchain technology fragments this information and keeps records across an immense network of hard drives and servers—keeping a transaction as public record, but keeping the exchange anonymous.

In its infancy, blockchain represented an anti-establishment movement, putting a microscope to the deficiencies of centralized banking systems and building bridges where those gaps exist. Blockchain operates with a less is more ideology, keeping risk low by reducing the parties involved and increasing transparency.

Transactions are encrypted and verified in one of two ways: Proof of Work (PoW) or Proof of Stake (PoS). Crypto miners verify transactions through a series of sophisticated computations before the transactions are added to the public ledger. The miners are then compensated with fractional ownership of recently mined cryptocurrency.

Blockchain and Smart Contracts Save Real Estate

In 1996, over a decade before Bitcoin came to market, digital currency pioneer and computer scientist extraordinaire, Nick Szabo, introduced a contractual protocol that was entirely self-executing. We call this protocol a “smart contract,” an encrypted and trackable agreement between consenting parties.

Since the dawn of organized property exchanges, real estate brokers and legal entities have existed in pairs. Sometimes they coexist productively, but more often than not, the cross-industry dialogue is a pain point. We need legal representatives to outline the terms and ensure these terms are met by all parties—land registry, mortgage providers, surveyors, the buyer, the seller, an agent. With a high-value exchange dependent on the compliance of such an immense web of people, the process frequently encounters long-term setbacks and unexpected tribulations.

Smart contracts eliminate the number of hands involved by cutting out extraneous third parties. Who remains? The buyer, the seller, and the agent. The conditions are established and then coded into blockchain technologies. Met conditions (dollar amount or date of execution) trigger a reaction automatically, and the contract self-executes.

The process remains relatively similar to traditional contracts: property selections through blockchain MLS, negotiation of letter of intent, smart contract pre-lease, smart contract lease agreement, automated payments and cash flow, plus real-time statuses. However, this all happens without any legal involvement.

Righting the Wrongs of Traditional Property Exchange

We need a common platform: Real Estate needs an MLS database where brokers input offers and facilitate appraisals, share listing and information about active listings, and gain insight into potential assets.

This information can be encrypted and coded into blockchain technology, so the information exists on a public ledger, rather than a private server. The entities involved remain anonymous, but the exchange exists publically.

Peer-to-peer data networks have the capacity to streamline real estate data and provide universal access while increasing security.

It needs to be accessible by everyone: Leveraging blockchain technology, all parties will have access to the home-buying or leasing process since the information is published to a public ledger.

Owners, tenants, operators, and service providers will have access to a singular stream of incorruptible data.

Eliminating the need for blind trust: Once transactions go through verification, they are irreversible, greatly reducing the opportunity for property and contractual fraud. Not only are they permanent, they are completely transparent; data cannot be manipulated or altered in any way.

By taking out the third party who traditionally facilitates the contact, there is no need to trust anyone not directly involved with the exchange. The buyer and the seller exchange directly, so all information is first-hand.

Intermediaries hold up the process: Blockchain is especially compelling for global real estate because transactions are settled in real-time. Rather than waiting for banks or other intermediaries to officiate transactions, payment releases immediately after verification.

Since the transactions are irreversible and funds withdraw without delay, the shortcomings of traditional monetary or property exchange become a thing of the past. Forget worrying about chargeback, insufficient funds notices, and transaction cancelations.

Take the Leap, Build Your Own Blockchain

In the past, we have seen the Real Estate Industry fall behind the adoption curve, but blockchain offers brokerages an opportunity to pivot and be part of a digital and decentralized revolution where property exchange finally transforms into a self-sustaining entity.

Smart contracts will allow brokers to maximize profits by keeping intermediaries out of the ROI equation. Liberating buyers and sellers from third-party services frees up funds to spend elsewhere—higher-end property or more comprehensive agent services.

Digital asset technology can be costly to integrate with preexisting systems and hardware. Leaders in the Real Estate and Finance Industries are abandoning their old technologies to start anew, building their own blockchain legacies from the ground up.

When profit filtrates through such an intricate system, as it does in real estate, there is always loss. In simplifying the system with smart contracts and blockchain technology, real estate will profit in ways it never has before.