Bitcoin & Real Estate
Author: Coleman Maher
What is Bitcoin?
Bitcoin is a digital currency that works without a trusted central authority, like a bank or a government. It is the first “cryptocurrency” of many. Bitcoin works as a peer-to-peer network—it isn’t a company or the product of a single group. You can think about it in terms of downloading an mp3 or music file. When you download an mp3 from a website or streaming service, you are downloading from that company’s servers. When you use Napster or BitTorrent, you are downloading bits and pieces of that mp3 or music file from all the users who are holding and sharing it. That way if someone cuts your connection to one user, the download and network will survive. If someone cuts your connection or bans you from a particular website or streaming service, your download will not survive. Bitcoin is a distributed, peer-to-peer currency.
Bitcoin has several important properties that make it exciting.
Bitcoin is decentralized, meaning no one group or person is in control of it. Decisions are made by consensus of the whole network and people are free to start their own version of Bitcoin. All of the code is open source and available to the public. No one can ban you from the network for your political beliefs or any other reason, meaning it is also censorship-resistant.
Bitcoin is trust-less meaning that you don’t have to trust the other person you are transacting with. This is possible because the whole network validates transactions constantly and it is prohibitively expensive in terms of computational power to fake a transaction across the whole network. You would need 51% of computing power on the network to do so. The larger the network grows the more expensive it is to commit fraud.
Bitcoin is cryptographically secure, meaning that it relies on public key encryption for security. As long as you control your private keys no one else can steal your Bitcoin. It can’t be hacked or forcibly confiscated by the government. If you keep your Bitcoin on an exchange or give a website the private keys, you can be hacked, which is what happened when you hear about Bitcoin being hacked in the news.
Bitcoin is permission-less, meaning you don’t need the permission of a government or bank to use it or create a wallet or “account”.
Why is Bitcoin worth anything at all?
People value the ability to send money across borders quickly and cheaply without government or bank interference. If you have ever tried to wire a large amount of money internationally or bring a large about of cash across a border, you will know why Bitcoin’s use in this case is valuable.
People value being able to store money in an instrument that cannot be tampered with by the government or stolen by hackers or robbers.
If you look at the events in Cyprus, when banks forcibly seized deposits to pay off the government’s debts or hyperinflation in Zimbabwe and Venezuela, when their governments printed money to pay debts, making their currency nearly worthless, you will begin to see why many people have a political and economic interest in Bitcoin and other cryptocurrencies.
Because many people value the properties of Bitcoin, the Bitcoin network is large. Because the Bitcoin network is large, it is secure and almost fraud-proof.
How can it be used to purchase real estate?
Bitcoin has several advantages for buyers and sellers of real estate. You can move Bitcoin much easier than you can move large amounts of money across borders. The real estate industry in the San Francisco Bay Area really suffered when countries like China implemented capital controls, restricting money from coming out of China.
There are payment processing services, and Bitcoin escrow services to make real estate purchases possible without exposure to the volatility of Bitcoin prices. It’s often reported in Bitcoin for real estate news stories that the buyer or seller actually profited much more than they anticipated because the price of Bitcoin went way up during the closing period of the transaction.
cryptohomes.co is my real estate team and we specialize in facilitating cryptocurrency for real estate transactions. It is still a very new idea and it may take time for governments, title, escrow, and banks to fully come on board, but we believe it will happen. While most real estate professionals do not have the necessary relationships and expertise to navigate this new frontier, we are ready and able to do cryptocurrency for real estate transactions today.
Blockchain applications and other cryptocurrencies
Bitcoin is not the only cryptocurrency out there. Ethereum is the second most popular and valuable cryptocurrency in the world and it has an entirely different purpose and use case than Bitcoin. Ethereum aims to be a kind of global distributed computer and its primary use is that of “smart contracts”. Smart contracts execute transactions given certain conditions automatically.
Initial Coin Offerings or “ICOs” are the latest craze in investing. ICOs are positioned as an alternative to IPOs, where only very sophisticated and wealthy investors can invest in early stage companies. ICOs are generally open to the public and allow anyone to invest in start ups.
There are many applications for blockchain technology and cryptocurrency. One of the most exciting applications is that of peer-to-peer or decentralized marketplaces. Like the Napster example above, it may be inevitable when middlemen like Airbnb or Uber are cut out of the sharing economy. People may soon be able to arrange transactions among themselves in a trust-less, secure way without someone taking a giant fees for facilitating. One of the most exciting projects in the blockchain space is called Origin. Origin is building a set of open source protocols to help enable anyone to build a decentralized marketplace or sharing economy.
Many experts predict these technologies will have just as much if not more impact than the invention of the internet. It’s clear to the author that blockchain technology, cryptocurrencies, and the decentralization and open source movement will have a huge impact on the future.