Cryptocurrency in the real estate market
Reasons blockchain technology will transform real estate
February 13, 2020
Involvement of cryptocurrency in real estate
February 17, 2020It’s time to try something new.
Fortunately, from the ashes of the Great Recession arose the first fruits of a solution: a new kind of secure digital money with no centralized authority, built on an innovative new technology – blockchains. This breakthrough was first described in the bitcoin white paper.
Since then, computer scientists, cryptographers, technology entrepreneurs and a deeply inspired global community has committed itself to building a more open and inclusive financial system. These blockchain projects are still in their early days but are gaining momentum with increasing velocity and force as large nation-states, big tech companies and the broader crypto community begins to deliver technologies for digital money that will reshape the international monetary system in exciting and unpredictable ways.
They’re creating an economic operating system for the internet, designed to provide an open and immutable system of record-keeping, transaction processing and computation. And, like the internet, no corporation or government has complete control over these public blockchains – a critical element at a time of high mistrust in public and private institutions.
Public blockchains mean it’s now possible to represent important records and assets in a digital form and to codify, literally, the rules for their exchange and use through smart contracts. This cuts out intermediaries, reduces costs and offers near-perfect auditability.
The real estate industry is changing dramatically as new technologies and services influence the way society completes real estate transactions. One of the emerging technologies of the last decade is cryptocurrency. The growing popularity of cryptocurrencies like Bitcoin and Ethereum has enabled some individuals to sell or buy a house with cryptocurrency as the sole medium of exchange. Buying a home with cryptocurrency like Bitcoin is becoming more common. In fact, some believe that cryptocurrency will revolutionize the future of real estate transactions. Those who wish to use cryptocurrency will require unique services to complete their real estate transactions. It’s important not only to understand how these transactions work but also to ensure title insurance and closing needs are met by processing and closing these transactions safely and securely. No matter which form of currency you use, you should approach every real estate transaction with the knowledge and understanding you need to complete the sale accurately and efficiently.
The Basics: What Is Cryptocurrency?
A cryptocurrency is a form of money that is digital. There are two significant ways in which it differentiates from other forms of currency. First, cryptocurrencies are purely virtual, which means that they do not exist as a physical bill or coin. Second, most cryptocurrencies are decentralized, which means they are not issued from a central bank. This allows people to exchange cryptocurrency without involving financial institutions. There are over 2000 cryptocurrencies in use today according to coinmarketcap.com, the most popular cryptocurrency ranking site. Bitcoin is known as the first and most stable decentralized cryptocurrency in the world. As this currency is exchanged between parties, a block of information is added to a publicly viewable chain of data that keeps a record of all transactions made via blockchain technology. Ethereum is another form of cryptocurrency that uses smart contracts to complete transactions. For instance, a smart contract will state that when a consumer pays the supplier a set amount of Ether tokens, the supplier will provide the consumer with a product or service. These transactions are also public.
What Companies Support Cryptocurrencies?
Though cryptocurrency is a relatively new method of completing transactions, many forms of cryptocurrency are gaining support from large corporations. Today, more than 100,000 merchants worldwide accept this digital currency as a form of payment for products and services, including well-known companies like Virgin Airlines, Microsoft and WordPress. NASDAQ has also announced plans to allow Bitcoin futures to be traded on its electronic exchange.
How Cryptocurrency Used to Purchase Real Estate?
Bitcoin and other popular cryptocurrencies like Ethereum are being used to purchase real estate all over the world. From home services to purchases and sales, the industry is exploring various ways to use cryptocurrencies. Property buyers are now paying with cryptocurrencies while sellers have the option to accept the digital currencies directly or have them converted into USD. The power, openness and security of the blockchain are also being explored by industry stakeholders as a viable option for recording property titles and transfers during the sales process.
