Blockchain in real estate

 Blockchain in real estate: everything you need to know

According to the Techcrunch database, global investments in blockchain-related projects already exceeded $ 1.3 billion in the first 5 months of 2018.

A stratospheric figure.

But what makes this technology so special is that it pushes the creation of dedicated blockchain teams within companies such as IBM, Walmart, Carrefour, American Express, Oracle, Amazon, Alibaba, Facebook, Ford, as well as major global banking institutions such as Intesa Sanpaolo, Goldman Sachs, ING, Morgan Stanley and many others?

How does the blockchain work? Let’s start with the basics

Imagine that Marco and Giovanni are on a stage in front of 10,000 people and make an exchange. Marco gives Giovanni the keys and ownership of his newly renovated studio apartment in the center of Padua, in exchange for Giovanni’s brand new SUV.

At the time of the exchange, 10,000 witnesses will be able to state with certainty that the studio apartment in Padua now belongs to Giovanni and the SUV is owned by Marco. Anyone in the audience who tries to say the opposite will be immediately denied by another 9,999 people.

Furthermore, if Marco tries to sell his studio apartment a second time, using his spare keys, in the event of a dispute, an entire audience will be ready to say without any doubt that the property is now owned by Giovanni.

This story shows in a simple way the logic behind the functioning of the blockchain and its consensus mechanism.

The blockchain consists of a network of computers scattered all over the world, called miners, on which a decentralized and widespread database is based that records transactions, financial and otherwise, between uniquely identified users. Every single node on the network has a copy of the entire register, which is available to anyone for information purposes, but it is practically impossible to modify. Each transaction is placed inside a block containing other transactions, which is cryptographically protected and linked to both the previous and following blocks of the chain.

Would you like to know more? The computer scientist Marco Crotta of Blockchaincaffè explains the concept well in one of his videos:

Because blockchain is an inviolable system

Tampering with a transaction recorded on the blockchain requires the breach of 50% plus one of the tens of thousands of computers operating on the network, an operation that is almost impossible even for a supercomputer. An attempt at tampering could take up to tens of years, however making the attempt inconvenient.

If we add to this the fact that, after having violated the block in question, it will be necessary to violate within a few minutes also all the relative blocks referring to that chain to ensure that the tampered block is recognized by the network nodes, it is clear that we are talking of a protocol that guarantees a very high security.

True innovation: a new concept of trust

The peculiarity of this system is the complete transparency of the transactions and information recorded in it. For this reason, the paradigm shift brought about by the blockchain mainly concerns the concept of trust.

The blockchain allows transactions to be carried out in the open, fostering trust between two parties operating a transaction.

For this reason, the impact of this technology in a world so globalized, interconnected and rich in often conflicting information, can really destabilize historical players, upset the balance and create new markets.

It is no coincidence that the Harvard Business Review defines blockchain as a  foundational technology, or a technology that has the potential to restructure, for the better, the current economic and social mechanisms.

The financial sector: the first real test of the blockchain

Imagine being able to safely send money to Mexico, at a cost of a few euro cents and with a transfer time that can potentially take just a few minutes.

Thanks to the blockchain, this is already a reality. And since 2008 to be precise, thanks to the much-discussed Bitcoin. But beyond the media speculations regarding this cryptocurrency, Bitcoin is only one of the many possible blockchain implementations and is proving not only to be able to solve a real problem, allowing transparent transactions, potentially faster and cheaper, but also an ‘ integrity and security tested over ten years and millions of transactions.

Not surprisingly, one of the first applications in the financial field was the creation, also financed by banking institutions, of Ripple, an atypical cryptocurrency based on a distributed consensus ledger, a technology similar to blockchain but with centralization elements, with the aim to speed up and reduce the costs of international transactions.

Blockchain vs Database

The total transparency that characterizes blockchain contrasts with the concept of database, historically centralized and guarded by a single market player: just think of the role of the PRA or the Notary.

But that doesn’t mean, as many think, that one will supplant the other, they just have different roles. Think of taxpayers’ money transactions or donations. Both of these operations have always generated doubts: ” who knows where that money is going ?”.

There is an Italian start-up that already solves this problem thanks to the blockchain. On Helperbit it is possible to donate money for any emergency and humanitarian project, such as the earthquake emergency in central Italy, and to have a complete and detailed track recorded on the blockchain starting from the payment of the donation up to the moment in which the funds are used.

Blockchain in the real estate sector, a possible combination?

But now we come to our sector. As you may have already guessed, one of the first areas of application of blockchain in the real estate sector can be transactions. In particular, think of the costly transnational real estate transactions that take days and days to complete and validate by traditional banking systems. According to data from Bitinfocharts, the commissions for transferring 76,000 euros in bitcoin anywhere in the world are equal to just 64 cents.

Obviously, the average volume of a real estate transaction is so large that even very high commissions, such as 50 euros per transaction, are proportionally considered almost venial figures.

But if we consider a bank and its centralized system and think back to the story at the beginning of the article, we can well imagine the advantages of having an inviolable and searchable proof of the passage of money from subject A to a subject B, especially in the event of disputes.

Not to mention the speed with which international transactions are carried out. In fact, these can take up to 10 days to be validated in a blockchain-based system.

Yes, that’s right, with the new super-fast international bank transfers, the times have been significantly reduced. On the other hand, transaction fees have increased and the transferable threshold limit is much lower.

