There is a revolution going on with blockchain technology which will have a huge impact on real estate. The introduction of Smart Contracts and Tokenized Real Estate will completely change the way property is bought and sold. The immutable nature of the blockchain technology is the key to understanding the benefits that this new technology holds for the real estate industry.
What is blockchain technology?
In simple terms, blockchain technology is a decentralised ledger of transactions across a peer-to-peer network. By using this technology, participants can confirm transactions without a need for a central clearing authority. Potential applications can include fund transfers, settling trades, voting, and many other issues.
How does it work?
Blockchain can be decentralised due to several anonymous people validating each transaction. There is strength in numbers. If one person comes up with a different outcome from the others, it is flagged up and automatically rejected. This process removes the need for a central clearing authority or a trusted middleman.
How does it accomplish this?
There are several ways this can be accomplished. The biggest two are Proof of Work (POW) and Proof of Stake (POS).
POS uses randomly selected validators to confirm transactions and create new blocks. POW uses a competitive validation method to confirm transactions and add new blocks to the blockchain. POW mechanisms require miners to solve cryptographic puzzles. Whilst POS mechanisms require validators to hold and stake tokens for the privilege of earning transaction fees.
Both methods of validating transactions are very secure and are a fraction of the cost of a middleman or a central clearing authority. This creates value and motivates people to use blockchain to drive down costs. This is one of the reasons why over 91% of banks have already started using this technology.
Immutable nature of blockchain technology
One of the other key advantages of blockchain technology is that it is immutable. This means once a ledger has been completed it cannot be deleted so there is a permanent record of it.
Blockchain offers a permanent, indelible, and unalterable history of transactions. This immutability has the potential to transform the auditing process into a quick, efficient, and cost-effective procedure, and bring more trust and integrity to the data businesses use and share every day.
Benefits of immutable nature
Immutability improves auditing efforts & fraud prevention cost-effectively. We’ll break these concepts down:
Being able to show the complete, indisputable history of a transactional ledger allows for an easy and efficient auditing process. Proving that data has not been tampered with is a major benefit for companies that operate in finance and law that need to comply with industry regulations.
Keeping a complete historical record is not only a help to auditing, but it also provides new opportunities in analytics, query, and overall business processes. FlureeDB, for instance, takes advantage of the concept of time travel for business applications — where queries can be specified as of any block, or point in time, and reproduce that time’s version of the database, immediately.
Proof of Fault
Disputes over fault in business are unfortunately all-too-common. The construction industry, for example, accounts for $1 Trillion dollars in losses as a result of unresolved disputes. Blockchain will be able to resolve a large percentage of disputes related to data provenance and integrity, by proving who did what and at what time.
Benefits to real estate
Blockchain technology can make property transactions faster and cheaper. This is done through Smart Contracts.
Smart Contracts run on blockchain technology. They can reduce the workload of professional third parties by having all the necessary information related to the property deal on the blockchain. This will remove the need for all parties such as lenders, brokers, and solicitors all having to independently contact the land registry. Instead, information will be stored on the blockchain and will only be available to stakeholders in the property transaction.
Similarly uploading a client’s identification on the blockchain means the buyer and seller only need to do this process once as opposed to doing it with each intermediary. The net result will be quicker property transactions with substantially reduced third-party fees.
Blockchain allows for the tokenization of real estate. This offers more than just faster and cheap transactions. It allows for increased liquidity and fractural ownership. Property for example could be split into a million tokens so it offers fractural ownership of property. This is important for larger property transactions such as shopping centres which tend to take a long time to sell due to the size of the purchase.
Tokenization also helps with the globalisation of real estate. As all the important information will be held on blockchain, there is no need to go to the country to complete a transaction.
Esper Wealth is running a free seminar that covers all the important aspects of this seismic change. Contact us to register your free seat for our Manchester summit on blockchain technology and real estate on the 24th of November.