I know the real estate industry inside and out, enough to realize that unless you’re utilizing a full-service investment company that makes a property purchase happen for you, it can be a long, complex, costly, non-transparent process. However, in recent years, this traditional avenue of buying and selling has actually been reimagined with what’s known as secure automation through blockchain technologies and its use of smart contracts, which is disrupting the real estate industry with benefits and possibilities that could never have been imagined in the past.
This innovative technology is pushing the boundaries of how traditional real estate transactions are handled. Additionally, blockchain is the foundation of cryptocurrencies, and certain coins such as Bitcoin and Ethereum are now being taken very seriously, to the point where El Salvador recently declared Bitcoin as a legal tender. This indicates that blockchain technology is not just a trend that will eventually fade away. In fact, interest in this technology is rapidly increasing, and blockchain applications will continue to evolve while the real estate industry adapts and reaps the benefits.
Understanding the Basics of Blockchain & Smart Contracts for Real Estate Purchases
Before I break down all the benefits of purchasing property through the blockchain using smart contracts, I’ll go over a few basics for those who are not familiar with this forward-thinking technology.
What is a Blockchain?
Although the blockchain may seem like a new concept to some, this ground-breaking technology was in its idea stage as far back as the early 90s, and was brought to life in 2009 when the first bitcoin block transaction took place. Fast forward to the current day, and you’ll find that most people are familiar with blockchain only as it pertains to investing in cryptocurrency. It’s true that the success of cryptocurrencies is what is responsible for bringing the blockchain into the spotlight; however, blockchain technologies have evolved to include a variety of real-world applications such as real estate purchases, and more.
But what exactly is a blockchain? In its basic form, it’s a decentralized, digital distributed ledger of transactions, or record of accounts, where recorded data is timestamped, verified, encrypted, and unable to be deleted or altered.
The Ethereum Blockchain
As for a specific example of a blockchain, although there are quite a few out there, Ethereum is worth noting because of the success of its native cryptocurrency Ether (ETC), its superior use of smart contracts, and its reputation for programmable tokens used for initial coin offerings, as well as non-fungible tokens.
How the Blockchain Works
How it works is that data is placed on one digital block, and once the data capacity is at its limit for that particular block of information, the block or container of data is timestamped and encrypted, and then chained to the previous block, creating a blockchain. Because of how each block interacts with the others, if someone tries to modify information falsely or accidentally for a particular block, the rest of the blocks are able to cross-reference each other to verify, and it will prevent the modification from happening. This makes the history transparent and unchangeable, and can protect against title and wire fraud, and more.
What are Real Estate Smart Contracts?
Blockchain technology includes what are called smart contracts, and although the name may give the impression that they’re just the digital equivalent to traditional paper contracts, they are far beyond that. Smart contracts are advanced self-executing contracts that have the terms written within lines of code on the blockchain.
These smart contracts are programmed to automatically perform the necessary steps needed for the execution of an agreement by triggering the next actions when predetermined conditions are met. An example would be the auto release of funds and the deed to the proper recipients, which actually gives smart contract technology the ability to replace escrow companies.
This, as you can imagine, reduces the need for some third-party involvement, which decreases costs, human error, and fraud.
The Game-Changing Benefits of Buying Real Estate Using Blockchain Technology
Now that you understand some of the basics of blockchain and the smart contracts that work on top of it, it’s time to dive into the benefits of utilizing them for property purchases.
1. Blockchain Offers Secure & Transparent Real Estate Purchases
One of the most significant benefits of buying real estate using the blockchain is its ability to provide transparency, allowing every step of the deal, all contracts, and every bit of data to be accessible by all parties in real-time. This is crucial because it can reduce the risk of title and wire fraud, falsifications, mistakes, confusion, and more. This is way beyond what a traditional real estate purchase process offers – multiple middlemen such as brokers, lawyers, title agents, escrow companies, and the like, all holding their own set of paperwork or digital files that none of the other parties can view, unless provided to them.
