A couple of forward-thinking real estate professionals in Boulder are prognosticating that the blockchain technology and Bitcoin – the most popular form of digital currency – will revolutionize real estate transactions, the Boulder Daily Camera reports. And they may be right. At least in part.
Jim Merrion, a Boulder realtor, claims to have promoted Colorado’s first real estate listing with the seller offering to accept Bitcoin and other Cryptocurrency in exchange for the sale. Merrion believes that closing deals in cryptocurrency expands the market to the universe of buyers and sellers who no longer wish to transact business in traditional currencies.
Anthony Meisner, with Boulder’s Land Title Guarantee Company, touts the benefits of the underlying blockchain technology to streamline the titling process and to make settlements more secure from potential fraud.
The blockchain is a technology that facilitates a decentralized, secure and distributed database or ledger. Over time, blocks of new information or sets of transactions are instantaneously added to the existing chain. Hence the name. Each transaction is time stamped and linked to prior transactions.
No party has access to ALL the information – as it is stored on multiple computers throughout the system. Checks and balances are ingrained in the system. A public and a private cryptographic key are needed by participants to add blocks to the chain.
Blockchains: How They Work and Why They’ll Change the World is one of the better and more comprehensible articles I have seen explaining this technology.
The customary method for closing real estate transactions – the details of which vary from state to state – is to utilize a third party, such as a title company, to act as escrow agent for transferring the settlement funds from the buyer (and her lender) to the seller. The title company will hold all the funds collected at the closing in its own account; for a few minutes, hours or days, until all the paperwork is completed and the funds are released to the seller.
But occasionally something goes awry and one party or another becomes the victim of a crime, losing a good deal of money.
Cybercriminals of various kinds have hacked their way into the middle of real estate transactions and electronically stolen hundreds of millions of dollars either before the funds arrive at the title company or on their way to the seller’s account.
And there are a few unscrupulous owners of title companies, who simply steal funds out of the accounts over which they have been entrusted, as recently happened in Denver.
The blockchain technology has great promise to virtually eliminate the kinds of risks encountered in real estate transactions.
Among the most promising potential applications of the block chain is the creation and execution of so-called “smart contracts” – by which all the steps, parties and conditions are verified algorithmically. Shakespeare’s dream of killing all the lawyers may finally come true.
The virtue of smart contracts is the ability cut out the middleman (or series of middlemen) that clog up our everyday transactions. Real estate escrow agents are just such a weak link in today’s world. We could conceivably eliminate entirely the concept of “custody” as even requiring the existence of a third party in almost any context.
Moreover, deployment of block chain technology could change the entire concept of “title” and title searches. Perhaps the title to property will simply be ownership information stored on a distributed ledger on which each additional new owner will just be a new block in the “chain” of title. The entire complex could be converted to an electronic Torrens system.
The block chain will almost certainly become an important and useful technology in revolutionizing all kinds commercial transactions. But whether digital currencies will ever take hold is an open question.
Bitcoin burst on to the scene in 2009 as the first popular use of the blockchain, in an attempt to cut out the government middleman and replace fiat money with a digital currency. Hundreds, if not thousands, of other such currencies followed. Their prices have been extremely volatile.
The drug like high that inebriates the bitcoin investor may not compensate for the financial ruin that has befallen many buyers, as the value of cryptocurrencies has fallen 80% in 2018 alone. Which rather belies the premise of one of the main characteristics of money – being a store of value. After all, who wants to take a 5% or 10% haircut on a real estate deal, not from the value of the real estate falling, but from the crashing of money you receive at the closing on the way to the bank?