First, we had the Internet, then the Mobile Internet…the next big wave in technological platform transformation could well be Blockchain Technology! Whilst many people will associate Blockchain with cryptocurrencies and Bitcoin in particular, it is far more versatile and sophisticated than merely offering an electronic currency trading platform. Today, we shall dig a little deeper behind the Alpha and Beta test and use cases of Blockchain technology to see how and where it could be used in property. If you are any kind of middleman operating in or related to the property sector, you might want to pay close attention…or simply run and hide as you wish…
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Transcription of the show
Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and as always, it’s a pleasure to have you join me on the show again today.
First, we had the Internet, then the Mobile Internet…the next big wave in technological platform transformation could well be Blockchain Technology! Whilst many people will associate Blockchain with cryptocurrencies and Bitcoin in particular, it is far more versatile and sophisticated than merely offering an electronic currency trading platform. Today, we shall dig a little deeper behind the Alpha and Beta test and use cases of Blockchain technology to see how and where it could be used in property. If you are any kind of middleman operating in or related to the property sector, you might want to pay close attention…or simply run and hide as you wish…
Property Chatter
Last time out, we heard about Blockchain technology from Jakob at Brickblock. He described Blockchain as ‘a big database recording transactions’, which is pretty much the simplest explanation that I have heard so far!
What is the Blockchain?
So, building on Jakob’s explanation, the Blockchain can be described as a decentralised ledger that records transactions. That’s what he meant by a big database!
However, because the Blockchain is also essentially a computer program, that means that it can be coded using a computer language. And, because it can be coded, it can be programmed to execute actions based on certain rules and conditions, using ‘If-Then’ type of logic.
Here are a couple of simple examples:
IF the price of a barrel of oil falls below $50, THEN buy 10,000 barrels.
Or
IF a short-stay guest has deposited funds of £1,000 into our bank account, THEN give them the door access code to our apartment.
Or to add a little more complexity…
IF the online auction deadline has past AND the maximum bid exceeds the reserve price THEN execute the sale of the property to the highest bidder.
It is this type of logic that enables what is known as a ‘Smart Contract’, which is a digital record of a transaction that is executed automatically on the Blockchain based on certain rules and conditions being met.
In most Blockchains, whilst there are some private ledgers, many are what are known as public ledgers, which display certain details of all current and historical transactions on the ledger publicly. The use of cryptography can help to protect certain sensitive information from being made public by masking it in hard, if not impossible to decipher, code. This notion of smart contracts was attributed to Nick Szabo back in 1994. Nick Szabo, and possibly more famously, Satoshi Nakamoto, were so-called cryptographers that were founders of cryptocurrencies, including Bitcoin. Bitcoin at the simplest level is a record of transactions or a transfer of a digital currency from one party to another using the Blockchain and is just one of the first practical applications of Blockchain technology.
As Jakob explained last time, further applications of the technology are still in alpha and beta mode, or in other words, still in early trials or among the first-use applications and roll-out of the technology.
However, at the time of recording, here are just some of these early use applications of Blockchain technology that are relevant to property.
Cryptocurrency-enabled payments
In 2014, Cai Capital were identified as the first company to facilitate the sale of property priced in Bitcoin. In 2017, a Dubai developer called the Knox Group of Companies announced that they would accept payment for an off-plan apartment in Dubai in Bitcoin. In late 2017, a UK developer called Go Homes claimed to have been the first globally to actually sell a home using a cryptocurrency…if not the first globally, they may well have been the first in the UK or Europe at least. Also last year, a housing provider called The Collective, announced that they would accept rent payments in Bitcoin. These are all examples of using Blockchain technology in the form of cryptocurrency or payments, which is not that surprising given the fact that digital currency is one of the first real applications of Blockchain technology, but are there other use application examples we can cite? You bet there are!
Property exchange platforms
A platform called ClickToPurchase say they have executed over £200m of property transactions across their Blockchain-enabled online property exchange platform. This sort of platform allows sellers to have speed and certainty in their sales transactions between verified and trusted parties, using electronic signatures with the information recorded on a transparent record or Blockchain.
Property trading and fund-raising platforms
Brickblock, Harbour, TrustMe and the Pi Labs backed PropCoin are all examples of Blockchain trading platforms that allow an asset-backed token, including property, to be traded. This opens up the concept of ‘fractional ownership’ of substantial sized property transactions to the masses using asset-backed digital tokens underpinned by property and other assets. It also provides an alternative fund-raising medium and a secondary resale market of part shares in a property asset. Imagine raising money for your next development from multiple micro-investors located all across the world, or investing as little as say £1,000 in a part share of a shopping centre to illustrate the point.
Rental listing and management platform
Rentberry is a US company that offers long-term rental listings and transactions built on Blockchain technology. This allows a bidding and execution process of rental properties to be executed based on smart contract-enabled conditions. Interestingly, there are still property viewings or open days, which potentially highlights how this technology might evolve as a hybrid between online and offline interactions, which could help to build trust in the technology.