But with blockchain and its smart contracts, the current non-transparent method of buying real estate can be transformed because every single transaction and each agreement is viewable, the data is tamper-proof, and each block confirms the data that resides on the other blocks in the chain.
As you can see, this is a much more transparent and secure way of doing real estate transactions, which is important when such a considerable amount of money is involved.
2. Its Distributed & Decentralized Network Reduces Single Point of Failure and Misuse of Authority
Moving a real estate deal through a distributed and decentralized network removes the risk of a single point of failure. To understand this better, let’s look at what can happen with a centralized structure. When you have a centralized system, where the control is given to a single entity, all users of that system must blindly trust that single authority with their information, as well as their money.
With that said, the last thing you would want is for one party, or even a few individuals, to have complete control over your data, and hold all the information pertaining to your real estate deal in one central location – I’m sure you’re familiar with the possible bad scenarios that can happen with this type of setup. Centralized systems are prone to mistakes, misuse of power, falsifications, fraud, and brute force attacks because a single point of entry is much more vulnerable.
Blockchain technology is decentralized and distributed, which means it’s not controlled by any single person, company, or government, and the data on the blockchain is distributed across a network of nodes/computers for a consensus on the validity of its ledger data, and it generates an unchangeable audit trail.
3. Real Estate Smart Contracts on the Blockchain Allow for Less Third-Party Involvement and Reduced Affiliated Costs
Buying and selling a piece of real estate can be a huge process, with a variety of middlemen each working on their portion of the deal. This includes such intermediaries as lawyers, title companies, agents, inspectors, brokers, mortgage lenders, and more, who all make the purchase happen and charge a fee to do so.
Now, let’s explore the reimagined process of real estate transactions. A significant benefit of buying property using blockchain technologies with smart contracts is its ability to automate and audit agreements, and move the deal through digitally, which can eliminate the need for certain middlemen, and can therefore greatly reduce costs.
Consider the following examples:
Blockchain-Based Property Purchases Can Cut Costs with Streamlined Title Verification and Lower Insurance
You may still need to use a title agent for blockchain-based real estate purchases, but with less involvement, and this can reduce their fee. Furthermore, the typical high cost of title insurance that protects against missed claims, liens, easements, and title fraud, may also be reduced. Why? Because 25% of traditional title reports come back with incorrect information, whereas the blockchain is capable of revealing pertinent and accurate information about a property and its history. Since the data is also cross-referenced for verification, this can greatly lessen the risk of inaccurate titles and fraud, as well as streamline the process, which can decrease costs.
Purchasing a Property on the Blockchain with Cryptocurrency can Remove the Bank from the Process
Although there are various options for funding a real estate deal, if you happen to have invested in cryptocurrencies over the years and came out on top with enough to fund a property purchase, you’ll be able to cut out a common middleman, which is the bank, along with any fees associated with them being involved in the purchase process.
When buying real estate on the blockchain and paying in cryptocurrencies, such as Ethereum or Bitcoin, buyers and sellers who are on the same page with accepted payments can leave the banks out of the payment process. If this is something you have been contemplating, before you dive into a purchase such as this, just be sure to understand the tax ramifications of using cryptocurrency to buy real estate.
Blockchain and its smart contracts are also capable of removing the escrow companies from the process, and we will discuss this in more detail in the following section.
4. Adds Speed & Efficiency Through Automation Which Increases Liquidity
An asset that can be sold or converted to cash quickly at its full market value is considered to be liquid, like stocks, for example. When you sell stocks that you owe, typically, the funds are available in just a few days.
In contrast, real estate is known as illiquid because of the slow process of closing the deal, which can ultimately tie up funds for an extended period of time. This traditional process normally has many hands involved, with each party having their own schedule and often dealing with common delays. Even with no delays, unless you’re using a full-service real estate company, the entire process can take a considerable amount of time.
