Bitcoin and the blockchain: the inevitable proptech revolution

 

Knowledge of the blockchain was once restricted to a select few members of IT crowd. Whilst the technicalities of the blockchain still remain a mystery to many, there is growing awareness of its implications. Industries of all types, from financial services to manufacturers, from retailers to healthcare, are waking up to its disruption potential. The real estate industry is no exception although the seismic change that it will reap remains underestimated.

The value proposition for real estate

In very simple terms the blockchain is record of data ownership which is distributed across multiple locations. The ledger is open source meaning that it is accessible to all. Therefore establishing who owns what, and transferring ownership between different entities, is far easier than for private ledgers such as the Land Registry.

The application of the blockchain to real estate will mean quicker and more secure occupier, landlord and investor transactions. It will mean greater efficiency and reduced costs. Its biggest selling points though are transparency and incorruptibility. As data is distributed across the entire network a full, chronological ownership record is maintained which everyone can view. The computing capacity required to override the network effectively renders corruption impossible.

It is no coincidence that countries heavily impacted by corruption and geopolitical risk are leading the way in applying the blockchain to real estate. The Ukraine, a country rated as having ‘low transparency’ in JLL’s Europe Real Estate Transparency Index 2016 (see here) has set up a blockchain-based decentralised state property auction. Estonia has tested Keyless Signature Infrastructure using the blockchain which allows citizens to verify government records and reduces the risk of tampering. More countries will follow suit in response to public demand for transparency and property security.

Smart contracts using the blockchain will automate the facilitation, verification and enforcement of contract negotiations. No third parties like lawyers, banks or government authorities will be needed to confirm the validity of the contract. The cost, efficiency and speed implications of smart contracts are sizeable.

Bitcoin to become the basis for transactions

The puzzle-based crypto-currency Bitcoin is underpinned by the blockchain and played a large part in bringing it to prominence. Bitcoin is still more likely to be considered the preserve of dodgy dark web users rather than real estate occupiers. But bitcoin is holding its own with the big boys of the currency world. Its current global value is estimated at over $14bn according to Coindesk and it is on an upward tack – see Graph 1.

Graph 1: Bitcoin to USD exchange rate

Bitcoin to USD exchange rate_v1Source: Coindesk

Bitcoin is becoming mainstream. It is now accepted at companies like Microsoft, Dell, Subway, Wholefoods and Tesla. Major banks are reputedly stockpiling bitcoin (see here). It is a truly global currency, using military grade encryption to maintain security. Direct peer-to-peer transactions in a single currency cut-outs the middleman, and their fee, and the additional time drag of clearing houses, checking and other inefficiencies.

Businesses and their real estate portfolios are global, transcending national borders and currencies. Bitcoin offers a hedging solution against local currency fluctuations and an easier way to assess portfolio performance on a single financial basis. In uncertain times when politicians and referendums reap such mayhem on national currencies, bitcoin is increasingly viewed as a safe haven. Expect its use in real estate transactions to rise and, perhaps in time, become the default property trading currency.

Hurtling towards a blockchain enabled world

The evolution of the blockchain and bitcoin is occurring at a rate of knots, however it is bubbling away largely hidden from view for now. As with the adoption of other technologies take-up is likely to hit an inflexion point soon, after which usage will expand exponentially. JLL has been exploring the impact of technology on the future workplace (http://ridethewave.jll.com/). Our work emphasises the need for businesses to ready their real estate for tech-related change. It would be prudent for the impact of bitcoin and the blockchain to form part of forward-looking corporate occupier technology strategies too.

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