We often consider the emergence of blockchain the newest frontier of Fintech. When you consider what the most visible applications of blockchain are, it’s an easy line to draw to finance as so much of what is touted in media is focused on the near exponential growth of tokens like bitcoin, ethereum, and dozens of others recommended by social media influencers, coworkers, friends, and yes, even Elon Musk.
Unfortunately, the glamorous and, often misleading, headlines don’t identify and explore the significance of blockchain and how the financial aspects of tokens are merely scratching the surface of its potential. In this article, there will be no token recommendations or financial advice -- instead we are exploring the functionality of blockchain and what it represents to the real estate transactions and what that means to you.
If you ask anyone who has owned a house, they can likely recall the best and worst aspects of the buying process. The feel of owning a home and walking into your new property - priceless. Having to jump through different legal and financial hoops to secure proper title documentation and insurance to guarantee the bank and yourself is protected from potential errors on title, which could range from fraud, active liens, encroachments, zoning issues, and survey problems - not so priceless. And this is just one of the many steps in the real estate process that typically leads to buyer and sellers feeling frustrated when they face unforeseen costs and loss of time.
The good news is blockchain will radically change this process and make it more effective and cost efficient. As of the writing of this article, aspects of blockchain such as smart contracts, are paving the evolution of real estate documentation and data sharing.
Smart contracts are basically self-executing, with the terms of the agreement between a buyer and seller directly written into the lines of code. The closest example that we have of smart contracts today is verification of users on digital marketplaces, like ebay. The only difference is ebay acts as the regulating middleman, ensuring the buyer receives the product and seller receives the funds. In a blockchain environment, smart contracts would replace ebay as the regulating middleman, resulting in cost savings for both the buyer and seller. How can a smart contract validate information and authenticate users to facilitate a transaction? We can look at a variety of online services ranging from Uber, online banking, and Airbnb, where users provide credentials and become authenticated to participate on the platform. The platform enables authenticated users to access services which are associated with a fee. Blockchain is seeking to establish a new level of authenticated user environment which could move between platforms without having to complete the same validation process for each service or platform. Imagine a digital ID that would allow you to order pizza, rent a car, sign-up for education, compile health records, store ownership data, and multiple other activities without risking your privacy or wasting your time. Sound too good to be true?
The Digital Identification and Authentication Council of Canada is currently establishing a sovereign digital identity ecosystem in which the individual controls access to their information and permissions others to view select pieces of information. The combination of universally authenticated users in a blockchain environment with smart contracts is powerful as it reduces the need for a regulating middleman to exist between users. This will lead to more peer-to-peer transactions which function independently of any governing platform and eliminates the costs associated with the platform. This doesn’t mean platforms won’t exist in the future -- it’s unlikely ebay is going to vanish but the purpose of the platform will change. Currently, people visit ebay either to buy or sell goods, such a baseball cards, vintage cars, and antique signs. This aspect of the service will stay the same and could improve. The need to collect, validate, and store user information within the platform is likely to disappear as users will be responsible for their own credentials. Applying the same logic to real estate means individuals will still visit online marketplaces to view properties but the rest of the buying or selling process will be facilitated by automated smart contracts which ensure the criteria defined in the smart contract is satisfied before executing the transaction between authenticated users. The result is a streamlined transaction which saves time and removes middlemen and their costs, which presently represent brokerage, lender, closing, appraisals, inspections, and legal fees.