The Blockchain Real Estate System makes it possible for the first time ever for people and companies to make real estate transactions without going through archaic intermediary systems like brick and mortar real estate brokerages and agents, lenders and escrow companies that can make transactions more expensive, slow, error ridden and may open opportunities for fraud or crime.
Blockchain is a hot topic around the world these days, yet for many, the technology remains an elusive concept. Yet it shouldn’t, the concept is simple once you get your head around the architecture and theory of basic crypto economics. When you do have your “a Ha” moment, the world will never seem the same to you again.
This blockchain basics guide is designed to deliver a clear, non-technical introduction to one of the most transformational & misunderstood technologies of our time. If you want to know what blockchain technology is, how it works, and it’s potential impacts, without all the technical lingo, then this is for you.
A short History of Transacting Money
Historically, when it comes to transacting money or anything of value, people and businesses have relied heavily on intermediaries like banks and governments to ensure trust and certainty. Middlemen perform a range of important tasks that help build trust into the transactional process like authentication & record keeping. The need for intermediaries is especially acute when making a digital transaction. Because digital assets like money, stocks & intellectual property, are essentially files, they are incredibly easy to reproduce. This creates what’s known as the double spending problem (the act of spending the same unit of value more than once) which until now has prevented the peer to peer transfer P2P of digital assets.
But what if there was a way of conducting digital transactions without a third party intermediary? Well, a new technology exists today that makes this possible. But before we dive into the mechanics of this revolutionary technology, it’s important to provide a little context.
One example of the evolution and broad application of blockchain, beyond digital currency, is the development of the Ethereum public blockchain, which is providing a way to execute peer to peer contracts.
What is blockchain?
Blockchain is a type of distributed ledger or decentralized database that keeps records of digital transactions. Rather than having a central administrator like a traditional database, (think banks, governments & accountants), a distributed ledger has a network of replicated databases, synchronized via the internet and visible to anyone within the network. Blockchain networks can be private with restricted membership similar to an intranet, or public, like the Internet, accessible to any person in the world.
When a digital transaction is carried out, it is grouped together in a cryptographically protected block with other transactions that have occurred in the last few minutes and sent out to the entire blockchain network.
The validated block of transactions is then timestamped and added to a chain in a linear, chronological order. New blocks of validated transactions are linked to older blocks, making a chain of blocks that show every transaction made in the history of that blockchain.The entire chain is continually updated so that every ledger in the network is the same, giving each member the ability to prove who owns what at any given time.
Blockchain’s decentralized, open & cryptographic nature allow people to trust each other and transact peer to peer, making the need for intermediaries obsolete. This also brings unprecedented security benefits. Hacking attacks that commonly impact large centralized intermediaries like banks would be virtually impossible to pull off on the blockchain. For example — if someone wanted to hack into a particular block in a blockchain, a hacker would not only need to hack into that specific block, but all of the proceeding blocks going back the entire history of that blockchain. And they would need to do it on every ledger in the network, which could be millions, simultaneously.
Will the blockchain transform the Real Estate?
Make no mistake about it. Blockchain is a highly disruptive technology that promises to change the world of real estate as we know it. The technology is not only shifting the way we use the Internet, but it is also revolutionizing the global economy.
By enabling the digitization of assets, blockchain is driving a fundamental shift from the Internet of information, where we can instantly view, exchange and communicate information to the Internet of value, where we can instantly exchange assets. A new global economy of immediate value transfer is on its way, where big intermediaries no longer play a major role. An economy where trust is established not by central intermediaries but through consensus and complex computer code.
Blockchain has applications that go way beyond obvious things like digital currencies and money transfers. From electronic voting, smart contracts & digitally recorded property assets to patient health records management and proof of ownership for digital content.