Conversely, bitcoin transactions can take anywhere from a few minutes to a few hours, depending on the level of network overload, while many other blockchains, such as Nano’s, allow equally secure transactions literally instantaneously.

Rents with smart contracts

The smart contract are based on applications Ethereum, one of the most innovative blockchains. A smart contract is a digitally programmed contract that automatically executes the terms, without the help of third parties, once the contractual conditions are met.

Rentberry has decided to develop blockchain-based smart contracts in the real estate sector and create a solution for the rental market in line with the principles of Smart Property.

In physical assets such as real estate,  Rentberry’s smart contracts will have the following functions:

  • Allowing both parties to sign the contract securely and digitally through the public and private key system on the blockchain, without the help of institutional intermediaries.
  • Automatically and securely pay the monthly rent on the agreed date and time, by taking the agreed sum from the tenant’s account and automatically paying it to that of the owner. Once the payment has been made, access to the apartment, via Smart Lock, will be extended for the following month or denied in case of lack of funds.
  • Create a space for storing the deposit within the smart contract. It will be the same digital contract that will then allow the owner to use it in case of damage, or return it to the tenant.
  • In the event of overlapping on the agenda, the visit to the property can be programmed with a special smart contract that will provide access to the visitor via a personal private key enabled by the owner, but without the need for it to be present.

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Rentberry: how it works

All these operations will subsequently be recorded on the Ethereum blockchain, which allows the parties to consult the information at any time and allows the resolution of any dispute in a more serene manner. In fact, the transactions recorded within the blockchain, as explained above, are neither removable nor modifiable.

Obviously, in order to be operational, these technologies must first be enabled within the property in question, which therefore must be equipped with Smart Lock Technology, a tool already being disseminated both in the USA and in Europe, also because it is already been the focus of several Amazon projects.

Faster and easier international real estate transactions

Propy is an online marketplace for international real estate transactions via blockchain. The platform provides a technology-based listing, in which anyone wishing to trade can post their ad.

The mission of Propy is precisely to solve the inconveniences related to international real estate transactions, allowing all the figures involved in the sales, i.e. real estate agents, sellers, buyers, brokers, notaries, to get in touch with each other quickly and simplify the international transactions thanks to smart contracts.

Once the transaction has taken place, the platform allows the transfer of the so-called digital ownership of the property, which is recorded in the appropriate decentralized Propy register based on blockchain. In practice, from that moment on, anyone who knows a user’s public key will be able to verify the actual ownership of a property.

Just a few months ago, Propy posted on its blog the receipt of the first real estate transaction registered on blockchain in the United States:
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Even established platforms, such as Homelight, are evaluating the implementation of blockchain to speed up and decrease the costs of real estate transactions. As stated in an interview by CEO Sumant Sridharan: ” I don’t think it’s something that will come in the short term, but we can absolutely imagine a near future, in 5 or 10 years, in which real estate trading via blockchain will be the norm “.

Legislation: where are we?

From a legislative point of view, across the globe, we are moving towards a general recognition of blockchain and smart contracts. In an official note, the Chinese Supreme Court said that presenting data stored on the blockchain as evidence in court is legally accepted as of September 2018.

The UK government recently revealed a program to reform and modernize its judicial system. The British courts of the ” Her Majesty’s Courts and Tribunals Service ” will adopt the blockchain for the custody of evidence and the recording of other sensitive data.

Also in the specific case of real estate legislation, significant developments are already underway. In the USA, both in Arizona and in the state of Vermont with the ” Blockchain Law “, the current legislation recognizes smart contracts as contracts in all respects valid for the transfer of assets, including real estate. It is no coincidence that Propy is based in Vermont.

Developments in Italy

Although Italy is still far behind in terms of government projects in the field of blockchain, having signed the ” EU Blockchain Partnership ” only in September 2018, it should be recognized that the Belaese was, at the legislative level, among the first to world to allow the buying and selling of properties in bitcoin.

With resolution no. 72 / E of 2 September 2016, the Revenue Agency recognized Bitcoin as an acceptable currency within a notarial deed, and real estate sales in bitcoin have already been carried out nationally. Like the Roman villa auctioned in July 2018 or the purchase of a property in Turin, both in bitcoin. At the territorial level, there are many private initiatives, but also some institutions have started to move independently.

On 19 April 2018, the Municipality of Naples displaced everyone, surprisingly launching a voluntary working group on the blockchain ( progress is periodically updated on the website ) and, in July, after 300 requests for participation, there were already 3 active projects on as many work tables. At the current date (September 2018) the project has already involved various commercial activities to encourage the spread of payments in cryptocurrency.

Regarding further developments in Italy, the National Council of Notaries announced on 13 October 2017 that it is working with IBM for the creation of Notarchain, a blockchain platform for the registration of notarial deeds.   When questioned by WeAgentz, we have not yet received any answers on the matter from the Association.

Conclusions

Beyond the number of projects, or presumed such, it is important to inform oneself and keep up to date on the developments of a technology that in the most advanced countries is already changing many governments and corporate best practices and which, according to the major world institutions, by the MIT of Boston at Harvard University, will soon revolutionize relationships between people and the very concept of trust.

Lack of knowledge of technology can lead to misunderstandings among non-technicians. Let’s get information, let’s study it but above all let’s start thinking about possible implementations, both privately and institutionally, in the common interest of giving a breath of fresh air to the category and finally relaunching the Italian real estate market.