Bitcoins and real estate

Most of us have heard of the term Bitcoin. We may not totally understand what it is or how it functions, however, we know it’s been making the news because of its value.

In addition, that value is rising. Right now as I write this, one Bitcoin is worth over $10,000 in US currency.

What does this have to do with real estate?

Bitcoin - whatever else we understand about it - is not “real” in the same sense as a building, a house or a piece of land is real.

First, let me break down some of these terms to be more understandable. Bitcoin is a cryptocurrency. A cryptocurrency is a digital or virtual currency that is encrypted or secured, using cryptography. And we know from watching spy movies that cryptography is simply writing code.

In this case, the encryption techniques used to secure and verify the transfer of transactions is powered by a public ledger. Anyone can see these transactions. They are recorded and validated chronologically using this highly sophisticated encryption. That public ledger is called the Blockchain.

As far as real estate goes, that is all you need to keep in mind about Bitcoin and the Blockchain. Understanding Bitcoin can be tough. While it is an asset that can be used for many types of transactions - mostly financial - the language around it is highly technical.

Bitcoin is reaching the mainstream

It can get confusing very quickly. It is important to know is that nine major banks, including JP Morgan and Goldman Sachs, are in partnership to develop Blockchain technologies. So this technology and currency have reached - or is reaching - the mainstream.

In fact, cryptocurrency is entering the stock market. And here is where you and your property could eventually enter into this. Some initial coin offering (ICO) issuers have a vision of the future where “tokenized pieces of property could be tracked and traded via a shared database.”

A token is simply a representation of a particular asset - say, your house - that resides on top of another Blockchain. A token can represent any asset that is fungible and tradable.

The tokenization of real estate would allow for fractional ownership of property. You could, conceivably, “split up” your home and sell off equity stakes on the Blockchain. That equity would go on being freely traded until the home is sold - at which point the homeowner and equity owner(s) would benefit from the gain in the home’s value.

How soon is this coming?

There are four ICO issuers right now having to do with real estate:

  • BitRent - which is a way to finance construction projects;
  • Etherty - real-estate management through equity access;
  • Caviar - a fund that makes loans to real estate projects in order to temper its crypto investments;
  • Trust - this is already doing what I mention above - tokenizing equity in real estate and other assets.

I think it’s fair to say that this is coming. How soon, it’s hard to tell. For one thing, real estate laws are highly complex and record-keeping isn’t uniform state by state.

Right now there are places in Cook County, Illinois and in Vermont, as well as others, who are updating their laws in accommodate cryptocurrency. You may see individuals putting land titles on the Blockchain sooner than you think.

Conclusion

The concept of Bitcoin can be confusing. Its language is full of technical terminology and its inner-workings resemble the machinations of the stock market which few ordinary people truly understand. However, handled wisely and understood well, cryptocurrency as the future in real estate could end up being a very exciting time for homeowners.