Could this revolutionary technology change the face of Canadian real estate as we know it?
No doubt, you've heard of 'cryptocurrency'. What began over ten years ago, as essentially an interesting proof of concept for digital currency, has exploded into one of the largest new developments in investing.
Now, cryptocurrencies have reached a new peak of cultural awareness and saturation and nearly everyone has heard of them, in some capacity. But what does crypto mean for real estate professionals, investors, and the real estate industry?
What is cryptocurrency?
Cryptocurrency is basically to cash what email was to paper mail. It represents a new paradigm for digital assets that are decentralized from any financial institution or commodity.
Though digital and intangible, most crypto uses what is called distributed ledger technology, more commonly known as the blockchain: a public ledger of all transactions and ownership. Every transaction in the network must be checked against the larger network of thousands of blockchain nodes, making tampering practically impossible and providing reliable proof of ownership. The blockchain is one of the most popular innovations of crypto and sees use beyond the world of finance.
Crypto's value isn't simply made up, either. Cryptocurrency derives value from its production. Most crypto is mined, a process that essentially converts computational effort (and, therefore, actual energy) into new coins for the blockchain.
Beyond the technology, crypto works essentially like any currency. It can be used to buy and sell goods and has an exchange rate with other world currencies. However, most people these days hold crypto as a speculative investment rather than for its utility as a currency.
Can I buy real estate with crypto?
Yes, and no. Firstly, crypto is an easy enough investment to exit from. If you have a significant investment in crypto and want to take out some of your funds to put towards real estate, exchanges will allow you to convert cryptocurrencies into dollars that you can then use for a real estate purchase.
Buying real estate with crypto directly is another story. There are brokerages that claim to help you buy real estate with crypto, but they essentially do the same conversion process. The fact is that our banking and real estate systems work on Canadian dollars, and have almost no integration with crypto. It would be possible in theory to reach a private real estate deal with a particularly tech-savvy seller who is willing to sell for crypto, but this situation is unlikely. Furthermore, you would either need to pay the entire cost upfront or still pay a mortgage in Canadian dollars.
In addition, most people don't feel it's worth conducting large transactions in cryptocurrency anyway, as it is so volatile. For the buyer, you may find that your crypto would have soon been worth far more than when you made the purchase, and for the seller, you may find that the amount you received for your home quickly became less than you thought.
Other uses for crypto in the real estate industry
There are various ways that crypto can be useful for real estate. Here are some of the current and theoretical uses for crypto in the world of real estate:
* Faster and more efficient real estate transactions
With the help of crypto, the real estate transaction process can be made more efficient. Real estate transactions can be made quickly, remotely, at any time, and from anywhere - a significant speed benefit over the traditional banking systems. Crypto technology can even automate the payment of fees, and reduce the need for some third parties.
*Blockchain deeds, property registries
Property registration for real estate can be a complicated process these days and can be subject to fraud and disputes. A blockchain system of property registry could make it easy for anyone to see records of property ownership, who owned it before them, how much it sold for, and when.
In fact, this has some real-world precedence, with Sweden's own national property registry experimenting with the blockchain for property registry and sales as far back as 2016.
*Transparency and decentralization of the real estate market
One feature of a blockchain is that it is a public record. This might make some concerned for privacy, but it also allows for absolute transparency in the industry and prevents any fraud or shady institutions mettling with the market and increases trust for consumers.
*Tamper-proof smart contracts and records
When it comes to real estate, a lot of contracts are involved between the various parties. The use of blockchain could ease the creation of smart contracts and help them get signed faster. In addition, any information stored on the blockchain about smart contracts or records would be reliable for years to come, as any tampering would be near impossible.
For renters, leases could be signed and paid on the blockchain, which can avoid any disputes about paid rent or contract terms.
Through a process called tokenization, real estate assets can be represented as digital assets that can be divided and traded freely, just like stocks in a company are traded in the market now. This could allow investors to easily buy and sell fractional ownership stakes in real estate without any complicated paperwork or deeds involved. It can also make real estate investing more accessible and allow groups to collectively pool money to easily become joint property owners.
There are even more uses than what was mentioned here, and new ideas are being explored all the time. Overall, crypto and blockchain technology could significantly change the way our real estate systems Function.
What is the future for crypto integration?
The long-term dream of cryptocurrency has always been widespread adoption to rival or supplant the use of traditional currencies. However, in the last 10 years, general adoption has been pretty slow, with only a few businesses willing to accept bitcoin.
Concerns mentioned above about volatility and the somewhat complicated process of securing your crypto, as well as numerous crypto-related scams, have led many to be wary of its use. Though there is huge potential for crypto and blockchain technology, there has yet to be a major issue that demands immediate adoption of its use.
It is possible we will see a slow uptick of crypto in real estate for the next few years, and crypto and related technologies may very well be the future of finance, that doesn't mean property owners need to jump into crypto immediately for real estate purposes. But, for the time being, crypto is still mostly a niche topic in real estate.
(from: Canadian Real Estate Wealth by Corbin Grant, Dec 13, 2021)