The use of Bitcoin, Ethereum and other popular cryptocurrencies is attracting more attention, and more buyers are now using it to purchase properties in place of cash, particularly those who are cryptocurrency investors. However, the use of Bitcoin, Ethereum and other cryptocurrencies by title companies and other vendors involved in a real estate transaction is still very uncommon. In fact, very few title companies have the experience and understanding of how cryptocurrencies work. Therefore, they’re not always able to handle the intricacies of a cryptocurrency transaction or simply guide the parties involved through the process.
Why Is Bitcoin the Most Popular for Real Estate Transactions?
As a peer-to-peer electronic monetary system without a central regulatory body, Bitcoin has become the most popular cryptocurrency. It grew in popularity and its value rose from $0.003 in 2010 to almost $20,000 with a market cap of over $330 billion in December 2017. Due to its wide acceptance, the currency has seen many states craft legislation for tax purposes and refer to it as a digital property or a commodity. Unfortunately, this means you’ll need to pay capital gains tax when your property is sold through a Bitcoin real estate transaction. All Bitcoin transactions are encrypted. To initiate a real estate transaction with Bitcoin, you need to have a digital wallet. You can typically fund it with PayPal or your credit card through a mainstream Bitcoin broker. However, some banks and credit card companies have banned their users from making transactions using cryptocurrencies like Bitcoin. There is much speculation as to why this may be happening, including possible concerns from banks about liability and disruption in their industry. Before choosing to fund a digital wallet, be sure to check with your financial institutions to ensure all financial transactions will go smoothly.
How to Buy a Home with Cryptocurrency?
Regardless of whether you are buying or selling a home using cryptocurrency like Bitcoin or Ethereum is an acceptable form of payment, you should begin every real estate transaction armed with the knowledge and understanding you need about the home buying or selling process. Speak with a real estate agent, financial advisor or other professional to be as educated as possible to discuss the title and closing processes, as well as how to complete real estate transactions with cryptocurrency. In many ways, a transaction using cryptocurrency like Bitcoin and Ethereum is the same as an all-cash transaction. Cryptocurrency transactions are completed in one of two ways;
Option 1: A buyer can send cryptocurrency directly to the seller. Instead of writing a check or moving cash between financial institutions, the parties exchange cryptocurrencies between their own digital wallets. It’s important to understand that even during a direct cryptocurrency transaction, since many vendors and government entities do not accept cryptocurrencies, some cash will be required to cover expenses such as:
- Transfer Taxes
- Recording Fees
- Lender Payoffs
- Lien Payoffs
- Judgment Payoffs
- Real Estate Commissions
- County Taxes
- Appraisal Fees
- Inspection Fees
- Title Insurance
- Title Searches
- Municipal Lien Searches
Option 2: The other and more viable option is for the Buyer and Seller to work with expert person to address the pitfalls above through proven processes and procedures to facilitate a smooth and stress free closing.
Other Things to Keep in Mind about Cryptocurrency Real Estate Sales
When deciding whether to accept cryptocurrency as payment for a property or if you’re considering using or exchanging cryptocurrency for the purposes of a real estate purchase, we suggest you ask your financial advisor for guidance. As with any large investment, it’s wise to seek professional consultation on the most effective way to manage the financial aspects of a sale. Another advantage in using cryptocurrency to purchase or sell a home is that the transaction can be completed and the closing on the property can be finalized in less than a traditional real estate sale funded by a bank. Cryptocurrency and real estate transactions are quickly becoming more common as buyers and sellers responsibly take advantage of this safe, secure and swift finance option. Some believe Bitcoin, Ethereum and other types of cryptocurrency and real estate are a powerful combination that will shape the industry for years to come.
Bitcoin and cryptocurrency like Ethereum will continue to show promise in the real estate industry. Purchasing real estate with cryptocurrency has the potential to reduce the time required to close a transaction. Also, cryptocurrencies like Ethereum allow for smart contracts, which may one day improve the security, transparency and efficiency of a real estate transaction. Most sellers would prefer buyers who can provide secure funds within a short period of time.
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