Driven by the economic incentives envisioned by the creators and users, digital currency came to being. Of all kinds of virtual money transactions and digital currency, ‘Bitcoin’ takes the top spot in seamless and quick financial transactions (instant) without the involvement of any bank to issue, remit or direct the exchange, at a very low cost (fee).
Use of Bitcoin instead of normal currency exchange has an array of features that include bitcoin controls its own supply, can be spent anywhere in the world, and one doesn’t have to convert it into any other currency for transaction. It can be transferred through various applications available on the web and mobile. Using ‘Blockchain’ technology/protocol to perform the transactions, it also acts like a general ledger system that keeps a record of the transactions – amount in bitcoins, when it occurred, correctness of the transaction etc. The main feature of Bitcoin? Its strict confidential nature of information holding, about the parties involved in the online transaction.
So how is Bitcoin being used in CRE industry?
What needs to be remembered is the fact that any information entered in a blockchain database cannot be altered or removed; it enjoys tight security measures, and verified fund transfers can be carried out without any hassle. This stability (military grade cryptography) makes the idea of using bitcoin for real estate transactions extremely relevant. The need to adapt to this new technology as a public ledger is highly desirable.
Features: In CRE deals, blockchain tends to increase efficiencies, cut costs, and enables secure direct peer-to-peer payments. This sometimes goes on to eliminate middlemen such as lawyers, notaries and other government officials involved in the process; providing much respite to the project drivers.
SCF: Bitcoin also makes ‘secure asset fractionalization”, an easy thing. This concept enables an individual to own a small piece of CRE. This is especially useful to small investors who would like to invest in commercial real estate but do not have the bandwidth. Secure asset fractionalization helps them own 1/10,000th of a shopping hub, and adds to their investment portfolio.
Smart Contracts: Supply chains in CRE could be improved with ‘smart contracts’ wherein the owner pays the construction company only when the construction reaches certain phases of completion. These details would be recorded in the blockchain and as they are secure, they would need no further costs tied to it such as, an attorney fees etc.
Market Acceptance: Brokerage firm ‘BOND’ accepted bitcoins way back in 2014 for CRE transactions. ‘International Blockchain Real Estate Association’ is a group which aims to make transactions in real estate more transparent and easy. Another startup ‘Ubitquity’ is trying to raise capital and aid e-commerce and title companies, or even specific clients to gain a ‘clean record of ownership’ making the whole process of working with the SaaS blockchain platform a transparent one. ‘TRANSFER’ in US has been one of the first companies to deal in bitcoins for real estate operations. NY based startup ‘Flip’ uses blockchain to store and transmit financial details of the renter. People can also invest in real estate using bitcoin through the crowdfunding platform ‘Brelion’ which allows a minimum investment of 5 BTC (short form for Bitcoin). An interesting aspect is its easy convertibility; that is you can exchange bitcoin back to dollars.
Transactions: Blockchain network has the potential to block frauds and intermediation. As anyone can record and view the information on blockchain, transfer of CRE property will become a lot easier. The best part? This process eliminates the need for brokers, government property databases, notaries etc. In fact, any property through blockchain enjoys a unique digital address along with details such as occupancy, financial, legal, and other such information required for secure and verified transactions to occur in a span of minutes.
Further, fraud is curbed through this kind of transaction as once the funds are logged in blockchain, ‘digital ownership certificates’ are released making them impossible to duplicate or link it to more than one property; and with bitcoin using its own digital escrow, reducing further costs. Again, as bitcoin is a software currency or simply Money 2.0 and uses multi-signature and three private keys (owner, tenant and arbitrator), two needs to be present for any spend to occur.
Payments: For payments in real estate, there are several Bitcoin exchanges that function currently. Once due diligence is complete and there are no liens, the funds can be transferred through exchange platforms such as Coinify, Coinbase, Bitpay and BTCC (China) which allow an individual/company to send (buyer can pay with bitcoin) money and the seller can choose to accept payments in the choice of their own currency. Coinify works with 14 blockchain currencies where one can receive/send payments in local currency or bitcoins and further use them through shopping cart plug-ins, custom APIs and Coinify POS mobile application. Coinbase allows one to accept bitcoins with widgets and APIs. Bitpay lets one receive bitcoin payments and get the equivalent local currency directly in the bank account for a flat 1% settlement charge. BTCC China offers a digital (exchange) currency system, mining pool, physical bitcoins, blockchain engraving and wallets.
In conclusion, cryptocurrency is still at a nascent stage and not expected to pick up in CRE industry in the immediate future. Also, due to its high volatility, and no physical money being involved, buyers and owners usually prefer the involvement of a title company a licensed agent or a known lender. But ROI, convenience, efficiency and security could just be the tipping factors for CRE professionals to embrace it whole heartedly.