Blockchain will profoundly disrupt hundreds of industries that rely on intermediaries, including banking, finance, academia, real estate, insurance, legal, health care and the public sector — amongst many others. This will result in job losses and the complete transformation of entire industries. But overall, the elimination of intermediaries brings mostly positive benefits. Banks & governments for example, often impede the free flow of business because of the time it takes to process transactions and regulatory requirements. The blockchain will enable an increased amount of people and businesses to trade much more frequently and efficiently, significantly boosting local and international trade. Blockchain technology would also eliminate expensive intermediary fees that have become a burden on individuals and businesses, especially in the remittances space.
Perhaps most profoundly, blockchain promises to democratize & expand the global financial system. Giving people who have limited exposure to the global economy, better access to financial and payment systems and stronger protection against corruption and exploitation.
The potential impacts of blockchain technology on society and the global economy are hugely significant. With an ever growing list of real-world uses, blockchain technology promises to have a massive impact. This is just the beginning.
Many of the most exciting applications and platforms haven’t even been invented yet!
The U.S. REAL ESTATE MARKET
Throughout history, real estate has arguably been the most stable indicator of value.
Real estate’s popularity over the years has been derived from the fact that not only is property typically an asset which nearly always appreciates in value, but also an income producing asset, generating further capital wealth for its owners. While beneficial for safe place to store value, real estate’s liquidity nowadays presents significant inefficiencies for investors, especially those buying properties abroad.
5.34 million U.S. homes were sold in 2018, according to data from the National Association of REALTORS® In 2018, the total value of the U.S. housing market is valued at $33.3 trillion.
A real estate purchase agreement is a binding, bilateral agreement between two or more parties with legal capacity for the purchase, exchange or other conveyance of real property.
The existing real estate sales method is an archaic and inefficient system, filled with inefficient persons of limited skill and experience, outdated policies, practices and procedures from listing, till the close of escrow.
The basic tenets of home buying and selling have remained unchanged for over a century, however consumers are demanding immediacy efficiency and transparency – before, during and after the transaction. Despite these inefficiencies, the real estate market is significant and growing.
Today, the U.S. real estate market is worth over $33.3 trillion. One great differentiation between real estate and other major asset classes is liquidity. Compared to exchange-traded securities such as equities and government bonds, real estate markets are not as organized or efficient as other markets, with incredibly slow transaction times and less efficient price discovery mechanisms.
As a result, substantial capital is trapped in less liquid investments, concentrated in certain geographic areas devoid of domestic investment opportunities. While many investors with excess liquidity would welcome the opportunity to invest in the U.S. real estate assets, there are currently substantial impediments to such investment activity. However, the total value of the U.S. residential real estate market is over $33 trillion. Foreign investment in the U.S. residential sector could be potentially equal to hundreds of billions of dollars if foreign investors were properly educated on how to invest and provided with the facility to, among other things, close real estate transactions online. In the current market, Chinese who intend to invest in foreign real estate mainly rely on family and friends to obtain referrals to local brokers, who in turn work with international brokers in selling a property. This process is time−consuming, involves too many intermediaries, and the Property that the buyers are seeking for is sold to another investor before the process is complete.
The core of the problem is the lack of national or international standards or even comprehensively available platforms for the electronic transfer and recording of real estate. Each country (and in some cases, as in the United States, even individual counties) maintains its own registry and establishes national (or local) rules for property sale methods, deed registration and transfers. Moreover, legacy property rights registry systems were developed to handle local real estate transfers but are ill−equipped to handle international ownership transfers. As a result, there is an inferior experience for people on both sides of the marketplace. Additionally, the informality of procedures prevalent in certain jurisdictions makes them particularly susceptible to fraud or tampering. There is currently no single tool available that allows a property investor to research, pay for, and reliably secure and record ownership of international property online, It is the largest asset class in the world and has had minimal innovation in the way of increased efficiency during transactions in over 100 years.
BASICS OF A TRADITIONAL REAL ESTATE TRANSACTION
(Methods vary depending on agents skill and competence)
Property Title and Seller/Owner verification by Agent. (Right to Sell)
Listing Agreement signed and Property Listed for sale.
