Following their catapult into the spotlight at the beginning of 2017, cryptocurrencies and blockchain have become some of the most talked about subjects for investors, economists, and the tech industry.
However, cryptocurrencies are no longer just for the tech savvy. Bitcoin, Litecoin, Ethereum, and others are quickly entering our mainstream economy, leading real estate investors to ask exactly how blockchain will affect the property market now and in the future.
So what exactly is cryptocurrency, and how will blockchain companies in Australia affect our real estate market?
Blockchain and cryptocurrency: an overview
Before jumping into its effects on real estate, it’s important to understand exactly what blockchain and cryptocurrency are, and why they’re rapidly gaining interest on the market.
- Cryptocurrency is exactly as it sounds: a form of digital currency that uses encryption techniques to control how many units are on the market, and how these units are transferred from one user to another. Cryptocurrency is decentralised, so it’s not controlled by one government or bank.
- Blockchain is the technology behind cryptocurrency. Instead of storing data on one central server, data for cryptocurrency is stored across a network in a series of records, or ‘blocks’, to keep it secure from hackers or central failure. Every time anyone buys, sells, or transfers cryptocurrency, a new ‘block’ of data is added to the digital chain (known as a digital ledger). Once it’s added, it can’t be altered or changed.
- Mining is how cryptocurrencies are released to the world. To ‘mine’ a cryptocurrency, you have to solve a digital puzzle called a ‘hash’ and are rewarded with a block reward or an amount of cryptocurrency. Mining cryptocurrencies requires specific hardware and software, and people all over the world compete to solve these puzzles first.
The most common forms of cryptocurrency are Bitcoin, Litecoin, Dogecoin, Ethereum, and BAT. Bitcoin is the most mature, but as the market continues to pick up (especially in China), there will definitely be more cryptocurrencies available on the market.
Cryptocurrencies, blockchain, and commercial real estate
As cryptocurrencies become more mainstream, more sellers and buyers are opting to do transactions using Bitcoin. In 2017, the first ever Bitcoin home purchase was conducted in Austin, Texas, when one Bitcoin was valued at $3,249.
Properties have also been sold using cryptocurrencies in the UK and Ukraine; meanwhile, Sweden is investigating the application of blockchain for property estate with the help of a blockchain real estate startup, the Swedish Land Registry, a telecommunications provider, and a consulting firm. All of these purchases were made using smart contracts.
Homeowners in Melbourne and Sydney have started to accept partial payments in Bitcoin – suggesting it’s only a matter of time before Bitcoin is used in the real estate market.
Because cryptocurrencies don’t have to go through a central authority (such as a bank or government), there are fewer intermediaries, which means fewer legal and bank transaction fees, and less hidden costs. Transactions are typically faster as well – the purchase in Austin was completed in less than 10 minutes – which can reduce the settlement time for a property. This would be handy for the Australian real estate market, where the current settlement time for a property is around 1 month.
Purchases made using cryptocurrencies are also more secure and transparent, because all the transaction information is stored in blockchain’s digital ledger.
What’s the future of blockchain for commercial real estate?
Blockchain technology could revolutionise the real estate market in Australia; however, we still have a long way to go before cryptocurrency transactions are mainstream on the property market. Adopting cryptocurrency in real estate involves fundamental changes in legislation, as well as technical innovations.
Currently, land and titles are registered in a central database. Because blockchain technology is not conducted through a central agency, the technical task of transferring these from one owner to another becomes difficult.
Every property, property owner, buyer, lender, and government body would need to have their information migrated to blockchain as well, so all information is uniform across blockchain and within government databases.
There would also need to be changes in legislation, particularly if purchases are partially paid for using cryptocurrencies, and completed using smart contracts. The government would also have to consider how stamp duty and taxes are processed in this market.
While we are still far away from a mature cryptocurrency property market, companies such as CoreLogic already have teams dedicated to researching the risks and impacts of blockchain technology on the property market.
One day, blockchain technology could revolutionise the real estate market, with less hidden costs, smoother transaction times, and more transparent and secure ownership. However, if you’re looking to sell your property in the near future, Upside Realty charges a single all-inclusive fee with zero hidden costs, fixed fees, and no commission.
If you’d like to find out more, get in touch now to book a free, no-obligation property appraisal with your local Upside agent.