The Fundamentals of Blockchain
To this day, the process of registering property rights remains one of the least transparent. As a result, real estate deals are nearly always fraught with the possibility of corruption. As a result, it'll be intriguing to see how blockchain technology may help to promote transparency in the real estate industry.
The popularity of blockchain technology grew in spring 2017, when the price of Bitcoin soared sevenfold over a period of months. Its operation is based on the distribution of data stored in blocks on the computers of thousands of users in different regions of the world. Any project built on blockchain technology can be compared to a database that permits information to be stored on several servers. Each transaction in such a network is decentralised, removing the possibility of data manipulation or falsification.
The notion of refusal from intermediaries or the removal of a third trustee is at the heart of blockchain technology. Consider a transaction between two people that does not use a blockchain. After verifying that the payer has disclosed the amounts, the bank either confirms or rejects the transaction. The bank serves as an intermediary and trustee in this scenario.
When two persons use a blockchain-based system to conduct this transaction, the system confirms the transaction. As a result, regardless of the nature of the information, barter, or transaction, this technology can verify its veracity without the need to contact a trusted third party. At the same time, any fraudulent manipulations are difficult because they would necessitate changing all of the chain's blocks. The process of investing in real estate on the blockchain will also become simpler. The premise of blockchain operation states that transactions are allowed or refused based on a distributed consensus rather than a centralised institution's desire.
As a result, blockchain is a network of interconnected blocks or a decentralised register of actions that may be used to digitise any information on the planet. As a result, this technology may be used to verify database credibility; it is difficult to modify data without the consent of a majority of participants.
The Blockchain-Data-Storage Revolution
A distributed registry is a database of sorts. The blockchain, like traditional databases, may store information about financial transactions. The fact that all of the registry's users store and update copies of the register at the same time is a unique feature. If a change is certified by numerous "computers," it is entered into the registry and automatically replicated on all computers in the chain. At the same time, each block carries information on all of the system's blocks in order for the chain to be connected. As a result, any information in the block that is removed or modified will be exposed to the entire system.
Note that this method removes system fraud and illegal access. Furthermore, decentralised data storage assures data immutability and security. After all, the register exists as long as at least one machine is operational.
Blockchain technology stores transaction information as well as proof of the presence of data, programmes, and related data. These functions are provided in distinct ways by the two most popular systems, Bitcoin and Ethereum. Today, it is self-evident that Proof of Work, Proof of Stake, and other consensuses provide the immutability of information. What's more, this permits data to be kept intact for a fixed upfront maintenance cost. This parameter will not change regardless of what happens in the future, whether the network of miners continues to work or stops.
Calculating file-based cryptographic quantities provides proof of data presence. This is a straightforward procedure. However, it is important to link the data, their checksums, signatures, certificates, and time stamps in order to make a complicated system of interactions credible, which includes multiple documents, signatures, certificates, and timestamps.
The revolutionary blockchain technology allows users to easily download evidence of absolute unity, keys, digital signatures, linkages, cryptography and other documents, as well as any other metadata, into any files, in practically any format. Personal data is converted from evidence of file integrity. A search engine may access an identifier that reflects a unique name, and it can be utilised in any document or file.
Since it is impossible to produce two files with the same "personal identity," there has never been a cryptographic-hash attack. It's far more difficult to create a file with the same identification as one that already exists. As a result, you may automatically deploy data and establish business processes with the help of people. This can happen even if no new infrastructure is built to supplement the old one.
Contracts with multiple signatures and dates, dependable and dated photographs, certified invoices, payroll, disposable papers, blockchain real estate investment, diplomas and time sheets distributed by registered mail with delivery notification, digital IDs - these are just a few of the possibilities.
The Real Estate Market is Embracing Blockchain
The most forward-thinking businesses are already working on blockchain-based ventures, such as blockchain real estate investment firms. A complex of projects involving the state registration of ownership of numerous things is an important area of distributed-registry technology use (land, real estate, ownership of vehicles, etc.). The National Rights Registration Authority of Georgia, for example, is working on a land registry system based on the blockchain alongside the mining startup Bitfury. The land cadastre work is being done in Ghana (West Africa), where the blockchain will ensure that real estate transactions in 28 villages are transparent. This, according to this blockchain real estate business, will pave the way for international investment.
The Swedish government is experimenting with a blockchain-based property registration and accounting system for real estate transactions. The Swedish National Land Service, in collaboration with blockchain startup ChromaWay, consulting firm Kairos Future, and telecoms company Telia, is looking at how blockchain technology might help reduce the risk of errors in real estate document creation and transmission. Sweden intends to adopt blockchain for all parties involved in real estate transactions, including banks, governments, brokers, buyers, and sellers. This will allow you to track the progress of an agreement once it has been completed. This rapidly verifies the legitimacy of transactions.
