“Blockchain is going to become the new operating system for real estate,” says Ragnar Lifthrasir, founder of the International Blockchain Real Estate Association and blockchain software company Velox.RE. “So it is vital that the industry understands as much as it can.”
Luckily, adds Lifthrasir, you don’t need to know too much (yet) to be considered a leader.
“If you know even 2% more than the next person, people consider you an expert. It’s not that hard to set yourself apart as being on the cutting edge because so few people are,” he says.
So, if knowing just 2% more than the person sat next to you could give you the upper hand when it comes to the future of real estate, you had better read on.
Blockchain is described as a public and immutable ledger. It is software that allows us to transfer digital assets from peer to peer without using a third party. That transfer creates a ledger, which is open-sourced and entirely untamperable.
But what does that mean for real estate?
Lifthrasir says real estate is perfect for blockchain as it can be used across such a broad spectrum of activities.
It can be used to transfer property and to escrow funds; cryptocurrencies such as bitcoin can be used to pay for real estate, to crowdfund and to collect back your investment on a property. Blockchain can also be used for smart contracts, which allow you to automate certain functions and can create a property registry. Every movement on the blockchain creates its own IP address, which makes it very easy to track and very resistant to any sort of fraudulent behaviour.
And it can do all of this – eventually and theoretically, anyway – without the need for a middleman. Without the need for agents, lawyers, etc. Without the need for all those fees.
Relationship business
“Even though blockchain will over time slowly eliminate a lot of middlemen and make real estate more peer-to-peer, we definitely still need face-to-face interaction,” says Lifthrasir. “We still need people to get together and talk. Real estate is still a human, relationship business.”
But he says the role of the middleman will change. “They will become technology facilitators,” he says. “It will not totally eliminate their role in real estate because they have a lot of experience and knowledge, but they will have to adapt to the new technology.”
So, let’s get back to the technology and exactly how it can be used in real estate.
First, the buying and selling of assets. An investor interested in blockchain who wants to use bitcoin, for example, to buy an asset can do so even if the vendor has no such interest in blockchain. Although bitcoin may not be a traditional currency in the sense that it is not a physical note or coin, it is still a currency – no different from the euro, the pound, the dollar. For one investor to buy in a cryptocurrency such as bitcoin does not necessarily mean the vendor has to collect that payment in bitcoin, it could be converted through a payment process to a currency of their choice.
This is the simplest use of blockchain in real estate and has already been used a number of times over the past few years to buy and sell property, albeit so far only in the residential market.
When it comes to the transfer of titles and deeds of properties via blockchain, then both parties do need to be involved. Velox.RE recently completed an eight-month pilot in Chicago’s Cook County to test the use of the bitcoin blockchain for transferring and tracking property titles. And while the system used in the US cannot be directly transferred to the UK because of the way land is registered here, the pilot revealed that transferring title and deed via the blockchain was both legal and “not as hard as people thought”, says Lifthrasir.
Velox.RE digitised the real estate being transferred by creating a coloured bitcoin that represented the asset. That coloured coin then became the property deed and was transferred to the new owner of the physical property via the bitcoin network. As bitcoin cannot store much data, the traditional information about an asset (such as address and name of owner) is stored “off chain” using IPFS – a distributed file storage system – and is hashed and time-stamped. The hash value is then stored as metadata back in the bitcoin.
“Paper” deeds
In the case of Cook County, because the local government was not using blockchain a “paper” version of the deed had to be created to be stored on its public record. This “paper” deed included the coloured coin transaction ID, hash, block height and time stamp.
While the adoption of blockchain for real estate transactions such as this is not going to be fast, Lifthrasir is certain it will come.
“Blockchain isn’t going anywhere,” he says. “Bitcoin has been around for about eight years and has recently reached an all-time high price of $4,500. And now you have a proliferation of all these other blockchains of all varieties and sizes. It is not going away because it has been proven now.”
He adds: “The internet was the new way to move data; blockchain is the new way to move assets.”
But as much as Lifthrasir is keen for property professionals to get on board with blockchain and get some “skin in the game”, he offers a word of warning when looking at blockchain software companies to work with. He says that there is a big wave of initial coin offerings, through which companies are raising huge amounts of money. Raising huge amounts of money is fine, but Lifthrasir’s fears come from a lack of real estate knowledge within many of these firms. While smart software engineers can probably build great software, they may not be able to understand the complexities and legal requirements of real estate, he says.
“Technology isn’t a magic wand,” says Lifthrasir. “You can’t just say that technology will solve the complexities of real estate, it doesn’t work that way.”
He advises anyone looking to use blockchain for real estate to take a good look at the teams behind the software companies – and if they don’t have a real estate expert as part of the board, to walk away.
But therein lies the opportunity for those middlemen, whose traditional roles in real estate may well be made redundant by blockchain.
Lifthrasir says: “Bringing those two worlds together has been a problem. The software engineers and the real estate people move in completely different social circles, have different types of personalities. But real estate professionals could have so much value in the blockchain world if they could just connect with the entrepreneurs.”
And, of course, if they could know just that 2% more than the person next to them.
Ragnar Lifthrasir
Ragnar Lifthrasir began his career in real estate in 2006 but by 2011 he was becoming frustrated with the industry for being antiquated, boring and not at all innovative. Despite never being interested in technology, Lifthrasir came across bitcoin and was instantly fascinated by it. By 2013 he had founded the International Blockchain Real Estate Association and launched Velox.RE in 2016.
Proptech pet hate: Virtual reality and artificial intelligence
“People are putting too much faith in virtual reality to change the industry and are overestimating the role of artificial intelligence. AI is obviously going to do things for data but people need to look deeper at the underlying role of real estate, which is how assets are moved and paid for. AI and VR are at the top of the pyramid, they don’t underlie the basic foundations of how real estate works.
The best thing about proptech is: collaboration
“People are realising the need for open-source technology in the world of real estate. I like that people are seeing the need to co-operate more.”
Blockchain lingo
- Blockchain – blocks (or ledgers) of digital assets that are linked, permanent and unmodifiable
- Cryptocurrency – a digital currency
- Bitcoin – a worldwide cryptocurrency (and the first), invented in 2009
- Coloured bitcoin – a method for representing and managing real word assets on top of the bitcoin blockchain
- Ethereum – an open-source, public, blockchain-based distributed computing platform that allows for smart contracts (it also provides a cryptocurrency called ether)
- Smart contract – a computer protocol intended to facilitate, verify or enforce the negotiation or performance of a contract
- Litecoin – cryptocurrency very similar to bitcoin, invented in 2011
- IPFS – the distributed and permanent web (the replacement for HTTP)
- Hashing – the transformation of a string of characters into a shorter, fixed-length value or key
- Block height – the number of blocks preceding a particular block in a chain
- ICO – initial coin offering. An ICO is used by start-ups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO a percentage of the cryptocurrency is sold to early backers in exchange for legal tender or other cryptocurrencies.
EG is on a mission to help support property’s adoption of tech and is hosting a series of TechTalk events. TechTalk Live on 15 September at Derwent London’s White Collar Factory, EC1, focuses on investment and features a keynote from US VC investor Zak Schwarzman of Metaprop. Meanwhile, our TechTalk Academy, in partnership with Pi Labs and CBRE, is on the hunt for the hottest new start-up. Find out more at www.egevents.co.uk/Tech2017 and www.egi.co.uk/news/techtalkacademy. EG is also partnering with MetaProp for New York Real Estate Tech Week, which takes place in Manhattan from 9-15 October. Find out more at www.realestatetechweek.nyc.
