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Imagine that it is the end of the month. It’s time to balance the books. Now, imagine that the entire process is gone from your schedule. Every transaction that your organization made that month was automatically balanced and recorded by an automated, accurate, secure and self-regulated system—completed within seconds.
This is just the tip of the iceberg when it comes to the potential of blockchain in real estate.
Today, most organizations maintain double-entry bookkeeping, a written record of invoices and payables. Those records are easily lost, manipulated, or remain unfulfilled.
Blockchain does not possess such flaws. The Economist excellently describes blockchain construction and how the transactions occur anonymously, securely, and accurately.
In gist, blockchain is a database that securely tracks bitcoin transactions. It relies on cryptographic technology to store completely paperless ledgers of transactions. Once a transaction occurs, it cannot be easily manipulated. The ledgers are self-enforcing and practically impregnable.
Workflow efficiency effortlessly improves. Blockchain replaces third-party financial systems, such as banks, which tend to slow down transaction processing. The automated system decreases human error.
The technology could replace double-entry bookkeeping. But that barely depicts the sophistication of the database. It has even greater potential and companies are exploring its vast applications.
A recent Deloitte survey reveals just how many companies are investing in blockchain. The survey reflects the responses of 522 senior executives at companies with annual revenues exceeding $500 million.
Of respondents, 12 percent were knowledgeable of blockchain and have projects in the works to capitalize on the technology. Of that group, 28 percent have invested more than $5 million into their projects. About 10 percent invested $10 million or more.
An additional 25 percent of respondents reported project plans for 2017. Each company has earmarked approximately $5 million for those endeavors.
Deloitte managing director David Schatsky explored how respondents plan to use blockchain:
- 37 percent will appropriate blockchain’s security features
- 36 percent aim to tap into blockchain’s ability to improve system operations
- Of that percentage, 18 percent want to reduce costs or increase speed
- 24 percent see the potential for new business models and revenue streams
The latter is gaining momentum. VentureBeat reports on nine startups that are making waves with blockchain.
Nearly 40 percent of Deloitte survey respondents were in the dark about blockchain. Fortunately, growing organizations can educate corporations on the development and application of the technology.
Among them, a conglomerate of more than 100 major tech companies and public enterprises leads The Hyperledger Project. It is one of the largest organizations to offer guidance on blockchain usage and best practices.
In real estate, the benefits of encrypted and automated ledgers could clearly improve the speed and accuracy of transactions. Blockchain could also eliminate the current mess of time-consuming paperwork that is associated with traditional audits.
Smart contracts are a feature in blockchain that expedites real estate transactions while decreasing risks. The automated contracts self-execute when pre-determined conditions are fulfilled. Then, the system automatically creates a record of the transfer that is visible to the public and easily verified.
In that way, blockchain cuts escrow costs and wait times. The verification and processing tasks performed by the third party are replaced by software. The procedure that took place over a series of days (or longer) could be completed in seconds.
Sometimes, a third party is needed during a transaction. Realcomm explains how a multi-signature feature allows third parties to sign off on a transaction when conditions are fulfilled.
For example, a third party can process security deposits and refunds instantaneously once the renter and the landlord agree that conditions are favorable. Multi-signature eliminates the time needed to mail checks or wait for balance transfers.
Additionally, “digital ownership certificates” are features that can reduce real estate fraud by preventing false claims of ownership and forged documents. There is much to develop on this topic but the prospects are promising.
The real estate industry is often personified as a late adapter or slow adapter at best. Blockchain has not taken off in this arena—yet. Developments undoubtedly loom on the horizon.
