Blockchain and real estate: A global revolution in the making?
In 2008, bitcoin announced itself as the first blockchain application, introducing the world to distributed ledger technology —a secure and transparent peer-to-peer payment protocol. Fast-forward a decade and blockchain is transforming the way global business is done—across industries. In the financial services sector, fintech companies are deploying blockchain to enable retailers and consumers to deal with each other directly, disintermediating lenders. In the mining industry, blockchain is used to track the entire diamond supply chain to ensure that the stones are ethically sourced. In the global fishing business, blockchain is helping to improve tuna traceability and stop illegal and unsustainable practices. Blockchain has also found applications in energy trading and car manufacturing—and it also has the potential to revolutionise the global real estate industry.
In a traditional database, data is stored and managed from a single source. In a blockchain environment, data storage and management is decentralised. Here, one public record or database (often referred to as a ‘ledger’) is distributed across a network of computers (a ‘decentralised peer-to-peer network’). The database is secured by sophisticated cryptography safeguarded by so-called ‘miners’— computers that process transactions and ultimately verify that they can be uploaded to the database. The network can either be completely public and available for any user who is interested in participating, or private meaning that only designated users have the ability to participate. Every new transaction or information ‘block’ added to a blockchain is immediately available for every network participant. The need to transfer information from one party to another or separately record and store that information falls completely away.
The blockchain database grows exponentially in this way, forming a comprehensive record of all transactions that have occurred since the database‘s inception. Once recorded, it is impossible for data to be removed, edited or revised—the data is immutable and resistant to fraudulent modification.
But the data in this environment is only as reliable as the entity or person who is recording it, and so will need verification. For real estate, this will require collaboration between traditional data providers: appraisers, due diligence providers, notaries, and brokers.
Real estate is full of registries: Governments or courts often maintain multiple registries of who owns what land and the various interests affecting it; brokers must keep a registry of investors and what shares they own; and landlords have registries of their tenants. There are many issues with these registries, which are often slow, disparate and uncoordinated. In the US, for example, records are kept by individual counties, each with different standards and protocols, making interoperability a problem. In Dubai, there is one central entity that all real estate transactions must go through, creating a slow, expensive and paper-heavy process. Blockchain—at its core, a new type of registry—appears tailor-made to address these challenges by digitising a traditional land registry and moving the industry away from its historic and now technologically outdated models.
A blockchain-based land registry will have all the same functionality— tracking property titles, ensuring single-ownership, keeping a seamless and near-instantaneous record of all transactions and third parties’ rights—but with the added advantage of streamlining and enhancing the way real estate transactions are logged and executed. “Using a blockchain as a shared registry has the potential to make investing, transacting and renting real estate cheaper, more efficient and more transparent,” said Joseph Lubin, Founder of ConsenSys, a US-based blockchain software technology company.
The benefits to the real estate industry go beyond the creation of an ‘alternative’ land registry.
