by Shaun Brodie, Senior Director, Head of Occupier Research, Greater China
By now, most of you are familiar with the term blockchain. You probably heard about it in reference to the digital currency Bitcoin, which was its first application. But did you know that Bitcoin is only one of about 700 applications that use the blockchain operating system today?
What is Blockchain? How Does Blockchain Work?
A blockchain is a type of distributed ledger or decentralized database that supports and provides a constantly expanding inventory of records, termed blocks, which are fortified against alteration and adjustment. Each block possesses a timestamp and a link to a previously created block.
As it operates, a blockchain effectively serves as a public ledger for all transactions. Every user is able to link up to the network, post new transactions and authenticate transactions.
Picture a spreadsheet that is duplicated thousands of times across a network of
computers. Then imagine that this network is designed to regularly update this
spreadsheet and you have a basic understanding of the blockchain. Information held
on a blockchain exists as a shared – and continually reconciled – database.
A dollar bill provides a good analogy for how blockchain technology works. If handed
a dollar bill, you have no idea where that dollar bill has been or what it has purchased
in the past. Blockchain can provide a history of where that dollar bill has been, what
transactions it has been used in, and where and what it’s been traded for to better
identify its worth and value.
Blockchain & The Future of the CRE Industry
If adopted by commercial real estate, the potential impact of blockchain on industry processes and practices could be enormous. Just like that dollar bill, the blockchain could provide information regarding all buyers, sellers, title work, reporting, lease comps and vendor work on any individual commercial property. Having this information at your fingertips could cut out paperwork, enhance market transparency and shorten the speed to
transact from days/weeks/months to minutes or seconds.
With the digitization of smart real estate contracts, which have been designed to replace leases, blockchain could:
- Enable a commercial property to have digital signature containing details, such as building, performance (including rental and occupancy rates) and legal information. This information could be accessed online by authorized parties in seconds.
- Allow for commercial real estate deals to transact in seconds, rather than days, weeks, or months.
- Better facilitate the commercial property sales and/or leasing process, once a deal has been concluded.
Not only will real estate transactions begin to resemble the buying and selling
of stocks/commodities with blockchain, but properties in bustling areas could change hands many times a year, many times a month, or even many times a week, depending on the strategy.
In addition, as publicly-accessible ledgers, blockchains can make all kinds of record-keeping more efficient. Property titles are a case in point. They tend to be susceptible to fraud,
as well as costly and labor intensive to administer.
To this end, a number of countries are undertaking blockchain-based land registry projects. For example, in Sweden, the government land registry is already testing all land titles and
transfers on blockchain. It aims to make property purchases quicker, cheaper and more secure by holding all title information digitally and enabling virtual transactions.