- A truly electronic, secure property sale, where paper deeds and title fraud were history
- A digital lease which automatically withdrew rent payments and service charges with no human error and a full audit trail
- A self-governing accounting system where each transaction was automatically balanced and recorded without fear of manipulation
- The amount of investment capital which could be unlocked if everyone had access to the market
- A secure electronic record tied to each corporate or individual identity showing their credit history and other details
- A commercial building where every system was securely connected, adjusting to the needs of its occupants without human intervention
All of these ideas may soon be reality via blockchain technology.
A lot of the commercial real estate community falls into two camps when it comes to blockchain, one group thinks it could revolutionize the way the industry works, and another stopped listening when someone mentioned it involved Bitcoin.
If you’re in the latter camp, you’re not alone. Deloitte recently surveyed senior executives at major U.S. companies and found that 39 percent had very little or no knowledge about the technology.
But of those who are informed about blockchain, 46 percent either have the technology in production or plan to within 12 months, and the majority said not using it would be a competitive disadvantage.
Blockchain isn’t something that’s just being tossed around Silicon Valley, it’s real enough that firms like IBM, Deloitte, KPMG and others are putting lots of time and effort into it. Many other tech-forward real estate firms are also pushing the technology forward, says Ragnar Lifthrasir, Chairman of the International Blockchain Real Estate Association. “In a year people will be surprised at the marquee real estate companies who are adopting blockchain,” says Lifthrasir.
What is Blockchain? – A Primer
At a basic level, a blockchain is similar to a type of database, electronic ledger or transaction history. Each of the pieces of information in the database –known as “blocks” – are stitched together using code into a longer “chain” containing the entire history of that particular item.
As a real-world example, think of a real estate deed. Just like public records available today, the blockchain record for a property would include all of the recent owners, sale prices, transaction dates, etc.
The key part of blockchain systems are the security they create. First, each transaction is encrypted, and because each entry is linked in the “chain” to every one after it, it’s essentially impossible to erase or tamper with the data without changing the code that follows.
The other security-driven aspect of the system is that there is no “central” database where everything is stored that can be hacked. Multiple copies of each chain are distributed across the world. So even if someone tampered with one version of the ledger, the other versions would reject that change. That makes it ideal for any transactional situation.
“I think that the Blockchain paradigm may be leveraged wherever the need for transparent, secure, verifiable information is exchanged across interested parties,” says Leif Maiorini, Cushman & Wakefield Global Technology Director for Solution Design and Delivery.
Bitcoin was one of the first “mainstream” ways it was used, using its own blockchain ledger to track financial transactions. The electronic currency was all over the news when it debuted a few years back, there was even a Bitcoin kiosk in South Station for a short while. Its buzz has now faded, and dozens of other cyber currencies have been created, such as Ethereum, Ripple, and even less serious ones such as Coinye (which was abandoned after rapper Kanye West sued them for using him as a “mascot”).
But whether Bitcoin survives is irrelevant to the larger discussion about blockchain. We’re talking about the technology underneath it.
How Will This Matter in CRE?
There are a few different real estate features which are being targeted for blockchain products. One of the first is the idea of blockchain-driven electronic property registers, which are in development in many stages around the world.
Property Registers, Deeds and Escrow
Cook County in Chicago is testing the concept for title transfers, liens, and other processes – done in parallel to traditional recording – while IBM is testing a more far-reaching approach in Kenya as part of a pilot program with education records and land transfers.
“Some developing countries have no existing system of land transfer and registration, or like Kenya, the current process is painfully time consuming,” says Steve Weikal, Head of Industry Relations at the MIT Center for Real Estate. “That presents an opportunity to create an entirely new system which, in theory, is superior to what’s been built up over the years in Western countries.”
With a fully-secure, verifiable system, two parties could conduct a transaction, immediately, without the need for an independent title agent to verify the transaction. Because the history is easily audited, all parties have confidence in the data being shared, and the time needed to close a transaction is much shorter.
An electronic token could also be used as a real estate title which different parties could exchange online, pushing the process further into the digital realm, where soon paper deeds may eventually cease to be the public record.
“This will happen in the next ten years in my opinion,” says Maiorini. “The diamond industry has similar issues tracking the supply chain of valuable assets through the various parties from mine to merchant. There are already solutions developed that leverage Blockchain technology to address these issues.”
Another “low-hanging fruit” where intermediaries are involved is the escrow process, where blockchain platforms are already being developed to automatically manage security deposits or other needs.
“Funds are held outside the power of either buyer or seller individually,” Lifthrasir says. ”But if they both agree, they sign the Bitcoin multisignature transaction with their private keys, and the funds get transferred.”
The Internet of Things
Blockchain systems also represent the future of the “The Internet of Things (IoT),” Maiorini says, as the number of connected devices continues to grow. Recent hacking issues have put a spotlight on the security issues these technologies face.
“Hacking autonomous vehicles, for example, or aircraft are major concerns as more reliance on technology and interconnectivity become the norm,” he said. “The existing technologies supporting this infrastructure will not be sufficient in terms of volume, authentication, authorization, and transparency.”
Gartner has estimated that by 2020, the Internet of Things will be a $3 trillion market, with 20 billion connected devices globally. Ensuring they are secure will be a priority.
If blockchain has already moved into property recording, deeds, and escrow accounts – can mortgages and full smart contracts be that far behind? What else might blockchain unlock?
If you think all of this seems farfetched, healthy skepticism is fine. But don’t be too quick to judge. In many cases blockchain applications may simply take over behind the scenes.
“In most cases, you will never be aware that Blockchain is at the core of these transactions, much like you do not worry about the database that underpins most the applications and services that are used today to transact business,” says Maiorini.
Think where we were 10 years ago. Would we have ever imagined that people would apply for mortgages on their phones and digital signatures would be so readily accepted for everything?
If nothing else, the next stage in commercial real estate technology will definitely be interesting.