In this blog, take a look at how to incorporate blockchain into the real estate landscape and what are the outcomes of the combination.
In this blog, we are talking about how we are going to incorporate blockchain into the real estate landscape. It's because Blockchain could impact and change the way real estate gets done. However, it may require big changes, not just minor tweaks. Now, let's read on to know how blockchain and real estate, when optimized to work together, can influence and disrupt the real estate sector.
Defining blockchain is quite simple, it's a distributed ledger technology, on which Bitcoin and numerous other cryptocurrencies run.
One can think of blockchain as a ledger of transactions. The ledger is safely stored and encrypted on hundreds of computers globally, instead of being stored in your own computer at home. In addition, these computers recognize, not only transactions but also what order they have been made in. Anyone in the world can download and access blockchain onto their computer and become part of it. It is the influence of these shared (distributed) computers which gets used to validate and store transactions and thus, allowing blockchain to become a shared (distributed) system that has no central authority. The act to validate transactions by these machines is called "mining." Moreover, the reward for successful validations of a transaction and the addition of it to the block is Bitcoin.
Generally, when an investment in real estate requires making a distribution-- returning funds produced through a property investment to an investor-- those funds are transferred from that property's bank account to a bank account from where those funds can be transferred via wire, account clearing house (ACH), etc., to the investors.
Distribution mainly relies on the terms outlined in the Limited Partnership Agreement (LPA). Nonetheless, creating trusts or virtual accounts and tweaking them for each investor can prove to be budget-draining.
Here, blockchain could help form a method that records these distributions and stores (locks) the value into a token, which is settled to the U.S. dollar. Further, this could significantly uplift and streamline work when making distributions, as well as, eradicate the need for setting-up costly bank accounts.
One of the most prominent aspects of real estate investment is liquidity. Investors want their investment to be uncorrelated with the S&P to a certain extent to create a diversified portfolio, and possibly, real estate can provide that. In exchange, there will be typically longer hold periods- from 4 to 10 years based on the investment strategy. Further, because of these lengthened hold times, the obvious question rises up--" what sort of liquidity options do I have?" And, the answer could be from "there is no liquidity" to " there is some constrained liquidity and it would come with some type of penalty."
In this sense, a secondary marketplace could provide liquidity. It could offer prevailing customers the ability to exit when they think it's time, and new customers to enter. If we do investment in the blockchain, the exchange of shares between customers can become quite easy. Complications pertaining to loans and requirements would then come up, but if this market is understood upfront, these complications can be considered, instead of the get-go.
If you want to find out Bitcoin's (Blockchain) effectiveness in real estate further, experts recommend investing in the Ethereum Project, which is developing a platform to build robust blockchain applications. Also, reading other organizations' ICO whitepapers can be informative. These white papers include detailed information about how a company is using blockchain to build a particular application for itself.
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