|
Application of
Blockchain in
Real Estate
Industry
|
Prepared by:
Dheeraj Sinha
MBA (Finance), Texas Tech University
Contact Details
1
Contents
2 Introduction
7.1 Mining
& Distributed Consensus:
7.2 Scalability:
7.3 Technological
knowhow:
7.4 Regulation
7.1 Mining & Distributed Consensus:
7.2 Scalability:
7.3 Technological knowhow:
7.4 Regulation
2
Introduction
Blockchain
technology, in recent past, has gathered a lot of attention because of its peer
to peer network mechanism which is very secure and has capability of processing
transactions faster with no control by a central authority. Many studies have
been conducted recently in the blockchain world to study the feasibility of
using distributed consensus mechanism and cryptographic hashing techniques like
– Collision free, hiding mechanism and puzzle friendliness used by bitcoin blockchain
technique that could be used in different applications. Real Estate Industry is
one of the examples where it could be implemented.
This paper
is an endeavor to put forward a high level proposal in what stages of the real
estate workflow especially buying and selling a property, the blockchain could
be used and how.
3
Real Estate Industry – Now
Real Estate property
sales and purchase, in the present industry has different phases were buyer and
sellers meets their agents separately. The property is being put for sale.
Buyer looks at the property through her agent. If buyer likes the property, the
negotiations are being done with the mediation of their agents. After the
contract is accepted between buyer and seller, money is being put in an escrow
account in a financial institution.
Gist
of the matter is at every stage, there are intermediaries involved which results
into cumbersome posting, clearing, and settling transactions.
 |
| Real Estate Industry - Now |
4
Use of Blockchain in Real Estate Industry
Figure shown
below shows the stages where blockchain could be leveraged in the real estate
industry.
The notion
of smart contracts could be used to speed up the process that could
eliminate dependency consequently resulting in lower transaction cost,
increased information-sharing, and the elimination of the need for trusted
third-party intermediaries
Smart Contracts: Before
that we need to understand how to implement smart contract, one needs to
understand what smart contract is.
Smart contracts
are programmable contracts run on the blockchain that gets executed or
triggered with the consent between two
parties once pre-determined conditions have been satisfies, without involving a
middleman.
The blockchain can serve as public history of transactions that would expose only proof
of the transaction’s existence while safeguarding the stakeholder’s identities
and sensitive personal data. Thanks to the application of cryptocurrency
techniques like hashing, digital signatures and other salient features that
makes these records irreversible, hence preventing fraud, abuse, and
manipulation of prior transactions.
According
to one of the reports of World Economic Forum, smart contracts
are secured in the blockchain as “self-executing contractual states”, which
eliminate the risk of relying on others to follow through on their commitments.
Contacts and legal services increasingly
tied to code linked to the blockchain, may be used as unbreakable escrow or
programmable designed smart contracts that has increased transparency.
In the figure shown below, blockchain could
be used at 4 different stages where it can remove the dependency of third party
intermediaries like record keepers, asset custodians, notaries, and certain
government agency functions and foster faster processing self-executable
programmable transaction.
- Blockchain could be used to eliminate the transaction cost/fee to be paid to the buyer &seller agents, banks and other intermediaries. It could also minimize the turnaround time and cost involved in engaging them.
- Transaction when initiated as Genesis block in the blockchain could be used to serve an escrow account. A Genesis block is the first transaction block that has been created as a transaction in the blockchain. Further section will explain how it could be used.
- Blockchain could eliminate the manual initiation process for buyer to raise a loan process with lender ( or Bank)
- Foster further negotiation using blockchain in the closing procedure process.
 |
| Real Estate - Scope of Blockchain |
5
New Workflow – Leveraging Blockchain in Real Estate Industry
The figure
below shows how blockchain could be implemented and leveraged for real estate
industry.
When buyer likes the property listed
by the seller, sales contract is accepted. This is the initiation point for the
genesis block to start for the smart contract for the transaction.
