The Benefits and Challenges of using Blockchain in the Real Estate Market

Back in the mid-20th century, in the labs of university of Pennsylvania, a newborn invention called (Computer) was built to do complex calculations faster. Back then, no one imagined that a massive machine weighing over 27 tons and occupying a space of 1800 square feet would become the backbone of Today’s World. Similarly, the exact future characteristics apply to a new tech called (Blockchain). A technology that great minds worldwide expect to be the future backbone of Tomorrow’s World.

What are Blockchain technology and its potential use in real estate?

Blockchain is a secure and decentralized technology known for its transparency, security, and immutability. With blockchain technology, transactions can be conducted securely and transparently without the involvement of intermediaries such as banks or governments. In this system, a group of transactions is stored in a block, and each block is connected to the previous one through cryptographic methods, resulting in a chain of blocks, which is why it is called a “blockchain.” Each block contains a unique code called a “hash,” created by a mathematical algorithm that verifies the integrity of the data in the block.

Once a block is added to the chain, it becomes a permanent part of the network and cannot be altered or deleted without the consensus of the network participants. This makes blockchain technology ensure a high level of security and tamper-proof.
One of the most well-known applications of Blockchain is a cryptocurrency, which serves as the underlying technology for Bitcoin and other digital currencies. However, blockchain technology has many potential applications beyond cryptocurrency, such as supply chain management, voting systems, real estate, etc.These features make it a promising technology for various industries. The real estate market is a great example.

Here we will highlight some of the benefits and challenges of using blockchain technology in the real estate market:

Benefits of using Blockchain in real estate:

1. Increased transparency and security in transactions:

One of the advantages of blockchain technology is its transparency, which allows for a clear and open record of all transactions. This feature makes it easier to monitor ownership, history, and any modifications to the property information. This transparency can help reduce fraud, errors, and even disputes in real estate transactions.

One example of how Blockchain provides real estate transparency is by using “smart contracts.” A smart contract is a self-executing contract that is stored on the Blockchain and automatically enforces the terms of the agreement. They are used to automate the process of buying and selling property while all details like purchase price, payment terms, and transfer of ownership will be recorded on the Blockchain as a Smart Contract. Once the contract conditions are met, such as the buyer making the payment and the seller transferring ownership, the smart contract automatically executes and completes the transaction.

2. Faster transaction times and reduced costs:

Blockchain can reduce the time and costs involved in real estate transactions. The technology can automate many processes, such as title transfers and financial transactions.

One example of how Blockchain provides efficiency is in international payments. Traditionally, international payments require multiple intermediaries, such as banks and payment offices, to process the transaction. This can lead to delays in time and high cut fees. With blockchain-based payment systems such as Ripple, payments in Real estate can be processed directly between the sender and receiver. This can reduce the time and cut the fees cost of international payments.

3. Reduction of fraud and errors:

Blockchain uses cryptography to secure transactions, making it difficult for fraudsters to tamper with the information. This security can help prevent property fraud, a significant concern in the real estate industry.

An example of how Blockchain increases security is “Date Encryption” blockchain technology uses encryption techniques to protect the data stored on the network. Each transaction is secured with a cryptographic hash, preventing unauthorized data access. In addition, decentralization of the tech makes it hard for hackers to hack the network as there is no central point of authority over the web.

4. Potential for fractional ownership and increased liquidity:

Blockchain can enable the creation of partial ownership of real estate assets, making it easier for investors to participate in real estate transactions without investing in the entire property. Let’s say a high-value property worth $20 million. Rather than one person owning the whole property, 100 individuals invest $200,000 each and collectively purchase the property. Each person now owns a 1% share of the property.
Traditionally, managing fractional ownership like this could be difficult, as it requires coordination among all the owners and handling the transfer of ownership when individuals want to sell their share.

However, using blockchain technology, the ownership of each fraction can be recorded on a digital ledger accessible to all owners. This allows for transparent and secure ownership tracking, making managing and transferring ownership easier.

5. Improved property management and data sharing:

Through faster, transparent, and secure transactions, Blockchain directly improves property management. It allows for secure and efficient data sharing among parties involved in a property transaction, such as buyers, sellers, and lenders.

Also Read: Artificial Intelligence Impact on Real Estate Investment

What are the challenges of using Blockchain in real estate?

1. Regulatory and legal challenges:

The use of Blockchain in real estate transactions is still new, and there need to be more regulatory frameworks that can govern its use. This lack of regulation can create uncertainty levels and some legal challenges.

2. Integration with existing systems and processes:

Integrating blockchain technology with current real estate systems and techniques can be challenging. It requires a significant amount of time and resources to make the new system fully operational.

3. Adoption by industry stakeholders:

Despite the potential benefits, blockchain technology still needs to be widely adopted in the real estate market. This is partly due to a need for more awareness and understanding of the technology and the cost and complexity of implementation.

4. Technical barriers and limitations:

Several technical barriers can make the implementation of Blockchain difficult or costly. For example, Scalability, where the current infrastructure of blockchain networks limits the number of transactions that can be processed per second. Implementing Blockchain in industries requiring high transaction volumes makes it challenging. And Interoperability, where different blockchains may have other protocols and standards, makes it challenging for them to communicate and share data. This can be a significant barrier to adopting blockchain technology, particularly in industries requiring cross-border transactions.

5. Privacy Concerns:

Even in immutable records or smart contracts, it may raise a privacy concern if sensitive data are stored in these two methods. In addition, many blockchain networks are public, meaning anyone can view the entire transaction history of the network. While the parties’ identities in the transactions are not necessarily known, it can still be a concern if sensitive data is involved.

Also Read: Key Factors to Consider for real estate investment

What is Estater, and how can it help you in Real Estate Investments?

Estater is a real estate data company that uses property technology, GIS, and data science to understand properties deeply.
Estater developed real estate analytical tools like Estater Meter and Estater MI that greatly provide investors by helping them with data-driven decisions and investment plans.

Overall, while blockchain technology has the potential to transform the real estate industry to a better level, it is still in its early stages of adoption. Like any new technology, significant challenges need to be addressed before it can be widely adopted.

Despite all, Blockchain is the future’s technology. Whoever understands, adopts, and manages it early will lead the following changes in years to come.

Estater, Properties, Real Estate