Propy is another blockchain real estate firm. This is a decentralised title registry and international real estate marketplace. It allows you to look for real estate in places like San Francisco, Dubai, Beijing, and New York, among other places.
Harbor assists with investor compliance checks such as KYC (Know Your Customer) and AML (Anti-Money Laundering). The goal of this blockchain real estate firm is to convert difficult-to-trade assets like real estate and private equity into tokenized securities that are compliant with Securities and Exchange Commission (SEC) laws.
Real-estate transactions on the blockchain
So, why is blockchain necessary for real estate transactions? To begin, consider the key benefits of establishing a unified platform for registering property rights. Presumably, the collection of all information on real estate transactions and the ownership of real estate objects by individuals and legal entities will enable the tracing of these transactions' subtleties and peculiarities. Transactions will be faster as a result of the elimination of the requirement to contact specific bodies and institutions on specific issues. Keep this in mind if you're thinking about investing in blockchain real estate.
The usual procedure for the sale/purchase of a real estate object consists of numerous logical steps: housing appraisal, document gathering, preliminary contract conclusion, main contract conclusion, money transfer, and registration.
Buying and selling houses
This convoluted method could be altered by blockchain technology. Imagine a system in the form of a mobile application that allows smart contracts to be entered using an electronic signature, greatly simplifying and speeding up the process of real estate transactions as well as document collection and review. Previously, it was essential to submit separate requests to state organisations for housing information in order to re-register property. Everything may now be learned directly from the application without the need for any requests.
The typical procedure for obtaining a loan to buy a house through the banking system would be significantly simplified, since the bank would receive all relevant information about the house or the borrower through the same application. The risk of document forgery that comes with mailing individual paper copies of the contract to the buyer, seller, realtor, and bank will be eliminated. In the blockchain application, a single electronic copy will be available that is certified by electronic signatures.
Finally, although in the previous system, the mechanism for (re-)registering property in state entities began after a corresponding request for a deal, under the new system, the re-registration procedure begins automatically, immediately after the smart contract is completed.
Excluding the Intermediary Blockchain technology, which is built on the basis of a distributed registry and is protected from hacking and rewriting data after making transaction records, will undoubtedly be included in priority areas of the digital economy, which is already transferring data from cadastral registries to blockchain registries in a number of major cities around the world. It has also been mentioned that multiple resale of real estate is a major issue in various places throughout the world. Sometimes it's difficult to tell if you're the only one who bought the apartment.
These issues are addressed in two ways by blockchain. These technologies are now being implemented at the state level in the UAE in large increments. We're hoping for a level of transparency in the acquisition and sale process that's never been seen before. We'll know how, where, and what materials were used to construct the house. We may or may not believe it, but we must confront it. In the construction industry, blockchain technology enables for the control of the compliance process for the item being built in accordance with technical specifications, as well as the prevention of fraud in the sale of apartments. A record of a specific apartment's sale is copied and delivered to all members of the blockchain network at the same time, removing the option of reselling the property to another consumer.
This will eliminate third-party fee-chargers in the real estate transaction process, such as lawyers, realtors, notaries, and registration chamber personnel. Furthermore, the risk of fraud (for example, when renting or selling apartments) will be decreased, as will the time required to prepare transactions and references. Data falsification will be prevented, and the process of inspecting real estate goods before selling will be simplified, thanks to specialised blockchain platforms. Customers will have unlimited access to the platforms at all times.
One of the most significant advantages of blockchain technology, as previously stated, is its capacity to eliminate intermediaries. As a result, both sellers and consumers will save money. The money deposited by the buyer will be transferred to the seller's account as soon as the smart contract's conditions are met (all conditions will be stated within it initially). Data from the transaction will display on thousands of platform computers at the same time. At any moment, information on the transfer of property rights can be verified.
Blockchain in Real Estate
According to projections, the mass adoption of new technologies will take place over the next 7-10 years, yet programmers are already overworked. The technology has the potential to save a lot of money. McKinsey & Company's strategic consultants anticipated an overall savings amount of $80 billion. The technology has the potential to transform from an exciting new product to a useful instrument.
The development of blockchain is of relevance to all areas of the economy. The use of blockchain in real estate transactions can aid in the organisation of new types of registry, ownership titles, and transaction registration. The blockchain system's blocks will validate ownership transfers in terms of property remittances, contracts, and owner data.
Note that the first blockchain real estate firms have already emerged: iNation and the International Bitcoin Real Estate Association are collaborating to create a distributed registry of property owners. ABN Amro and IBM are developing blockchain services for real estate transactions.
The registry of real estate and owner data has always been vulnerable to cyber attacks, staff abuse, and all of the other drawbacks of centralised systems. By transferring data from this registry to the blockchain, it will become more secure and fraud-resistant. It will also protect the register against overload, database inaccessibility, and so on.
