Real Estate on the Blockchain: 4 Benefits That Will Transform the Industry
Blockchain technology is almost unrecognizable from when it was first created over a decade ago. In 2008, the pseudonymous Satoshi Nakamoto released his whitepaper entitled Bitcoin: A Peer-to-Peer Electronic Cash System and introduced the concept of blockchain to the world. As the title of the paper suggests, blockchain was originally envisioned as a decentralized payment network.
Although this concept garnered a lot of interest, it wasn’t until the introduction of Ethereum smart contracts in 2015 when the true potential of blockchain technology was unlocked. Smart contracts allow for the development of applications on the blockchain, leading to the creation of Decentralized Finance (DeFi) applications, NFTs, Decentralized Exchanges (DEXs), and everything else we’ve come to associate with cryptocurrency in just a few short years.
While the blockchain has come a long way since the first Bitcoin was mined, it is still in its early stages of development. The application of the blockchain to real-world markets, including real estate, is necessary for the maturation of the technology. By all accounts, this process is well underway. According to a survey, a whopping 94% of Fortune 500 executives have plans to launch blockchain-based initiatives to improve or supplement their existing business operations.
Already, we have seen how the blockchain can transform real estate through Asset Tokenization and NFT-based property titles. But why would real estate investors elect to replace their existing methods with blockchain alternatives? There is a plethora of benefits, but we will focus on four examples:
- Greater transparency
- Instant traceability
- Increased efficiency through automation
- Improved liquidity.
Without the blockchain, traditional financial institutions rely on separate databases and third parties to store and gather data. Information about where a company’s funds are going is not always available to the public, opening the door for deceptive business practices. When it comes to real estate specifically, ownership records and purchase prices can be difficult to track due to archaic and restrictive public record systems.
At their core, blockchains are distributed ledgers — meaning records are stored across a peer-to-peer network, validated using a consensus algorithm. These ledgers can be viewed without permission by anyone participating in the blockchain allowing for full transparency. Any and all transactions are immutable with recorded timestamps, so anyone can see exactly where funds are going.
When real estate assets are tokenized or converted to NFTs, the need for archaic public record systems is eliminated. Property ownership can be verified instantly by searching the blockchain, along with the purchase price, date of purchase, and previous owners.
If you’ve ever financed a car or house, you may know the woes of having to deal with banks and the slow-moving process to get the necessary paperwork. Blockchain creates a trail that documents an asset every step of the way. This coupled with permissionless access in transparency allows companies or consumers to directly access records without needing to wait 3–5 business days to hear back.
Whatever the reason may be, there comes a time where you will need to supply documentation that you are the owner of a property. If you misplace a paper, it may take weeks to receive another copy from a government institution or the bank supplying you with the information you need. However, with the blockchain, it will always be readily available and traceable in an instant.
Increased efficiency through automation
Traditional paperwork and manual entry databases are slow-moving and introduce the possibility for human error. In the current model, documents and paperwork must pass through a chain of custody and be entered manually into each organization’s personal systems. Each change of hands slows down the process and introduces additional labor costs.
Let’s look at the process of buying a home as an example: the home buyer applies for a mortgage with a bank, the bank uses a credit bureau to determine if the loan should be approved; if accepted, the buyer puts in an offer through a real estate agent; if the sale goes through, a title company creates the necessary paperwork submits it to the local government for manual processing. Each step in this process introduces redundant paperwork, time consuming overhead, and unneeded costs.
With blockchain technology, the need for paper records ceases and all types of transactions can be completed faster and more efficiently. Using smart contracts, the entire process — credit validation, payment processing, and ownership transfer — could be automated and streamlined into a single transaction. Documentation, transaction details, and all other records can easily and automatically be stored on the blockchain, providing a singular database for all details about a given transaction.
One of the primary drawbacks of real estate is its highly illiquid nature. In other words, it can be difficult to convert your properties into cash quickly and easily. While assets like gold, stocks, and bonds can be fractionalized and easily sold to multiple investors, the process of fractionalizing real estate isn’t nearly as simple. Additionally, the inefficiencies described above can make the process of buying or selling assets time consuming and costly.
Tokenized real estate converts the ownership of a property into tradeable tokens on the blockchain. Investors can buy, sell, trade, or leverage their property shares as they would any other token on the blockchain. This makes the process of buying and selling individual real estate assets simple and painless and allows the ability to convert back to cash any time without the need to worry about paperwork or closing costs.
As cryptocurrencies continues to infiltrate the mainstream, they will increasingly be used to improve and streamline existing industries. Real estate isn’t the only example — supply chain logistics, cloud computing, payment processing and voting systems have all experienced successful blockchain implementations. For now, when people hear the words “blockchain” or “cryptocurrency”, they may think of NFTs, Bitcoin, or meme coins. But in the near future, blockchain will be integrated into every aspect of our lives in a very real and practical way.
Landshare offers fractional real estate investment on the blockchain, enabling hassle-free investment for as little as $50. You can find out more about the Landshare platform at https://landshare.io and view our current offering at https://app.landshare.io/property-details.
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