Buyer searches and locates property.
Buyer Submits Offer.
Seller Accepts Offer or Submits Counter Offer.
Price and Terms/contingencies Negotiated.
Price and Terms mutually agreed.
Purchase Contract Created and Signed.
Property placed in Neutral Escrow.
Due Diligence and Financial Evaluation Process.
Escrow Closed – Seller Paid and Property transferred to Buyer.
Access to deals, high fees and inefficiencies and fraud bog down the real estate industry, verified buyers, the amount of time it takes to close, Agent and title mistakes.
For better or worse, ever since the Internet thing took hold we all recognize that we are living in an ‘on-demand and instant gratification society”,
A blockchain, originally Blockchain, is a growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data. Blockchain technology enables distributed public ledgers that hold immutable data in a secure and encrypted way and ensure that transactions can never be altered. While Bitcoin and other cryptocurrencies are the most popular examples of blockchain usage, this “distributed ledger technology” (DLT) is finding a broad range of uses. Data storage, financial transactions, real estate, asset and funds management and many more uses are being explored.
As blockchain is still an emerging technology, most people still don’t fully understand what it is, how it works, and what its uses are.
Widespread adoption of blockchain technology is still some way off, especially as many industries have yet to fully explore its potential applicability. In the real estate industry, it could be a while before a majority of businesses feel confident or capable enough in blockchain technology’s capabilities to adopt it for day-to-day operations.
Until then, early adopters may find themselves with an advantage over those that lag behind, potentially creating opportunities to intensify archaic legacy competition and for new industry trailblazers to emerge.
In its most basic form, blockchain makes it possible for the first time ever for people and companies to make a home sale or purchase without going through an intermediary. Intermediaries like unskilled agents, archaic Title and Escrow, and a myriad of others that slow and may open opportunities for fraud or crime.
Blockchain poses major opportunities for innovation in real estate. Here are three innovations that will change how real estate is done for the better in 2019
Relationships will remain at the core of real estate.
Real Estate is the largest asset class in the world and has had minimal innovation in the way of increased efficiency during transactions. Blockchain poses major opportunities for innovation in real estate.
Here are a few innovations that will redefine real estate.
Global Access to properties.
Shorten time to close with Blockchain Integrated Sales, Title Verification and Escrow.
Eliminates inefficient and expensive real estate agents.
Reduces high fees inefficiencies and fraud.
The Blockchain real estate system, Blockchainrealestatesystem.com, our implementation of this platform, which intends to provide a secure, convenient, efficient and transparent system for residential sales and purchases.
THE BLOCKCHAIN SOLUTION
Leveraging technology of a user-friendly, transparent real estate sales and closing experience for the buyer, seller, the real estate agent, escrow and title and recording. Blockchain Real Estate would ease some of the shortcomings of the traditional real estate system, lower transaction fees, reduce cyber fraud, and allow transactions to process considerably faster.
Blockchain Real Estate aims to solve the problems facing real estate transactions by creating a simple unified property asset transfer platform for the real estate industry. Initially the Blockchain Real Estate Registry will mirror official land registry records in which transfers of real estate are recorded. Ultimately,
By leveraging Blockchain Real Estate System and Blockchain Real Estate’s smart contracts platform, unnecessary delays and impediments inherent to legacy property rights registrations systems could be eliminated. The Blockchain Real Estate platform seeks to enhance the security of transactions while reducing inefficiencies through its innovative use of mobile, cloud and blockchain technologies linking buyers, sellers, investors and registries around the world.
BLOCKCHAIN AS A NEW STANDARD FOR PROPERTY SALES
Blockchain technology provides great promise for real estate. A blockchain is a type of shared database, the contents of which are verified and agreed upon by a network of independent actors. In order for a new piece of data (such as the new owner of a transferred property) to be added to the blockchain, the independent verifiers must come to a consensus as to its validity.
