As Bitcoin enters the mainstream economy, a number of homebuyers and sellers are starting to use the cryptocurrency to conduct real estate transactions.
Last year, Southeby’s International Realty sold one of the first single-family homes in Austin, Texas using Bitcoin. The Austin home was sold when Bitcoin prices were $3,429 in September 2017.
In addition to these transactions, other residential real estate properties are being listed for Bitcoin. A recent Forbes article describes how Canter Companies, a full-service investment firm specializing in real estate and asset management projects, recently listed two multi-million dollar homes for sale in Bitcoin. The homes are collectively priced at under $20 million in Bitcoin. And recently, a 27 acre piece of land in Silicon Valley has been listed for sale in Bitcoin, Ether and XRP with a starting price of $16 million.
However, while there are a handful of homes currently listed for sale in Bitcoin, some believe that using Bitcoin for real estate transactions will not result in widespread adoption — At least not until the real estate industry starts to utilize blockchain technology, which in turn will drive the adoption of cryptocurrency transactions.
While Bitcoin is stepping into society’s massive adoption as a decentralized cryptocurrency, the next-generation blockchain technology brings a lot more to the real estate world than just a payment alternative. For example, Propy is based on the Ethereum blockchain, an enormously powerful shared global infrastructure that can move value around, while also representing the ownership of property. Ultimately, this enables title deed transfers to take place entirely online. Imagine a world where you can buy or sell your property while sitting on your couch – now this is a reality with blockchain technology, Natalia Karayaneva, CEO of Propy, told me.
According to Karayaneva, the only way to encourage homebuyers and sellers to take advantage of cryptocurrency for real estate transactions is to take a “cryptoeconomics” approach, which goes much further than simply putting homes up for sale in Bitcoin.
Cryptoeconomics lays out the framework for the way in which cryptocurrency ecosystems thrive and function across a decentralized network, known as the blockchain. These ecosystems are able to allow a number of entities who do not know one another to reliably reach consensus across an anonymous, trustworthy network through the use of cryptocurrencies. This is achieved by using a combination of economic incentives and basic cryptographic tools.
“Cryptoeconomics is like mechanism design. It starts with the desired end goal and works backwards to find the right set of mechanisms to align with the incentives of all participants in the system, to bring forth a common goal,” said Karl Floerch, a core researcher for the Ethereum Foundation.
For example, the international real estate marketplace, Propy, applies cryptoeconomics by incentivizing individual users to join the Propy platform to list properties, share properties on social media, upload title history into the system and more.
“Users on the Propy platform are rewarded with blockchain tokens that serve as “coupons” for the use of the platform’s services, while they are easily tradable online to other perspective users that want to obtain access to the services. Users have in their hands a secure, easy-to-use, comprehensive way for completing their real estate transactions,” Karayaneva said.
Users who list properties, share these listings on social media and upload title history on the network, are fueled by Propy’s “PRO” tokens (ERC-20 tokens), which are designed to be used for unlocking smart contracts for title transfers in the Propy Registry. In other words, ownership transfer is happening entirely online and is secured by blockchain technology. Moreover, the token economics approach in the real estate industry is also intended to incentivize title “miners” and government agencies adoption, encouraging widespread use of digital tokens for every participant involved in the process. .
For example, the state of Vermont just announced the launch of a pilot project with Propy to utilize blockchain technology to record real estate conveyance documents. The pilot demonstrates how blockchain technology can secure real estate transactions by storing land management data across a blockchain-based network.
The announcement of a pilot project to utilize blockchain technology in real estate transactions is emblematic of Vermont’s long history of innovating business, insurance, and financial technology. We are fortunate to have a cutting-edge statutory framework that enables the use of blockchain technology, and we will continue to work with the legislature to ensure Vermont remains at the forefront of these innovations, said Michael Schirling, the Vermont Agency of Commerce and Community Development Secretary.
Moreover, blockchain’s growing presence in the real estate industry can provide a solution for creating more efficient cross-border transactions. Between 2009 and 2016, demand for cross-border real estate transactions increased from $65 billion to $217 billion. Chinese citizens are currently among the largest groups of foreign investors in the U.S. real estate market, owning over $28 billion in U.S. residential properties. However, the total value of the U.S. residential real estate market is over $29 trillion. Foreign investment in the U.S. residential sector could potentially be equal to hundreds of billions of dollars if foreign investors were able to conduct real estate transactions online.
While the use of Bitcoin for real estate transactions is certainly gaining traction, an incentive based approach for using cryptocurrency and blockchain technology within the real estate industry will drive adoption moving forward. Cryptoeconomics demonstrates the real-world value that blockchain technology can bring to the real estate industry, which in turn will lead to the mainstream use of cryptocurrencies being applied to conduct real estate transactions. In the meantime, adoption will continue to progress slowly.