How Blockchain Technology is going to change the Real Estate Industry


In developed countries, the real estate sector already enjoys many benefits offered by the blockchain. There, the blockchain will merely supplement existing property transactions. In developing countries, however, blockchains will secure property rights, attract additional capital, and create new investment opportunities.

These improvements may create a self-reinforcing cycle of growth. Lastly, in undeveloped countries, fully-integrated blockchains may handle all real estate related transactions. In any country, the blockchain will provide efficiency for businesses, security for owners, stability for investors, and information for all.

The greatest benefits, though, await the least fortunate. Blockchains of title can decrease risk, reduce violence, and protect freedom.

Blockchain and Developed Economies

Thankfully, developed economies enjoy established, working, and respected institutions. Thus, first-worlders will likely superimpose the blockchain onto their existing institutions, which work well without the blockchain.

Legal and logistical apparatuses protect property rights. In turn, protected property rights promote the investment of capital, spurring greater growth. Culture buttresses this intangible infrastructure. Businesses ensure that legislation is somewhat pro-business. The rule of law, and its concomitant stability, enables people to actualize their potential. Without stable institutions, the individual’s freedom is unsecured, like their property rights when para-militaries rival the state’s monopoly on force.

Ironically, developed real estate sectors have the least to gain from enabling the blockchain. Simply because, developed countries already enjoy the benefits of the blockchain: publicity of records, stability of institutions, and security of rights. Property rights are clear. Written records are maintained. People trust each other, and economic actors can rely upon the government to enforce their contracts. Information flows freely. Fraud is relatively rare. Violence is suppressed. Corruption hides in the shadows.

That being said, big bureaucratic nations still lack one major benefit of the blockchain: simplicity. The blockchain can easily cut transaction costs by an order of magnitude. In the real estate industry, blockchains can reduce transaction fees, and theoretically eliminate the need for escrow accounts and title insurance.

To illustrate this point, look at the United States. Each real estate transaction is unique, with its facts and circumstances. Plus, the property laws are quirky. Unless a blockchain understands the “rule against perpetuities,” or discerns the subjective mind states of “bona fide purchasers for value,” then the courts must continue to play a role in determining property rights. The blockchain itself cannot adjudicate individual cases. Instead, brokers, lawyers, judges, title officers, escrow companies, banks and academics will continue to play a role in real estate transactions. Even if the laws were reduced to mechanical, rigid rules, the blockchain cannot disrupt the discretionary powers of a court sitting in equity.

Like the Bitcoin ecosystem, power in the United States is decentralized among many groups. Therefore, acceptance of the blockchain will be decided by the natural forces of federalism.

Inevitably, though, the blockchain will gain general acceptance. Businesses must implement the blockchain to increase profits. So, corporations already lobby for blockchain-friendly legislation. Also, governments must implement the blockchain to cut expenses.

Some states have welcomed the blockchain through “enabling acts.” This enabling legislation prove that the blockchain will probably supplement, not supplant, developed real estate sectors. The State of Vermont blessed blockchains as admissible evidence in Vermont Courts. The State of Arizona officially ordained smart contracts. The State of Nevada expressly preempted its local governments from taxing or regulating blockchain transactions. Even the State of Delaware is about to edit its beloved General Corporate Law to allow corporations to maintain blockchain records.

These laws are symbolic and superficial. In fact, all of those laws were unnecessary, because the courts should have reached the same conclusions applying their existing legal frameworks. A contract equals offer, acceptance and consideration, regardless of whether it is a “smart contract,” or not.

Factom Inc. invented a way of using the Bitcoin Blockchain to timestamp, record, and authenticate information. As a result, Factom Inc. provides a tool to memorialize existing informational processes. Chains of title can be encoded and verified, and compiled, without altering any of the existing system.

In summation, developed real estate sectors will likely superimpose the blockchain onto existing property transactions, since the blockchain has less to offer in a healthy, modern economy.

How Blockchain can Benefits Developing Economies

Up until now, I may have sounded pessimistic. I’m actually very optimistic. The blockchain will eviscerate transaction costs—which are evil. So in a sense, the blockchain is removing artificial constraints of human potential. Also, the blockchain increases equity, by making information more accessible.

All the improvements discussed up to this point will benefit everyone in this article. Additional, unique benefits for underdeveloped economies are discussed below.

In developing economies, the blockchain will improve the real estate industry in two ways. First, blockchains attract external capital. Second, blockchains free up internal capital. As a result, developing countries will have more capital to invest.

The blockchain provides an inexpensive way of securing property rights. In developing countries, legal, political, and social systems have settled enough to attract outside capital. Sophisticated investors, however, demand enforceable property rights. Especially when they live on another continent. If property rights are less than fully enforceable, then the rational business person invests less than the full value of the property.

Corruption is a deadweight loss of social welfare. The blockchain fights public and private corruption. If real estate title was held on the blockchain, without reference to a local governmental agency, then the system would be less vulnerable to corruption. Miners are impartial computers. When any government becomes a patronage system, then human capital depreciates, rent-seeking in fruitless careers. If property taxes were paid on the blockchain, another vulnerability would be patched. Plus, the blockchain can ensure security without bribery.

Fraud imposes deadweight losses on innocent people. For instance, forged deeds are fraudulently executed either in an attempt to steal property, or to steal money. The blockchain could end this scam, since blockchain entries cannot be forged.

The blockchain will also free up locked-in capital. Some property owners cannot borrow against their properties, because they have problems proving their ownership. The blockchain could create a generally accepted standard for proving ownership. Plus, lenders would feel more secure lending if a smart contract deducted monthly loan repayments automatically. Loans will be easier to obtain, and cheaper to make.

These factors create a positive self-reinforcing cycle. When developing economies have greater access to capital, they will invest a portion of that capital in productive assets.

How Blockchains can Benefit Undeveloped Economies

Imagine a fully-integrated blockchain of title. Everyone who has an interest in that property holds their interest on the blockchain. Owners, tenants, taxmen, mortgagors, trustees and future interest holders all enjoy self-executing property rights. Payments are automatic. The terms of their contracts are enforced automatically, without filing a lawsuit.

With less sunk costs, and greater returns on investment, undeveloped countries are the most likely candidates for fully-integrated blockchains. Undeveloped countries also have the most to gain. These countries have higher instances of civil unrest, violent crimes, and political persecution. If a property owner knows that they will still own their property when they return, they will be more willing to flee danger. If a neighborhood thug violently ousts someone from their home, the thug cannot mortgage the property, nor transfer good title. If a state official seeks to extort a resident, the official will have less leverage over that citizen.

In Conclusion

The blockchain has the potential to insulate a person’s property rights from the vicissitudes of instability and dispossession. The blockchain frees the property owner from centralized control.

That’s why undeveloped countries have the most to gain from the blockchain. The blockchain secures more than just property rights. The blockchain ensures respect for our human rights. No one can steal your title, even if they steal your possession. The blockchain will survive tyrannical governments, natural disasters and wars.

Best of all, no one will suffer harm from the adoption of the blockchain. Therefore, we have a moral duty to spread the blockchain to all corners of the globe. Thankfully, the free markets are already doing that for us.