Blockchain: The internet of value
“Bitcoin is Dead — Long Live Bitcoin” read the headline to a VICE News story in 2014, when the cryptocurrency was worth about $584. This year, when bitcoin was trading for $13,997, Bloomberg published a story entitled “Sorry Bitcoin Fans. Digital Currency is Still a Dream.” In fact, bitcoin and cryptocurrencies, in general, have been declared dead more than 250 times by financial media over the past five years.
Much of the negative reaction is based on bitcoin’s rise as a speculative investment and the idea that no one actually uses it to buy things. Oppositely, bitcoin can be used to buy everything from rap albums to diamonds and there are advantages of using cryptocurrencies instead of traditional currencies.
For example, take a real estate transaction – the efficiency, speed, and security with which you can close on a property sale gives cryptocurrency a natural appeal to real estate investors.
To date, the handful of real estate transfers using cryptocurrency have been mostly single-family homes, but that is changing. In September 2017, a homebuilder represented by Cushman & Wakefield, listed an undeveloped multi-family parcel near San Diego with a preference for payment via bitcoin or Ethereum. In December 2017, New York-based REALECOIN announced what it claims is the world’s first real estate fund for cryptocurrencies.
Even if the doomsayers are correct and cryptocurrencies fall out of favor, their underlying blockchain technology will revolutionize the financial world, starting with real estate.
According to a World Economic Forum report, “Blockchain, or distributed ledger technology, could soon give rise to a new era of the internet even more disruptive and transformative than the current one. Blockchain's ability to generate
unprecedented opportunities to create and trade value in society will lead to a generational shift in the internet's evolution, from an internet of information to a new generation internet of value.”
So how does it work? A blockchain is a digitized public ledger for keeping track of encrypted financial transactions. Verification and record-keeping of transactions aren’t done by a person, but by the blockchain itself. The result is an extremely efficient method for transferring capital that is completely secure from a “where’s-the-money-now” perspective, with information that can only be accessed by authorized people, such as parties to the transaction and government taxing bodies.
“In a blockchain transaction, you can set up a triple-blind verification process that protects information on individuals and buildings,” said Kevin Nolen, a senior associate in Cushman & Wakefield’s San Diego office with expertise in cryptocurrency deals. “At the same time, a corporate tenant using cryptocurrency can see where the money is going, whether it’s for opex or capex, and other key information.” Thus, blockchain is more transparent than traditional currencies in situations where transparency is needed, while retaining confidentiality in other situations, he said.
Governments around the world have had varied responses to the use of cryptocurrencies. On one hand, countries worry about the value of their own fiat currencies once a global alternative is widely available; on the other hand, a country that bans cryptocurrency transactions might be operating at a competitive disadvantage on the world stage – not to mention that such bans are hard to police and could fuel blackmarket transactions.
As of now, most of the world’s major economies allow cryptocurrency transactions in some form, and the general direction seems to be greater acceptance of these transactions over time. Regardless of the fate of bitcoin, however, blockchain is poised to revolutionize capital flows in the real estate sector.
The above is an excerpt from the Occupier Edge Sixth Edition. Download the full report here.