Land Registry
Cook County, Chicago along with a start up called Velox RE devised a pilot program in 2016 to record real estate transactions using Blockchain technology for land registry records. Since then, many other States in the USA and countries globally have followed suit with their own Land Registry record tests.
Other areas of property and related industries ripe for Blockchain deployment include:
Insurance - Blockchain technology can help to streamline a few aspects of the insurance sector, such as client verification, underwriting and claims processing.
Legal – Conveyancing is essentially an exchange of information related to a specific property from the seller to the buyer. All of this could be stored on a decentralised database and be accessed, transferred and altered in a matter of seconds through the Blockchain, rather than a couple of months on average as is currently the case. Equally, the use of notaries could be eliminated altogether if identification and documentation can be verified by a computer program on the Blockchain.
Property Finance - What is property finance if not a series of rules and conditions? Sure, we might joke about ‘the computer says no’, but essentially that’s how many financial underwriting systems process loans today. If all conditions can be programmed and checked, then a loan or mortgage could be automatically approved and executed in seconds using a smart contract on the Blockchain, leaving only those that need a human eye to be referred for a more in-depth review.
Government, compliance & public / personal records – how about all those right to rent checks becoming automated in the Blockchain then? Yep, it could be achieved when identity information is stored on a Blockchain. Or, how about credit information and histories stored in one central repository for instant access instead of multiple credit agencies charging a fee?
Next, let's consider how combining technologies might bring enhanced capabilities
Internet of Things – imagine remote devices automatically populating the Blockchain with information that can then be recorded and acted upon.
Artificial Intelligence – then imagine using AI to execute actions based on the information stored on the Blockchain. This is in essence what a smart contract does already, what I am imagining is another layer of sophistication over and beyond the simple rules based smart contract. For example, how would you like to be able to pick the next property hotspot…down to street level granularity in real time? It could be feasible.
So, what are the main pros and cons of Blockchain technology then?
Pros
Speed – how does 15 seconds to process a transaction sound? However, if you have ever tried to send crypto across certain platforms, that 15 second transfer speed does not always bear out in reality and that can be a problem with certain more instant transaction requirements for example. But, when you consider a conveyancing or mortgage process of several months, 15 seconds sounds mightily quick doesn't it?
Cost savings through disintermediation – or cutting out the middleman and / or eliminating inefficiency in processes leads to reduced fees and processing times, which saves money.
Open, transparent and accurate – a distributed ledger is a public record of all transactions and can be viewed with multiple validations being required to verify the accuracy of and then change information.
Automation – rules and conditions mean transactions and contracts can be automatically executed, which provides certainty.
Cons
Trust – It should be a positive, but it’s not at the moment! The idea of a decentralised store of private information does need better explanation…it’s not the same as our private details being made public, as only certain info would be shared that way due to the cryptography behind the Blockchain. But still in these data privacy-conscious times, we need to ensure that our personal data and private information is stored safely and securely. At the same time, new tech also opens up new ways for fraudsters and criminals to scam innocent and naïve consumers.
Ownership – everyone owns the Blockchain…or nobody does…its really hard to say! So, who will foot the bill and take control for developing a decentralised system?
Energy usage – we have seen with cryptocurrencies that a LOT of electricity needs to be used in order to continuously validate the ledger…is this sustainable and necessary with the wider Blockchain? Thankfully, not as much. However, somewhat linked to this is the fact that blocks get repeated several times across the Blockchain by several different parties, which is kind of a duplication of activity, data and therefore workload and energy usage.
Resistance – the status quo might not want to be replaced or might feel threatened by the Blockchain! This includes the banks and Governments alike. But, resistance can also come from the general public in terms of low adoption as well. Again, using a crypto example, if you have tried to get your head around how the trading platforms and storage wallets actually store your cryptocurrency, then you will have seen that it is not exactly simple to understand and operate and that will need to change before it receives mainstream approval and adoption.
Many of the people that I have spoken to or heard from during this series have recognised Blockchain for its potential but have also been quick to point out that it is a long way away from being an everyday technology ready to change the world in the very short-term. In fact, most commentators are suggesting the biggest changes will come in the period of 5-10 years from now, so it is still a way off being mainstream. That said, I would not be surprised if it suddenly took off either.
I personally believe that Blockchain is capable of being as big as the Internet if we get it right. If it does take root, it has massive potential to improve our property investing and developing activities, our general workplace and business activities and our personal or home lives too. It might just be a slow burn though, so let’s see how it unfolds.
I shall leave it at that for this time. As you might have gathered, we are starting to draw the PropTech series to a close now and so the next couple of episodes will allow us to look ahead a little and speculate, along with drawing some conclusions from the here and now and potential PropTech as a whole. So, do stay tuned for the final couple of weeks to see it out with me won’t you.
In the meantime, the show notes can be found over at www.thepropertyvoice.net or if you want to talk about anything from today’s show, receive an intro into one of my guests or just talk property investing, email me at podcast@thepropertyvoice.net, I would be happy to hear from you!
Once again, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.