Since developer Satoshi Nakamoto first released their white paper detailing a blockchain model back in 2008, blockchain technology has become increasingly widespread, year by year. So rapid is its growth, in fact, that it’s estimated that, between 2022 and 2030, the blockchain technology industry will grow at a CAGR of a staggering 85.9%.
Although initially slow to adopt blockchain technology, the property sector is now utilising it more and more. Some industry players, such as Adam Redolfi, Managing Partner at Barnes International, think that blockchain and property will be highly integrated in as little as four years from now. One area of blockchain which could really change the property industry is smart contracts.
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What is Blockchain Technology?
First, though, what actually is blockchain technology? It’s a piece of jargon often bandied around these days, but few people actually know what it means. Let us enlighten you. A blockchain is an immutable, digitally distributed ledger on which information (such as financial transactions) can be recorded.
Because the chain can’t be tampered with in any way, sectors are utilising blockchain technology to clamp down on fraudulent activity. Blockchains have most notably been used as a foundation for cryptocurrencies, however, they can also be used for legal contracts, sometimes known as smart contracts, which we’ll cover in more detail later in the blog post.
Is Blockchain Used in Property?
Yes, blockchain is increasingly being used in the property industry. According to SPACE+, a collective of innovative, progressive and disruptive property professionals, blockchain technology could help create a “decentralised system” which “will help prevent future housing bubble crises such as that seen in 2008”.
Why is Blockchain Good for Property?
Blockchain is good for property for three main reasons: it creates a decentralised system (and therefore an inherently more trustworthy system), it improves the liquidity of property as an asset class, and finally, it helps remove the need for intermediaries. That’s not to say blockchain technology will remove the need for estate agents, far from it. Again, according to SPACE+ blockchain technology will, rather, “free up estate agents and brokers from the paperwork and documentation currently occupying large swathes of their time”.How Can Smart Contracts Be Used in Property? Smart contracts are computer protocols that execute as soon as certain predetermined conditions have been met. This provides ample opportunity for improved efficiency in a real-estate setting. For instance, the contract for the sale of a property might be signed and countersigned by all the involved signatories. The terms of this contract are then hard-coded into the smart contract protocol. Then, when one of those terms has been met – i.e. the sale officially being recognised as complete – then the money is automatically transferred to the seller. Smart contracts like these drastically simplify and streamline the buy/sell process, and improve both trust and accountability. No changes to contracts can be made without all involved parties being made aware, so there’s no ambiguous grey area as there might once have been. There are several prominent smart contract blockchain platforms, including Ethereum, Stellar, Waves and Nem, to name just a few. The one we think is best at the minute, however, is Hyperledger Fabric. Developed in conjunction with IBM, this open-source blockchain technology has recently been used by the likes of Hitachi to shift to paperless, smart contracts for their procurement needs, and by we.trade to facilitate smarter, simpler trades across a variety of industries, including banking, freight and consumer goods. The benefits of Hyperledger Fabric include: Hyperledger fabric isn’t perfect, however – after all, very few technologies are. It doesn’t currently support tokenization, for instance, which means that for businesses that need to deal explicitly with payment transfer or an ICO, then other blockchain technologies (such as Ethereum) might be preferable. Non-fungible tokens (or NFTs) are all the rage at the minute in the world of cryptocurrency, however, they could have very real applications in the property sector, moving forward. These include property sales, mortgages and fractional property ownership. In the case of property sales, converting a property into an NFT, which is more easily tradeable, improves asset liquidity. Regarding fractional property ownership, a property can be divided up between owners once it’s been converted into an NFT because the token can be further subdivided into smaller tokens. In terms of mortgages, if a property has been converted into an NFT, then a buyer can apply for a mortgage using tokens from a crypto-lending platform, such as CoinRabbit and SpectroCoin. Again, this opens up the property sector to a wider market, as well as improving the asset class’ liquidity overall. Property might not have been amongst the first to adopt blockchain technology, but it’s increasingly being used year-on-year, and only looks set to continue that way in the future. Blockchain technology is just one new technology changing the way property operates; as such, it can be deemed a PropTech – something that optimises, streamlines or simplifies the way in which the property sector operates. This is just one technology, among many others, discussed at the SPACE+ PropTech events.What is the Best Blockchain for Smart Contracts and Why?
How are NFTs Used in Property?
Final Thoughts…
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Millie is a perfectionist with a passion for property and writing articles. You’ll find her researching the latest housing trends and the newest up and coming areas worth investing in. Read more about Millie here.
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