Cryptocurrencies, the most famous of which is Bitcoin, are the subject of varying reactions. Some have invested in it heavily and heralded it as the future of financial transactions. Others have warned against it, citing its volatility.
Despite these concerns, cryptocurrencies have already made their way into various industries. It’s starting to make its mark in the real estate industry as people buy homes using digital currency.
You’ve probably heard about cryptocurrencies, especially Bitcoin. You might also have heard of the Blockchain. The two technologies are different but related. Let’s define them briefly.
Cryptocurrencies are all-digital currencies that use encryption to regulate coin creation and verify transfers. They do not depend on any central institution like a bank. Instead, they’re decentralized. Every user on the network confirms the legitimacy of transactions.
The coins don’t have a physical form. They’re purely entries in a database that are not alterable except under certain agreed-upon conditions. “Miners” create them by solving cryptographic puzzles — a task that requires a certain amount of time and computer power. Once they do that, they can add the coin to the Blockchain, which we’ll define next.
Virtual currencies work in much the same way as U.S. dollars do. But instead of banks keeping track of transactions, everyone using the currency does this task by maintaining a ledger of all coin transfers. Modern technology, namely Blockchain, makes this system possible.
The Blockchain is the public, decentralized record of all transactions of a cryptocurrency. Every node on the network has a copy. It’s what’s used to verify transfers and is the technology that facilitates cryptocurrency use. Digital money isn’t the only type of file you can add to the Blockchain, but it’s the most common usage.
Today, there are many cryptocurrencies. Bitcoin was the first one created and it remains the most valuable and well-known one today. The first Bitcoin transaction occurred in January 2009.
So how does this apply to real estate? Once crypto started booming in 2017, it began seeing use in various sectors, one of which was real estate. It’s a rare occurrence at this point, but people have started buying properties using digital cash and Blockchain technology.
The first real estate Blockchain transaction occurred in October 2017. Michael Arrington, the co-founder of the technology news site TechCrunch, bought an apartment in Ukraine from Ukrainian developer Mark Ginsburg using Ethereum smart contracts for $60,000. Propy, a real estate startup, assisted with the creation of a decentralized title registry for the apartment that was verified through the Ethereum Blockchain. Ethereum is the second-most-valuable crypto.
In January 2018, an Idaho man named Zach Doty — who founded a project called SmartLaw, which he describes as a “kind of like a Blockchain notary” — posted on Reddit that he had “warranty deeded [his] house into an Ethereum smart contract.” SmartLaw, Doty says, could one day handle all of the administrative tasks related to a real estate auction and support borrowing against real estate.
People have also bought real estate with cryptocurrencies, which is a more straightforward way to use the technology in the real estate market. These buyers either purchase a property with digital money directly or sell their crypto coins for traditional currency that they use to buy a home.
Here’s a breakdown of the digital currencies currently making their way into real estate transactions:
The question is, should you start investing in Blockchain real estate assets? Should you buy your next home with Bitcoin? That depends on whether you think cryptocurrencies are the money of the future or a financial disaster waiting to happen.
If you’re an experienced investor and have a solid understanding of cryptocurrencies, Blockchain and real estate, you might want to take the risk. If things go your way, the rewards could be huge. The opposite could happen as well.
If you don’t have much experience with investing, you should be cautious about using crypto for real estate transactions or anything else, for that matter. Experts still regard it as volatile and its future is uncertain. If you do decide to invest, make sure you have an understanding of crypto and Blockchain technologies.