The smart contracts that needs
to be initiated should involve the signature from buyer and the seller so that
when both the party agrees to the terms (or sign the contract), smart contract
gets executed successfully. In order to implement that, one of the blockchain capabilities
that could be implemented is “multisig”
OR “split keys”. A mutisig
blockchain transaction involving buyer and seller could be used to create an
address that could be completed only when both the parties involved sign it. This
transaction when initiated as genesis should also involve escrow amount in the
blockchain. There could be different means (e.g. bitcoin, fiat currencies etc.
which is a different discussion point) of realizing it once the transaction is
completed. This escrow amount will remain valid till the transaction is valid.
Logic could be programmed in the blockchain transaction using “lock time” to deal with the escrow
amount after a fixed duration of time agreed during the transaction.
Once the inspection is completed and
closing procedure is initiated, the blockchain will be signed by both the buyer
and seller to complete the transaction. Once the transaction is completed, it
could be sent to the peer network of real estate blockchain database so that
all the other nodes can be notified about it.
A subsequent trigger notification goes to
the bank of the closing procedure about the closing deal so that the loan amount
could disbursement could be initiated to be sent to the seller. A similar
notification goes to the buyer that the bank has been notified about the
disbursement. Also, notification needs to be sent to the seller and the seller
agents to hand over the keys to the buyer.
All the evidences for the agreement
contract could still be part of the transaction in the blockchain and available
to the public keeping the personal and sensitive data hidden.
Buyer and Seller agents as Miner/Nodes:
Once buyer receives the keys and seller receives the cash from the bank, seller
and buyer agents can behave as miner so that they can get the transaction fees
by mining it. Once the seller agents and buyer agents finds a proof-of-work, it
broadcasts the block to all nodes, transaction fee should be transferred to
their respective addresses.
This is an
open area which needs more research to consider how it cold leverage from other
blockchain. For example, all the nodes are competing to confirm transactions by
solving the mathematical puzzle in the bitcoin blockchain. All the transaction
in bitcoin are confirmed through a shared consensus system, and usually
requires several independent confirmations for the transaction to go through.
This process guarantees random distribution and makes tampering very difficult.
 |
| Blockchain Enabled Real Estate Industry |
6
Roles and benefits of different stakeholders in Blockchain
Enabled Real Estate Industry
Use of
blockchain will have win-win situation for the stakeholders involved.
The real
estate transaction involved via blockchain will be hassle free for buyer and
seller because it will reduce the transaction fee incurred via central
authorities, different third party intermediaries.
It will also
reduce turn- around time for completing the transaction. The blockchain would
greatly secure the transaction and make it even transparent. The blockchain
transaction would also reduce the hassle of maintaining the paperwork thus
fostering healthy environment.
Property of
time stamping and hashing technique in the blockchain can be used to encrypt the
intellectual property of document safeguarding the ownership identity without
revealing the inherent sensitive proprietary data and could also be used to
verify people’s identity.
7
Challenges Ahead in implementing Blockchain in Real Estate
Industry
One of the
salient features of Bitcoin blockchain is distributed consensus where all the
nodes compete to solve the mathematical puzzle to provide proof of work on any
new transaction. In order to implement the smart contract to enable distributed
consensus, it will initially be difficult to get the nodes to create a
distributed consensus to make them keep invested either in terms of transaction
fee or mining fee.
If the
number of transactions increase, the problem for the blockchain would be keep
up with the transaction so that it can accommodate all the transaction
efficiently
All the parties involved needs to be educated
about how things work in the blockchain enabled real estate industry ecosystem.
Real Estate
Industry is one of the government regulated industry that involves federal and
state laws governing it. There are many parties involved. In order to overhaul
the industry to the tunes of blockchain, the government and the technology
needs to work hand in hand to implement it successfully. The new technology
implementation may have to face lot of resistance from different stakeholders
not supporting it. The technology implementation will incur a lot of cost to
the industry.
8
References
1. World
Economic Forum Report Slide 24: http://www3.weforum.org/docs/WEF_GAC15_Technological_Tipping_Points_report_2015.pdf#page=24
Thank you for such a well written article. It’s full of insightful information and entertaining descriptions. Your point of view is the best among many.
ReplyDeletetitle company blockchain