Cryptocurrencies and smart contracts could improve transparency, speed and security of property transactions
In recent weeks, stories about bitcoin have become more dominant as the digital currency’s value has skyrocketed, almost tripling in the last three months from $2,000 per digital coin in mid-July to just over $5,600 per coin today.
The story is even more dramatic if you consider that bitcoin—a cryptocurrency backed by an online ledger called the blockchain—was worth less than one cent when it was released to the public in 2009, and less than a dollar when it went slightly more mainstream in 2011. That means that early investors who converted a small sum of government-backed currency into bitcoins in its first two years are now millionaires.
Investors who’ve watched the value of their bitcoin holdings grow are now looking to divest those funds into real estate and other tangible assets, said Mike Komaransky, an early bitcoin investor and former head of trading at Chicago-based Cumberland Mining, a company that helps people buy and sell cryptocurrencies for cash.
This explains, in part, why there are more luxury properties being purchased with bitcoins and offered to buyers who want to transact in this way in cities including Los Angeles, London and Miami. Developers are also getting in on the action, and notably accepting bitcoins for new projects in New York and Dubai.
“Initially, we expect to see a small number of sales in bitcoins,” said Magnum Real Estate Group president Ben Shaoul, who recently announced he’ll accept this cryptocurrency for deposits and purchases in his new East Village conversion project called Liberty Toye. “But over the next five or 10 years, I could see up to 25% of payments happening in bitcoin or a like digital currency.”
“It’s going to be the future,” he continued, “and a lot of developers will start to adapt and offer the same option.”
The benefits of using cryptocurrencies
Experts agree that we’re at the beginning of a major shift in residential real estate as more and more people are looking to engage in property transactions using cryptocurrencies, which offer quicker, cheaper and more efficient transactions, among other benefits.
“While traditional real estate is very paper based and involves a lot of third-party players, including brokers, escrow agents and banks, the blockchain allows people to transfer funds, property titles and data in a more peer-to-peer manner that is digital and open source,” said Ragnar Lifthrasir, the Southern California-based founder of the International Blockchain Real Estate Association (IBREA) and Velox.RE, a blockchain real estate startup focused on collecting real estate data and streamlining the title transfer process.
The cost savings come not only from cutting out these third parties, who need to be paid and can slow down the process, but also from reducing transaction fees to the 1% required for bitcoin transfers.