This is where the benefits of buying real estate with blockchain technology really come into play. With its use of smart contracts, a property purchase can utilize automation to quickly, efficiently, and securely move through many of the steps of the property sale and purchase process. This equates to the funds being released sooner rather than later, making it more liquid.
Blockchain Automates the Escrow Process
Traditionally, an escrow company plays a big role in the sale of a property. They’re a neutral intermediary that operates between the buyer and the seller, providing protection for both sides by making sure all conditions have been met before the funds and the piece of real estate change hands. It can take some time to verify all the required conditions, especially when issues arise.
Now, let’s look at an alternative way of handling this, one that substantially speeds up the process with automation. When it comes to blockchain technologies, its smart contracts can take over the role of the escrow company. How is this possible? Because the blockchain’s unchangeable and hackproof ledger allows funds to be held on the blockchain, as well as the deed and other vital documents, for all parties to view.
Once the necessary transactions are performed by all parties on the platform that is being utilized, smart contracts can take over and release the funds and the deed to the appropriate recipients. This is truly a game-changer because it’s possible for each party to take advantage of almost instant payments and transfers.
How Do You Make a Real Estate Purchase Using Blockchain & Smart Contracts?
There may be a few ways to go about this, but if you do your due diligence, you’ll find that a smart way to purchase a property using this technology may be to utilize the company that created the concept, and pushed it to conception, and this would be Propy.
Propy is an online global real estate platform that has revolutionized the industry with its use of blockchain technology. Propy’s CEO, Natalia Karayaneva, sums it up quite well:
“I’m thrilled to see Propy leading the charge in putting real estate on the blockchain — bringing transparency, efficiency, and security to an industry traditionally fraught with red tape and bureaucracy.”
Propy utilizes the Ethereum blockchain with smart contracts to automate real estate transactions on their dedicated platform, and purchases can be made with fiat or cryptocurrencies.
Typically, sellers and buyers work with agents, brokers, and title companies on their platform. However, although most of Propy’s clients are actually the agents and brokers who invite the sellers and buyers to the platform, Propy doesn’t limit how people use their service. So, if you really understand the entire process, you can use their platform without an agent, or they can direct you to one that is trained in selling and buying with blockchain technologies.
PRO – Propy’s Native Token
It’s also worth noting that Propy has its own utility crypto token, PRO. It operates on the Ethereum blockchain, making it an ERC-20 token, and it’s used on the Propy platform for powering real estate transactions and unlocking smart contracts. PRO is listed on several crypto exchanges and is available for those who would like to invest in this token. There’s a supply of 1000,000,000, and currently, there’s 70,850,406 in circulation. Most importantly, this crypto token is backed by a real company that is truly revolutionizing the real estate industry.
With all that said, if you’re thinking about buying real estate on the blockchain, this company is worth checking out. But as mentioned, do your due diligence to determine which avenue is best for your situation.
The Benefits of Buying Real Estate with Blockchain Technology is Disrupting the Industry – Don’t Get Left Behind!
Real estate is known to be one of the most lucrative investment options, but even so, with an archaic selling and buying process that relies greatly on manual work from third parties, its reputation for being illiquid, non-transparent, and prone to fraud; there is much room for improvement. Fortunately, that improvement comes in the form of the technological advances that we see in blockchain that are beginning to merge with the real estate industry, and it’s truly modernizing and shaking up the residential and commercial real estate sectors. With that said, the fact that you’re researching blockchain-based real estate purchases means you’re certainly on the right path.
If you’re thinking about investing in real estate, but not ready to dive into the world of blockchain technologies just yet, our full-service investment company can provide you with a piece of real estate where illiquidity and non-transparency don’t apply. We do all the work for you, even placing a tenant and property manager, with the end result being a cash flowing property. Feel free to schedule a complimentary phone call to discuss your real estate goals with us; we would love to speak with you.
For those who are interested in following the news of this innovative technology – cryptocurrencies, blockchains, smart contracts, and more, check out Crypto News Daily:
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