Blockchain, the technology behind Bitcoin, is a ledger system in which records take the form of time-stamped blocks and are linked together in a decentralized database. Since blockchain’s open source code was made public in 2009, it has been utilized in a variety of ways. Future applications could fundamentally alter real estate transactions by combining ID verification and escrow into one “smart contract”. Here’s how.
Blockchain Technology in Real Estate
Currently, blockchain’s “smart contracts” are used to transfer cryptocurrencies like Bitcoin. But the possibilities are nearly endless. If someone agrees to purchase goods, the blockchain can be used to execute the contract without use of a middleman. A protocol programmed into the blockchain transaction automatically pays funds on a given date if the goods are delivered.
Smart Contracts, Escrow
These “smart contracts” could alter real estate transactions by combining ID verification and escrow. Rather than relying on a title company, buyers could make purchases in cryptocurrency. The blockchain would automatically send funds to one party and a title to another – no escrow needed. The cryptocurrency would be held within the virtual block, much like an escrow account.
Because all cryptocurrency transactions are protected by blockchain protocols and cryptography, fraud is nearly impossible. That should be music to the ears of the real estate industry, which suffers wire fraud at an alarming rate. Real estate transactions have many moving parts, which means fraud can occur at many levels. Fraudsters can forge closing documents, IDs, deeds and banks statements or pose as the title company and get the buyer to wire their funds to the wrong account. Blockchain-based digital certificates would be linked to a single real estate property in the system, which would make it impossible for an actor to sell a property they don’t own. It would also make it impossible for a fraudster to put themselves between the buyer and the title company to steal the funds.
Compared to transactions in other industries, real estate transactions are relatively cumbersome. Numerous intermediaries must be utilized and paid, increasing the possibility for mistakes, increasing the time each transaction takes, and increasing the cost for the consumer. By assigning each property a unique digital address that includes all physical, financial, and historical transactional information, blockchain technology could significantly reduce the number of third parties needed to move a process forward and reduce transaction time from days or months to minutes.
As it stands, all of these perceived advantages are academic in nature. The infrastructure to carry them out does not yet exist. But if the potential benefits prove true, it is only a matter of time before blockchain-like technology makes its way into real estate transactions.
Lakeside Title is a tech driven title agency that is consumer focused. If you have a questions on Blockchain or need to have a smooth technology focused closing, give us a call today!!!