Amid the institutions that are currently facilitating the world trade such as corporations and legal systems, there is a new innovative institution that is significantly changing the way how the community can exchange value and is named “ The Blockchain Technology ”.
Blockchain Technology is a decentralized database able to store a ledger of assets and transactions across a peer to peer network. (Bettina Warburg, 2016)
Those assets and transactions are secured through cryptography. Their history gets locked over time in blocks of data that are subsequently cryptographically linked together and secured. Consequently, through this process is possible to create an immutable, unforgeable record of all the transactions across the entire network. This record is subsequently replicated on every single computer device that uses the network. Furthermore, the Blockchain Technology can be described as an open infrastructure that stores different types of assets such as the history of custodianship, ownership, and location for assets like the digital currency Bitcoin, other digital assets like a title of ownership, a certificate, a contract, real-world objects, and personally identifiable information.
The following essay will examine the causes and effects of the use of the Blockchain Technology related to a specific asset: the Real Estate Industry.
PROPERTY FRAUDS – INDIA CASE STUDY
India has looked into Blockchain Technology as a possible solution to complicated land registry problems as they have many issues with the property frauds. In 2013 Mumbai reported 173 cases of property fraud. Furthermore, during the same year New Delhi has also reported 181 cases of property fraud. (Rajarshi Mitra, 2018)
To counter this issue the governments of Andhra Pradesh and Telangana have partnered up with a Swedish Startup ChromaWay to put their Land Registry on the Blockchain Technology. One of the many interesting innovations they brought is the introduction of cryptographically secure digital fingerprints.
To give a better idea of the new technological method, follow below the description of the process in a few steps. A landowner hashes the geo-coordinates of their land along with the description. This hash is then associate to the owner’s ID and the result is hashed again and added to the blockchain. Since hashes are always a unique value, every plot of landowner will have a unique ID when linked together. Furthermore, because of the immutability of the blockchain, no one can tamper with the records. Consequently, this creates a system of verifiably owned land that can easily be transferred, bought and sold in a cryptographically secure manner.
HIGH COST OF TRANSACTION AND SLOW TRANSACTION
Real Estate is an incredibly complicated Industry. Either the selling or buying transactions come from a land or a home, it is an ordinarily time-consuming, complex, and risky operation. Above all else, it can also be considerably expensive. Home Inspectors, Real Estate Agents, Banks, Local Governments: all of those figures need to get involved in the process to check and approve the transaction before it can get done. And obviously, all of them take a commission to conduct the transaction. (Blockgeeks, 2018)
To outline how Blockchain Technology can make a difference in the process of buying and selling Real Estate, it is important to start analyzing the process from the origin.
When buying Real Estate, the rules can be daunting. They vary wildly depending on which city, state or country the client is looking to buy, what type of property he is trying to buy and how he is going to buy it. All of these complexities and regulations require multiple intermediaries and consequently, the client has to pay a large part at every single turn because it is just too complicated for him to navigate alone. That is the point where the Blockchain Technology can make a difference.
By codifying local, provincial and national housing rules and regulations on the blockchain, smart contracts could be used to drastically simplify the process. A prospective seller would simply send a location, desired price, and some other ownership information to the contract. Then, extracting from the database of rules and regulations around the sale of real estate in the seller’s location, the smart contract could generate contracts, deeds, tax records, and anything required to make a sale of the house instantly. A prospective buyer could then meet with the seller, agree on pricing in terms and then send their digital signature to the contract, verifying their purchase and updating all the documents as required. The process would possibly require some back-end work having provable and verifiable identities on the blockchain to ensure that the transactors are who they say they are and there can be no disputes with regards to signing. Similarly, the land would need to be securely and clearly registered on the blockchain to ensure easy transfer of ownership.
HOW BLOCKCHAIN CAN AVOID PROPERTY FRAUDS AND CREATE TRUST
Identity, ownership, and verification are three fundamental elements required to establish trust. Blockchain Technology permits users to prove their identities through the use of digital signatures. In fact, each user has a set of two digital codes, capable to prove identity and to authorize a transaction. Furthermore, Blockchain Technology protects the ownership of digital assets through the “cryptographic hashing” technology. A cryptographic hash is a piece of data that has been transformed into a shorter piece of data through a math function. (Doug Galen, 2019)
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In the Blockchain Technology, each block contains a hashed representation of the data in the previous block. If any previous piece of data is changed, that change will reflect throughout the chain and the system will be able to identify and consequently reject fraudulent attempts to manipulate the data. In conclusion, Blockchain Technology can solve the verification problem by allowing users to publicly verify that a transaction is true, without the need of a trusted intermediary.
NO INTERMEDIARIES IMPLY FASTER AND COMPETITIVE TRANSACTION AND WIDER ACCESSIBILITY IN THE REAL ESTATE MARKET
Institutions like Banks, Lawyers, and Brokers have been long part of the Real Estate Industry. However, Blockchain Technology is making a relevant impact in their roles and participation in Real Estate transactions. There are now new platforms capable to cover functions such as payments and legal documentation. As a result of the introduction of those new platforms and marketplace, buyers and sellers are, therefore, able to save their money from commissions and fees charged by the regular intermediaries. Furthermore, this innovation can make the process quicker as the back-and-forth between these intermediaries gets cut out.
An example of innovative trading platforms able to support Real Estate transactions more comprehensively than regular Real Estate Industry has been introduced by ATLANT.
ATLANT has developed a platform that uses Blockchain Technology to simplify transactions related to Real Estate and Rental Property and give wider accessibility to anyone who is keen to take a position in the Real Estate. By tokenizing Real Property, ATLANT consent to trade the assets similarly to stocks and permit to complete the transactions entirely online. In fact, it allows the sellers to tokenize assets, handling them like stocks sell, and liquidating with tokens sale through the platform. The tokens that have been collected can then be exchanged for fiat currency, with the buyers that own a percentage stake of the property. (Joe Liebkind, 2019)
The aim of the research was to determine the causes and the related effects of applying Blockchain technology into the Real Estate Industry. After analyzing two specific causes and effects of the Blockchain Technology in the Real Estate Industry, the conclusion that has been derived is that a decentralized exchange technology through a distributed ledger can build greater trust in the Real Estate Industry. In fact, since information can be verifiable across a peer to peer network making data transparent and immutable, fraud attempts can be lessened. Furthermore, buyers and sellers can have more confidence in conducting transactions and diminish the intermediary high-cost of transactions.
Bettina Warburg, (2016). How the blockchain will radically transform the economy. Retrieved from https://www.ted.com/talks
Blockgeeks, (2018). Real World Blockchain Applications – Real Estate. Retrieved from https://blockgeeks.com
Doug Galen, (2019). Blockchain for Social Impact: Moving Beyond the Hype. Retrieved from https://www.gsb.stanford.edu
Joe Liebkind, (2019). How Blockchain Technology is Changing Real Estate. Retrieved from https://www.investopedia.com/news
Rajarshi Mitra, (2018) . Why The Blockchain Technology Is Going To Stop Property Fraud. Retrieved from https://blog.springrole.com
Uzair, M. M., Karim, E., Sultan, P., & Ahmed, S. S. (2018). The Impact of Blockchain Technology on the Real Estate Sector Using Smart Contracts. Retrieved from https://mpra.ub.uni-muenchen.de