As more and more media outlets expound upon the rise of cryptocurrency; consumers and investors are looking at new ways to get involved. With increased optimism in cryptocurrencies like Bitcoin, those investing are speculating on the potential growth and use cases of this market that may not even come to fruition for another 5-10 years. One area of discussion is in the emerging PropTech, or Real Estate Tech market. As an innovator in Real Estate Tech, REX is always monitoring new trends, so we went to our VP, AI & Machine Learning, Andy Barkett, to weigh in on the rise of cryptocurrency in real estate.
Overall Trend for Cryptocurrency in 2018
- With the rise of cryptocurrency value, crypto-investors will be heading into 2018 with more valuable assets. From car dealerships to eBay sellers, look for more vendors of all types to start accepting cryptocurrencies as payment. But, the vendors won’t necessarily want to speculate on future value and will look to trade crypto back to cash. That could put some downward pressure on crypto prices, but will ultimately turn a short-term bubble into a long-term rally as crypto becomes useful and viable.
Potential Direct Applications for Cryptocurrency in Real Estate
- New Ecosystem: Investors have started looking at cryptocurrencies and smart contracts as a new ecosystem. They don’t just care about the price of the coin or token, but about what kind of ecosystem it enables. For example, using bitcoin to buy a house is interesting. But, using ethereum smart contracts to reduce title transfer risk for buyers, is much more interesting.
- Government Usage: Look for governments to get more involved in 2018, using the blockchain and smart contracts to finally digitize government records. Often centered around property records, these government use cases should further boost use cases for smart contracts and the blockchain in real estate.
- REIT: Another fascinating opportunity created by blockchain-powered smart contracts is they facilitate fractional ownership of residential real estate. Currently, changing ownership can be time consuming and costly. The paperwork to sell 2% of a house to one’s brother or child might cost $2,000. The blockchain makes these transactions as simple as recording a number with a decimal point, and smart contracts make ‘control’ issues easy to address; the rules go along with the contract or token.
- Financial Institution Acceptance: How will financial institutions adapt? Will they start accepting mortgage payments in BTC? Maybe, but such transactions today are just gimmicks. The money is immediately converted back to cash. I think the route that crypto will take into the big mortgage banks will be a different one – I think that what will happen first is that mortgage banks will start using blockchain based systems for verifying titles, deeds, income, and other parts of their ‘due diligence’. Similarly, they’ll start looking at blockchain based replacements for escrow and title insurance services, especially on sales of bank-owned properties. As the blockchain catches on in all of these niche applications, it will eventually become possible to ‘pay the mortgage’ or even ‘buy a house’ completely on the blockchain.
Ultimately, it’s possible that an entirely new class of investor will arise. Blockchain, smart contracts, and cryptocurrencies, will enable a democratization of real estate transactions to take hold. There will also be fundamental questions to answer about how real estate is approached. If a house is represented by “100 HouseTokens”, and you can buy any fraction of a HouseToken at any time, do you actually need a mortgage? Maybe I simply start buying tokens on a house I like, a few at a time, and when I reach a ‘controlling’ interest, I can decide whether to live there myself. Questions like this will continue to arise as these new investment avenues become more commonplace in the real estate sector.