Blockchain and the Future of Real Estate

blockchain_future_real_estate

Digital technology innovation in the Financial Services industry – referred to as “Fintech” – got a big boost during the global pandemic. The need for performing digital transactions became a huge driver to adopt new methods to perform activities. This includes how contracts and operations were executed in the real estate industry. Considerable investment in technological advancements is now occurring to better leverage automation in the financial services industry. Part of this investment is in Blockchain. This has the potential to vastly change the future of the Real Estate industry.

According to Allied Market Research, the value of the global Fintech technologies market was $110.57 billion in 2020. This is not a small, niche market! This research sees the Fintech market to be $700 billion by 2030, a CAGR of 20.3% (source). Blockchain technology is one of the technologies driving this market. Yet many people really don’t understand it or how it has the potential to disrupt the Real Estate industry.

What is Blockchain?

Blockchain can be defined as a distributed database or ledger that is shared among the nodes of a computer network. Think of Blockchain as a digital ledger where transactions can be stored electronically in digital format.

According to Investopedia, Blockchain is different than a traditional database in that it structures its data into tables whereas a blockchain, as its name implies, structures its data into chunks or blocks that are strung together (source). This data structure inherently creates an irreversible timeline of data when implemented in a decentralized nature. When a block is filled, it is set in stone and becomes a part of this timeline. In this way, a Blockchain has the potential to be a virtual ledger that can record transactions forever.

This is a powerful concept. If a secure ledger could record any transaction, then several business models could be upended. For one, the Title Insurance industry. No longer would it be in question who the rightful and current owner of any piece or Real Estate is. Similarly, banks might not be needed. Checking or savings account balances could be spread across several institutions with a total balance that is shared and visible. Of course, the money would have to be invested somewhere. So what might be a more likely outcome is the role that banks play today could change radically.

How Is IT Used Today?

Blockchain can trace its origins to a research project published in 1991 by Stuart Haber and W. Scott Stornetta. At that time there was no practical use case. That changed when Bitcoin was launched in 2009, where the technology found a calling – providing a decentralized ledger for a virtual cryptocurrency. Often there is confusion around Blockchain and cryptocurrencies – the two are separate technologies. Other Blockchain use cases include decentralized finance applications, non-fungible tokens (NFTs), and smart contracts.

Is Blockchain Secure?

There are several ways Blockchain offers a secure approach to recording transactions. To start, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. After a block has been added to the end of the blockchain, it is extremely difficult to go back and alter the contents of the block unless a majority of the network has reached a consensus to do so.

At this point, you might be thinking “It seems that cryptocurrency thefts happened a lot this year – how secure can Blockchain be?” According to this CNBC article, Hackers have stolen $1.4 billion this year using crypto bridges. Here’s why it’s happening, about $1.4 billion has been lost to breaches on cross-chain bridges in 2022 largely due to the hacking of “crypto bridges” as a way to shortcut around the decentralized nature of Blockchain records. In this case, the article suggests sloppy engineering had a lot to do with the breach.

While this technology certainly has the ability to drive innovation across several industries, there are security elements still being learned. Is the industry mature and fully secure today? Not quite. But will it be in the future? Most definitely.

Blockchain and the Future of Real Estate Transactions

The most probable application of Blockchain technology in the Real Estate industry is with Smart Contracts, as referenced above. The ability for a series of checklist items to be completed, authenticated, and then trigger the next action is a good description of a Real Estate transaction. Buyers have a series of steps they must do. If the seller accepts, then the transaction closes. These could quite easily be accomplished with a smart contract – provided the rest of the supporting processes of a Real Estate transaction can be done digitally.

Read this article for a closer look at the current state of digitalization in the Real Estate industry, Is Digital Title Insurance a Sure Thing for the Future?

In the meantime, it is safe to say that change is coming. Now is the time to invest in digital and automation technologies to be best aligned for future innovation. The advantage of this strategy is that you become part of the next generation of Real Estate transactions while delivering better service and value for your customers. Not staying current with a digital transformation is a risky choice – a decision timeframe that is quickly shrinking as technology breakthroughs continue to occur at an accelerating rate!

Axis Technical