As of Friday, October 13, 2017, the price of just one Bitcoin topped the $5,500 mark. It may have gone up or down depending on when you actually read this RE Blog post, however, it has generated a lot of buzz especially over the last year where one bitcoin was trading at around $1,000 or so. This isn't going to be a bitcoin value post, but rather, a look at how the underlying technology that drives bitcoin is of use and future value to the commercial real estate industry.
The technology driving bitcoin's success and it's security lies in its blockchain technology. In a nutshell, the blockchain is generally referred to as a specific distributed ledger technology (DLT) that is associated with bitcoin, but in an of itself is essentially the same thing; blockchain is a type of DLT. A DLT is a "type of database that is spread across multiple sites, countries or institutions. Distributed ledgers are decentralised in order to eliminate the need for a central authority or intermediary to process, validate or authenticate transactions. Records are stored one after the other in a continuous ledger, but they can only be added when the participants reach a quorum (consensus). Each record is time/date stamped and provided with a unique cryptographic signature, which is designed to ensure the authenticity and integrity of the ledger. All participants view the whole ledger which provides a complete history that is verifiable and auditable" (Carlo R.W. de Meijer via LinkedIn Blog). The main difference in the blockchain, however, is that it can store additional bits of information or set rules within a particular transaction and this is what makes it useful for applications within commercial real estate (CRE).
Blockchain's attractive qualities are that they are near real-time recordations of transactions. Transactions are secure by way of cryptographic proof so transactions can be done direct peer-to-peer without the need for a third party intermediary. Also, the transactions become public history through the distributed ledger so as a result of the numerous checks and balances inherent in the system that they are irreversible, immutable, and unable to be censored or blocked by way of external interference. The decentralized nature of the transactions means that the system is run by everyone for the benefit of all.
So what could be the potential main benefits to commercial real estate? As far as CRE is concerned, the main improvements would be on anything that involves improving the sharing of information, securing that information, saving costs, and improving efficiency. Sounds redundant and something that can be applied everywhere, doesn't it?
Let's start first with the possibility of having blockchain technology used for listing services. A decentralized listing service would give brokers a peer-to-peer database of information and the ability to access and share it without a proprietary company such as CoStar. CoStar has for years been soliciting brokers for sales and lease comps, building data, and transactional information since its inception only to sell the information back to its cooperating brokers and brokerages for exhorbitant subscription fees. With a blockchain-based system, the information would be given back to the brokers and allow everyone to view and share listings, comparables information, building data, etc. for a more unified CRE industry.
Smart contracts (a term first coined by Nick Szabo) based on blockchain technology is another aspect of helping to improve efficiency in the deal process. Basically, the smart contract would act as a delegatory within the contract that would essentially execute portions of the agreement or promises once another act or promise is fulfilled. Or a smart contract can delegate payments at pre-agreed intervals, pay out third parties, etc. all on an automated process that is in line with the terms and conditions of the contract.
Perhaps the most imminent and realistic use of blockchain technology is for property title applications. Currently, property title procedure, data keeping, recording, easily counterfeitable documentation, and exessively redundant costs are making the title industry ripe for something that creates more efficient and safe keeping of information that is easily accessible to pertinent parties. A blockchain-based title application would include things such as a property's chain of title, liens, legal descriptions, tax status, etc. Moreover, the distributed, tamper-resistant nature of the information on the blockchain would allow for more security in fraudulent liens, easements, or recordations on a property's title, rights, or transfers (Brady Dale, Observer, Oct 5, 2016).
With all this being said, blockchain is still a new technology for the CRE industry. This certainly doesn't prove it to be without its faults or an infallible system of the future. But one thing is clear: CRE is overly fragmented and the information is being horded and sold by just a select few players. As real estate brokers/professionals, we are the backbone of the industry and the creators of the information that is being used to create, facilitate, and support the industry as a whole and therefore we need more control and ownership of it. This means decentralizing it for the greater good so that we can securely share the information to get more things done in a productive and efficient way.
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