How Blockchain Technology will change Real Estate
BY: Ron O’Neil
If this is the first time you heard of blockchain technology, well let me tell you that this is going to revolutionize our world. The possibilities and reach of this technology will effect large parts of our lives and we can’t ignore it because it is far greater than the innovation of the internet.
Just simply Google ‘blockchain’ and you will see almost every major industry in the world is investing in this technology. As the Harvard Business Review put it, “it’s the first native digital medium for value, just as the internet was the first native digital medium for information.”
What is blockchain? In the simplest way to explain blockchain, it is a technology that allows you to do peer to peer information instantly and removing the middleman. Think of the blockchain as thousands of railway tracks intersecting stations built all along the thousands of train tracks. Each station is sharing information with the next station and so on. The information that they are sharing are ledgers, similar to a bank ledger.
Instead of one station having the centralized information, you decentralize the information and it shared among-st thousands of other stations.
The advantages to decentralization of information is significant. Information can be shared instantly and checked with other stations preventing fraud, because other stations will have the same information. It also provides transparency, because everyone has the shared ledger. Even for auditing purposes this powerful, because everyone that has the ledger can prove the legitimacy of the transactions on the ledger. What’s even better is the speed a transaction can occur.
So, what does this all mean to the real estate world? First off, lets look at a traditional transactions in real estate in a perfect world:
- An offer is presented on a property
- The offer is then accepted.
- The bank approves the mortgage.
- The lawyers confirm the information and switch the property owners.
- The brokers involved finalizes the transaction.
- The closing date.
This whole process takes weeks and uses a wide variety of technology. Each process that took place was a friction point where the transaction slows down because the information is centralized within their technology (banks, lawyers). It’s like being on the train and instead of just stopping at the station and confirming the information, you had to get off the train and go into town to the bank and wait in line to confirm all the details of the transaction. Then you go back to the station wait for the next train and get on it.
Well, what if we took all the information that was centralized in town at the bank and put it right at the station and then shared with everyone else along the blockchain tracks. Then we would have instant confirmation as soon we entered the information on the ledger in the blockchain and instantly shared amongst everyone else in the blockchain. Providing for faster and more transparent information.
Today, most of the processes that we do (friction points) are done by people entering the information into a centralized information system off the tracks. Blockchain is simply is removing the friction points and decentralizing the information on the blockchain tracks.
Now let’s look at a blockchain transaction of a real estate property in a perfect world:
- The offer is entered into a blockchain smart contract and instantly sent to the seller.
- The offer is accepted via the blockchain smart contract.
- The mortgage amount is instantly approved based on the information regarding the buyer on the blockchain ledger.
- The blochchain instantly checks for any leans, history, and transfers the property on the ledger to the new owners.
- The broker receives all the information from the blockchain and files the transaction.
- The property closes.
With this type of technology this could ultimately remove many of the intermediators or the people involved in transaction. I know it is hard to fathom to think that this could happen, but blockchain does have the ability to make that happen.
Blockchain is in its infancy, but it has caught the worlds attention because of the potential it has in the speed of information, savings, security and many other aspects to it. Time will only tell how this new technology will revolutionize our world.