Role of cryptocurrency in real estate
Cryptocurrency in real estate
February 23, 2020
Cryptocurrency’s presence in the real estate market
February 27, 2020We’re hearing about more and more deals closed by real estate agents using cryptocurrency, and blockchain-enabled real estate startups are seemingly cropping up on a weekly basis. The industry’s level of interest is approaching a fever pitch.
While exciting, the concepts behind this explosive trend are hard to grasp and can be confusingly abstract. A clear explanation of the key concepts cryptocurrency, blockchain, coins and tokens and their primary applications to the residential real estate will not only clarify the trend but also will help you begin figuring out how to leverage it in your business.
Cryptocurrencies are digital currencies encrypted and secured using advanced software that verifies and tracks ownership and transfers. Cryptocurrencies trade on decentralized peer-to-peer payment networks; they have no central authority or middlemen. Bitcoin was the first cryptocurrency to gain a substantial market foothold and remains the most prominent cryptocurrency today.
Blockchain is the technology behind cryptocurrency.
A blockchain is a shared, decentralized public ledger that houses an immutable, chronological record of all cryptocurrency transactions. It makes cryptocurrency transaction records secure.
Cryptocurrencies come in two flavors: coins (sometimes called “altcoins”) and tokens. Coins such as Bitcoin and Ethereum operate on their own blockchain of the same name. Tokens, on the other hand, are built on an existing blockchain such as Bitcoin or Ethereum. There are two types of tokens: security tokens and utility tokens. In addition to using cryptocurrency to buy property, three additional blockchain, and cryptocurrency use-cases have emerged in the residential real estate. They are:
- Peer-to-peer property transfer or rent
- Tokenization of real estate assets
- Creating trust and authenticating real estate transactions
Companies in the peer-to-peer space create listing platforms that allow buyers and sellers to transact directly with one another and reduce or eliminate commissions. This application disintermediates real estate agents, and, therefore, faces a big hurdle.
Firms focusing on tokenizing real estate assets make it easy and secure for multiple investors to own and trade stakes in individual properties. Tokens related to this application are generally treated as securities. Companies in this space are competing with Wall Street to create an entirely new asset class for investors, i.e., tokens representing fractional interests in real assets.
One of the best technical use-cases for blockchain is registering property records and transactions. By baking trust and authentication into the real estate transaction process itself, this application eases minds on both sides of a deal by creating an additional layer of security, especially in cross-border transactions when different laws, languages, customs, and currencies are involved.
As it matures, cryptocurrency and blockchain technology is poised to play an increasing role in real estate.
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