What does the new blockchain technology mean for the real estate industry?
The Internet lives from copying. Regardless of whether we upload photos of the last vacation from the memory card to the computer or send them to friends — the same information is always copied and shared.
It is different with the copied content — especially if it comes from the “offline world”. When we want to transfer money or make transactions over the net, clear assignments are important. For example, a house can only belong to one owner. The transaction itself must therefore not be copied and must run securely. The new blockchain technology combines these two principles — copying and unique assignment — to ensure secure transactions and assignments and to minimize sources of error.
The essentials in brief:
- Blockchain technology has the potential to revolutionize the real estate industry.
- More security, more efficiency and less time — these are the advantages of the blockchain.
- Middlemen could become superfluous where the blockchain is used.
Most transactions are currently brokered through banks, notaries, or credit companies.
The administration is mostly centralized, which is increasingly causing problems:
Companies have to put in a lot of effort to protect themselves from hacker attacks or break-ins. Trust often plays a crucial role. How do I know that my bank is managing my money properly? Or that my property purchase is legal?
In addition, the duration of a transaction can take a lot of time. A transfer or a notarial certification can take days. With blockchain, these problems could be a thing of the past. But how does blockchain technology work? In this article we answer this question and give an outlook for the real estate industry.
The term “blockchain” describes a technical database concept in which data is stored, but cannot be changed or deleted after verification. Data records or information are combined in a block until it has reached a predetermined storage limit. Once this has been done, an algorithm is used to determine a type of checksum, a so-called hash value. This is a short series of numbers and letters, which is created by a cryptographic algorithm. New information is stored in a new block and chained to the previous block. The hash value of the previous block is taken into account when determining the new hash value, so that a sequential chain of linked data blocks is created. The blockchain (database) only becomes tamper-proof if all the blocks are linked with a hash value. The hash value thus serves as proof of the integrity of the blockchain.
Transactions — the core of a blockchain
The blockchain is basically updating the information and stored in it is validated in this way is due to the so-called miners, who can also be understood as accountants of the blockchain. All over the world, miners check the new information against each other in competition and validate it by solving a complex arithmetic task. Once this so-called “proof of work” has taken place, the miner who first performed the proof of work receives a reward, for example a payment. The miners ensure that the blockchain is updated at short notice like a digital heartbeat.
This admittedly somewhat technical definition of blockchain is illustrated in the following sections.
Real-time transfers and peer-to-peer
Imagine that real estate trading between Anna and Lisa, as shown in the graphic, could be made easier and more efficient.
With the help of blockchain technology, this transaction could be completed in a short time and without the need for intermediaries. Anna can transfer the purchase price via bitcoins — a “internet currency” based on the blockchain — to Lisa in almost real time (peer-to-peer) without involving a single bank or other payment service provider. And if the land register should also be kept on the basis of the blockchain, the transfer of ownership could also be carried out in the blockchain.
Future of Blockchain change the industry:
This example already shows that the blockchain can not only be used to make payments, but also values such as property rights, personal information or any other data can be validated. The elimination of intermediaries is a key feature of the blockchain and at the same time makes it possible to transform the Internet of Data into an Internet of Values. All information and values of any kind — intellectual property, contracts, property assignments and much more — can be stored and checked digitally with the help of the blockchain on countless computers worldwide with the highest encryption level.
how blockchain smart contracts can change the real estate industry
And contracts themselves can also be concluded and processed as so-called “smart contracts” via the blockchain. Smart contracts are intelligent contracts that can monitor compliance with them in a standardized and autonomous manner. This means that a contract can act automatically and check its conditions independently. A purchase contract via a blockchain also enables the apartment door to open only if the purchase price has also been paid. As with other blockchain applications, all of this is stored and managed decentrally.
Linking and linking — the “proof-of-work” process makes it possible
This decentralized administration has the great advantage over central storage approaches that manipulation and corruption can be counteracted. No matter when and where I apply the hash algorithm to the sales contract between Lisa and Anna, I do not change my sales contract, nor does the hash value change. The hash value of a blockchain therefore works like a kind of checksum. For example, in the case of Lisa selling houses to Anna, the hash is 1234ABCD
If I now want to check the rightful property owner before the purchase contract, I only have to check the hash value of the blockchain of the land register entries. If this is flawless, ownership is legal.
If everything is public, is there still confidential information?
Of course! To participate on a blockchain-based system, I need access software. This is called a wallet (= “wallet”) consisting of a private and public key, a kind of key for my transactions. The private key roughly corresponds to my secret signature, which only I know. In contrast, the public key can be seen by everyone. If Anna would now like to transfer money to Lisa, you encrypt this transfer with the public key from Lisa. Lisa’s public key can be compared to an account number to which money is transferred. Lisa can only open this transfer with her private key, the pin. This protects my confidential information.
The examples show it quickly: The blockchain brings changes for the real estate industry! Problems such as high transaction costs and risks could be solved. But where and how can blockchain still be used in the real estate industry?
In fact, real estate is already being sold worldwide using Bitcoin . According to broker reports, selling via cryptocurrencies is even easier than using classic Fiat currencies.
Blockchain expert Dr. Christoph Enaux, lawyer and partner at Greenberg Traurig Germany, says: “Blockchain and smart contracts can revolutionize the real estate industry. Not only transactions, but also real estate management and additional business around the property can be made more efficient and easier. ”With the blockchain, the entire lifecycle of a property can be digitally represented, from planning to construction and management to demolition and management. Lease contracts could be concluded and checked automatically and operating cost statements could be automated. In addition, it is also possible to process smart city services such as parking lots with charging stations using blockchain.
IoT finally use what should have been used for a long time
The Internet of Things can also benefit from revolutionary technology. More and more households are opting for smart homes , but the various central computers (servers) of the providers are always a challenge. Since each company has its own application platform, the connection between them is complicated or not possible at all, and each provider has its own proprietary data collection. Blockchain technology can make it possible to transfer the data sovereignty of all systems back to the user himself and also offer greater protection against data theft and manipulation than centralized systems. For example, changes in sensors can be quickly recognized and the window or garden gate are not opened.
Great opportunities, but also legal risks
As big as the chances of blockchain technology are — there are also some legal risks and uncertainties in particular. “The blockchain is not (yet) compatible with some basic principles of law. Such fictions are incompatible with the functionality of the blockchain. The blockchain does not have a right to be forgotten — here all information is stored forever. ”It takes longer than the removal of any technical issues to take his view until technology .”It won’t be possible without mutual understanding of the other side,” Enaux is convinced. “This is not a one-way street. The technicians have to understand what the lawyers are about, and the lawyers have to understand how to think much more than before in algorithms and computer-understandable processes. ”