In simplest terms, blockchain refers to a decentralized database. If you think of a traditional database like a spreadsheet, running on a single computer, blockchain distributes that so the spreadsheet runs on millions and millions of computers. It also uses state of the art cryptography (the art of writing or solving codes), so that once information goes in, it is virtually impossible to get it out again without the original passcode or key.
The real disruption here is that trust is established through collaboration and code, rather than a central authority. So, you no longer need a bank to make a money transfer around the world. You no longer need an escrow account (An escrow is a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties) to buy a home, or a real estate agent to facilitate the transaction. You no longer need a company or central authority to facilitate a transaction of any kind. That is revolutionary and has the potential to revolutionize nearly every industry.
A blockchain is a growing list of records, called blocks, which are linked using cryptography. Blockchains which are readable by the public are widely used by cryptocurrencies. Private blockchains have been proposed for business use.
Each block contains a cryptographic hash (A cryptographic hash function is a hash function which takes an input (or ‘message’) and returns a fixed-size alphanumeric string. The string is called the ‘hash value’) of the previous block, a timestamp, and transaction data (generally represented as a Merkle tree root hash).
By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires the consensus of the network majority.
Though blockchain records are not unalterable, blockchains may be considered secure by design and exemplify a distributed computing system with high Byzantine fault tolerance. Decentralized consensus has therefore been claimed with a blockchain.
Real Estate Sales
If you’ve ever bought or sold a home, you know how much paperwork is involved. But blockchain systems could be used to simplify the process and eliminate escrow altogether. Smart contracts could be designed that only execute when certain conditions are met, including funding. Besides, all these various documents could be stored securely.
A start up called Deedcoin is offering cryptocurrency powered transactions that decrease the commission rate for the agent to as little as 1 percent.
Rentals and Ride Sharing
It seems like start-ups like Airbnb and Uber have already disrupted these markets, but blockchain could create true peer-to-peer networks for real estate rentals and sharing of goods and services that would eliminate the need for the middle-man company, which naturally takes a cut of the fee.
In fact, there’s no reason these peer-to-peer networks couldn’t expand to renting and borrowing just about anything from books to tools to furniture and beyond.
The times they are a changing and real estate professionals need to educate themselves about Blockchain and their role in the future.