It is obvious that some data can be encrypted for a typical user so that, for example, a registry member's passport data is not visible. The important point to remember is that the registry's openness was originally "embedded" in the blockchain. This means that acquiring appropriate data will not be a difficulty.
Smart Contracts for Real Estate Purchase Agreements
The right of ownership in the blockchain real estate ecosystem is an entry in the registry that you can simply publish on the blockchain, granting access to the system without the need for human interaction. A real estate purchase agreement is a series of events in which A contributes money and B gives the right to own real estate. As a result, you can use the algorithm of a smart contract based on blockchain technology in real estate.
Apartments with smart contracts
An electronic protocol defined in the Solidity programming language is known as a smart contract. Its mission is to transfer data and enforce contract obligations for all parties involved in the transaction. Smart contracts allow for the secure exchange of assets without the involvement of third parties. To accomplish so, it employs a programme that monitors all contract parties' compliance with their commitments, automatically collecting penalties for any violations or failure to comply with the conditions of the transaction.
Smart contracts guarantee transaction security. Because they are strictly algorithmic and cryptographically based, they are devoid of the risk of ambiguous interpretation of circumstances. Participants do not have to pay lawyers or intermediaries, and they do not have to sue if a contract is not performed, which makes smart contracts advantageous. Furthermore, transaction terms and conditions are fulfilled automatically, with little support costs and without the involvement of third parties (intermediaries). Smart contracts can be used for a variety of financial transactions, including insurance registration, property transfer, and financing. Each node in such an infrastructure will operate as a land registry, processing transactions and automatically checking transaction criteria.
Smart contracts have a number of advantages, including:
You'll save money and time because you won't need to use intermediaries to enter into contracts or transactions.
Because the contract's stipulated conditions are maintained in a distributed register and no one can change them, security is ensured.Because there are no intermediaries in the transaction, participants can work on more advantageous terms and save money on lawyers, notaries, audits, and intermediaries.Issues are resolved more quickly with smart contracts.
Consider all of the possibilities that are now available to us! The most common mediator in real estate transactions is a bank. The logic of smart contracts suggests that no third party is required. It appears as follows: B uploads a programme code version of a specific contract to the blockchain. This software code allows you to identify all of the contract's terms in a unique way. The contract has been entered into the system, and it is no longer editable, as we have already learned. It's visible to everyone in the system, and it's part of the general registry. Person A signs this contract with his or her "unique signature," and the system holds the funds owed to him or her and sends them to person B. The technology will automatically transfer ownership rights from A to B after sufficient confirmation of contract fulfilment.
To employ smart contracts, the system must have access to the object without the need for human intervention, and the contract must be able to be stated mathematically, that is, with obvious logic and consistency.
Because the buyer's money must be "digitised," the bank will continue to participate in transactions. It must therefore be added to the account, but it will no longer serve as an intermediary. It will just be a financial structure that stores and transfers money based on the blockchain real estate ecosystem's signals.
Regular contract vs. smart contract
If we're talking about signing a smart contract with a digital signature (perhaps biometric), there's no need to certify the contract to a notary. Indeed, in this case, the digital signature itself verifies the contracting parties. The electronic registration of rights transfers, which is based on electronic digital signatures, is now standard practise. When the contract's stipulations are met, the assets are promptly exchanged between the parties.
This will solve the problem of confirming money transfers and replacing registry entries, but it will not be possible to reduce the risks buyers and sellers face when entering into a contract in the blockchain real estate ecosystem until everyone's data is digitised, preferably in the blockchain (so that data cannot be falsified).
Blockchain-based real estate
A complete transfer of all data to the blockchain will almost certainly result in the abolition of all paper-based workflows. After all, why sign a sale/purchase contract on paper if the contract is stored in the blockchain and can be downloaded at any time?
To summarise, the use of blockchain real estate transactions is an excellent solution to eliminate the dangers of corruption linked with the human factor, and, in general, with the lengthy property registration procedure through government institutions.
The adoption of a blockchain real estate ecosystem will greatly increase the transparency of the industry. The solutions that are feasible in this climate will have a significant impact on our lives. Blockchain will be used in a variety of industries, including logistics, utilities, banking services, copyright, online purchases, proof of ownership, insurance, energy, video games, gambling, bookmaking, the Internet of Things, and much more.
We can not only simplify and speed up the registration process by transferring transactions to the blockchain real estate ecosystem of smart contracts, but we can also save large taxpayer cash by doing so. Today's activation of blockchain shows that confidence, which has traditionally been bestowed on institutions, is being moved to user groups, implying that society is evolving toward horizontal functioning.
The blockchain is not in the future; it is already here. Exploring this area of technology and understanding what it can lead to is critical in order to correctly apply it — and perhaps even adjust your business to the new technology.