In 2017 a flat in Kyiv, Ukraine, sold for $60,000. Nothing to write home about, except that this was the first deal to use cryptocurrency. The sale took place entirely on the Ethereum blockchain, using smart contracts and using cryptocurrency. Others would follow quickly. Today, cryptocurrency and the blockchain are becoming increasingly common in property transactions, and they are having a profound impact on the market as they do.
Cryptocurrencies are digital forms of money that are powered by distributed ledger technologies, which use multiple nodes to verify transactions. The first and most famous example is Bitcoin, but there are many other blockchains and tokens out there, such as Ethereum, Ripple and EOSIO.
They are increasingly being used by wealthy property buyers who see them as a good way to manage transactions faster, more openly and more securely. Advantages include:
- Speed: Blockchain transactions are based on a ledger confirmation technology which makes for a much faster process. It’s a fast, safe and tamper-proof process, which reduces the need for paperwork and can complete within seconds. Traditional transactions can take much longer and have a whole lot of paperwork involved.
- Cost: Each transaction in a property purchase tends to attract all sorts of fees such as exchange fees, broker fees and investment fees. Fees in the blockchain are much smaller, sucking up less of your money.
- Flexibility: Traditional currency purchases have a host of rules and procedures which need to be followed. These can be avoided with cryptocurrency.
In addition, their unique nature can also change the way properties are brought and sold. For example, one of the new features they can bring to this sector is new investment vehicles. Cryptocurrency can expand the number of assets by tokenising them. Traders, for instance, can get involved with the gold market through the Digix Gold Tokens which are based on and underpinned by physical gold bullion.
Likewise, real estate properties can easily be liquified into tradeable tokens – based and linked to physical properties – which can be traded digitally. It adds another option for investors aside from the usual stocks, bonds, mutual funds and commodities.
On top of this, it can also open up investments to investors with lower levels of capital. In the cryptocurrency world, most people are not dealing in whole bitcoins. At a current price of more than £30,000 each, bitcoin is only really useful when making large transactions. For daily transactions, users will be trading fractions of a bitcoin.
The same can be done with the tokenised property. Rather than having to build up enough capital to purchase a whole property, you can just buy and trade a percentage of it. In a world in which financial markets are becoming more volatile, having an element of diversity is a welcome development for many traders.
For all these benefits, though, there are some risks. Cryptocurrencies are still highly volatile. Bitcoin has been up and down over the past 12 months more often than someone playing musical chairs. If you price something in bitcoin today, there’s no way of knowing how much it will be worth in the morning. Single-day movements of between 10% and 20% are not uncommon.
The regulatory environment is also in flux as countries scramble to work out how they should be governed. The decisions regulators makeover cryptocurrencies and the blockchain could have a dramatic impact on the price going forward.
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