Because each new set of transactions (a “block”) is cryptographically linked to the previous block, it is extraordinarily difficult to change data stored in a blockchain and any such change would be readily detectable. Thus blockchains are widely considered to be immutable and thus can serve as a record of proof of ownership.
When transacting in a blockchain platform, each user makes use of a public address (needed for other actors in the network to send a transaction to that user), and a cryptographically paired “private key.” Private keys are used to sign transactions digitally, a form of authentication to ensure that a given user has genuinely generated a transaction.
Blockchain is a relatively new technology. The first implementation of blockchain, Bitcoin, launched in 2009. The Ethereum blockchain was released in 2015. In addition to the distributed ledger capability of the Bitcoin blockchain, the Ethereum blockchain allows so-called “smart contracts,” which are programs stored in the Ethereum blockchain that can act autonomously to execute sophisticated transactions.
The rise of Ethereum and other smart contract platforms has allowed the creation of decentralized applications, or DApps. A DApp is an application whose entire or partial backend code runs on a decentralized ledger with a user interface to facilitate interaction with the blockchain code. Code written to the blockchain is publicly accessible, and since the code is running on multiple computers, there is no central point of failure.
Blockchain is currently considered one of the most secure technologies for digital asset transfer due to its distributed nature and use of sophisticated cryptography. Smart contacts, therefore, offer a potential solution for the management of real estate transactions via the introduction of a universal, distributed ledger that does not require trust in a single third party.
Blockchain Real Estate believes that blockchain technology is well suited as a solution to conduct real estate transactions, because the number of transactions in real estate trading is relatively low due to the nature of the sector and the relatively high value of real estate assets. In addition the current transaction time for recording on blockchain is not a limitation for the Blockchain Real Estate’s solution because otherwise it requires weeks or months to acquire a property and complete a transfer of ownership.
SMART CONTRACTS FOR THE EXISTING LEGAL FRAMEWORK
Blockchain Real Estate’s engineering team has designed a real estate transaction tool powered by smart contracts, combining solutions from the legal, blockchain and payments industries. Using blockchain technology, Blockchain Real Estate has prototyped some of the core technology that will become the Blockchain Real Estate Registry as a DApp that allows each party to a real estate transaction — including the broker, buyer, seller and title agent/notary—to sign off on a transaction, which is Blockchain Real Estate’s intended first market. The workflow of the processes has been built to meet the market rules within the legacy property rights registry systems currently existing. The goal of launching the Blockchain Real Estate platform only in the U.S. at first is to allow the current prototype to be narrowly focused on driving consumer testing, adoption and improvements within a closed test market. Thereupon, Blockchain Real Estate will seek to implement the Blockchain Real Estate solution and drive continuous rapid growth throughout key markets around the world.
The Blockchain Real Estate System will make it possible for every single step of a real estate transaction, from the Seller’s listing of the property for sale, the buyer’s reservation of the property, negotiations and the signing of the purchase agreement, the delivery of the title deeds, contingency(s) negotiations and satisfaction, funding and closing all to be recorded on blockchain and executed with smart contracts.
However, due to blockchain’s new and innovative nature, Blockchain Real Estate recognizes the existence of existing archaic procedures, regulatory and infrastructure limitations in the current technology as applicable to real estate transactions and is in the process of building a multi-stage solution to be gradually phased in over time.
The first iteration of the Blockchain Real Estate (which includes a centralized interface and decentralized smart contracts) intends to streamline existing real estate market processes by, among other things, reducing the need to rely on the multiple intermediaries currently involved in the real estate transactions. While aspects of the process will be partly decentralized, it will primarily make the current real estate transfer process easier to manage and more transparent. As it develops, Blockchain Real Estate intends to transition towards a pure P2P decentralized system that obviates the need for most of the existing intermediaries involved in real estate transactions today. We note that certain intermediaries performing physical functions such as in-person property inspections will remain part of the transaction process at least in the immediate time frame.
Real Estate Redefined