Beyond Bitcoin: What Blockchain Means for Real Estate and Investment Futures

Digital currency has been in the news a lot lately, mostly for the wrong reasons: The $72 million hack of the Bitfinex exchange in Hong Kong; a $55 million hack of digital currency fund DAO; the $5 million hack of the Bitstamp exchange in 2015; and the lingering bad taste from the Mt. Gox exchange collapse in 2014, which caused hundreds of millions in Bitcoin losses. These breaches highlight the challenges of bringing disruptive new technologies into the mainstream. However, these failures have not deterred technologists – nor investors – from the exciting new opportunities made possible by the technology underlying digital currencies: blockchain.

What exactly is blockchain? The Wall Street Journal’s CIO Journal describes blockchain as “a data structure that allows for a digital ledger of transactions that is shared among a distributed network of computers on a peer-to-peer basis.” In other words, a copy (or partial copy) of a shared ledger is saved on every computer connected to a blockchain network. This “distributed ledger” is maintained by “miners” who perform mathematical operations according to a predetermined consensus process used to verify new transactions that are added to a blockchain. The results is blockchain’s true innovation – removing the need for a central authority.

How does this affect the real estate industry? Beyond the impact that digital currency will have on the finance industry, which directly affects the real estate industry, digital currency – such as Bitcoin – has been used in a number of real estate-related capacities. This includes buyers accepting Bitcoin as payment for property and real estate crowdfunding websites accepting digital currency for debt and equity investment.

Although these are interesting developments, the more intriguing possibilities lie in how blockchain can revolutionize the way public records are processed, maintained, and verified in the United States, particularly real estate title.

Consider the following possibilities:

Property ownership – What if a property’s entire ownership and transaction history was immutably recorded and readily accessible by the general public on a distributed ledger? Blockchain enables such a system, where all data pertaining to a property or owner may be easily verified and accessed by the buyer, seller and trusted third parties. Furthermore, information asymmetry may be eliminated theoretically assuring provenance of title, transfer, deed and liens. Domestically, this may reduce human error or the need for redundant database systems. Internationally, it could stymie corruption and promote participation in formalized systems.

Contracts 2.0 – Blockchain enables the use of “smart contracts” – computer protocols that can emulate contractual clauses in order to verify or enforce the performance of a contract. These “self-executing” agreements can automate certain processes of a real estate transaction (i.e. escrow services) while providing additional assurances to the participants (i.e. validate identity), in turn shortening the life-cycle of a deal and reducing associated risks and costs.

The Future is Here – According to Coindesk, a world leader in news and information on digital currencies, venture capital investments in bitcoin and blockchain-related start-ups has surpassed $1.1 billion dollars ($380 million of which was raised in 2016 alone), making it clear that the private sector believes in bitcoin and blockchain. In fact, the list of growing blockchain-based companies includes real estate title recording start-ups, such as Ubitquity (U.S.), ChromaWay (Sweden), Bitland (Ghana), and Bitfury (Republic of Georgia). Most recently, on July 18, 2016, Xinyuan Real Estate Co., a major Chinese real estate developer and property manager listed on the NYSE, announced that is has launched the first blockchain-powered real estate finance technology platform in partnership with IBM.

While Blockchain technology offers these and other exciting prospects for the future, introducing and integrating such a disruptive framework in an entrenched, administration-based industry such as real estate will require tireless commitment from forward-thinking, influential leaders. Legal reforms need to be introduced to address blockchain innovations, such as legally recognizing the authenticity of digital proofs of ownership. While it may be too early to predict when and how blockchain will change the real estate industry, the possibilities are too exciting to ignore and steps can be taken now to prepare for the inevitable transition to blockchain-based systems.

Learn more about blockchain for real estate at MIT Real Disruption: Real Estate Blockchain on Thursday, October 6, at 7:30 AM in the Fort Point Room at Atlantic Wharf, Boston. MIT Real Disruption is an ongoing series of conferences, hosted by the MIT Center for Real Estate, that highlight the intersection of disruptive technology and commercial real estate. For more information: www.RealDisruption.com.

Write to Avi Spielman at .(JavaScript must be enabled to view this email address) and Steve Weikal at .(JavaScript must be enabled to view this email address)

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Avi Spielman is an associate editor of the Harvard Real Estate Review, author of Blockchain: Digitally Rebuilding the Real Estate Industry and founder of Nashville-based real estate development company Joon Properties. He holds a B.A. in Philosophy from Vanderbilt University and a Masters of Science in Real Estate Development from MIT.

Steve Weikal is the Head of Industry Relations for the MIT Center for Real Estate (MIT/CRE), Director of the MIT/CRE Real Estate Tech HUB, and Founder of the MIT Real Disruption conferences. He has Master’s degrees in Real Estate Development (MSRED) and City Planning (MCP) from MIT, and a law degree from Suffolk University Law School.