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Crypto-talk: How Blockchain Technology and Smart Contracts Are Transforming the Real Estate Industry – powered by ESQ.title

AJ-Headshot-2020-226x300By:  Alejandro E. Jordan, Esq.

The advent of blockchain technology is projected to have a big impact on real estate, the largest asset class by value, which is predicted to expand from $2687.35 billion in 2020 to $3717.03 billion in 2025. Blockchain is the core technology that enables the whole cryptocurrency ecosystem’s value proposition. It’s the technology behind Bitcoin’s security and the reason Ethereum smart contracts have a value. Smart contract developers can use on-chain logic to manage different real estate transactions, goods, and markets utilizing external data inputs and traditional settlement outputs, allowing real estate assets to become computerized as tokens on blockchain ledgers.

Holders can use their tokenized real estate assets on blockchains in interesting ways, such as trading them against reliable benchmarks or providing them as security for a loan, thanks to hybrid smart contracts, which combine the protection of blockchain networks with the richness of real-world data inputs. Furthermore, utilizing an external data source, exotic derivatives products may be produced and paid for on-chain, allowing stakeholders to protect against diverse real estate sector patterns.

Real estate property can be converted into a digital format as fungible or non-fungible tokens (NFTs) on blockchains, granting holders partial or complete ownership of the actual real-life property they represent. Hybrid smart contracts allow data-driven logic to be created, allowing holders to utilize their real estate assets on the blockchain in new ways or even get involved in the real estate market without physically owning the underlying assets.

There are several ways in which blockchain technology can be implemented into real estate. For example:

  • The technology could be used to define certain conditions when transferring real estate ownership.

  • Using real estate NFTs as security for loans that occur on the blockchain.

  • Automating rental payments to repeat at the start of every month.

  • Using a decentralized real estate ETF as liquidity for lending protocols to generate passive returns, with the added benefit of more transparency and meta-governance.

Blockchain-300x150This the use hybrid smart contract technology has many benefits within real estate. Real estate assets can be integrated into other financial products that use blockchain easily while also removing the need for time-consuming manual processing. They can also become more internationally available, resulting in increased liquidity and reduced risk for buyers and sellers. Another benefit of blockchain technology is its ability to keep track of a real estate asset’s ownership and transaction history. This works because of the technology behind blockchain. When a block on the blockchain is filled with data it is set in stone and creates an irreversible timeline of data.

Blockchains are built within closed networks in order to create a high level of security and reliability. However, this creates a challenge known as the oracle problem, that blockchains by themselves do not contain data on the real estate industry and they cannot call external APIs. To solve this problem, a tool known as an oracle is used to connect the blockchain environment with an external environment.

Chainlink is the most popular oracle solution for smart contracts. It is a middleware program that can connect to any external API to any blockchain. Developers can combine data from a variety of data providers utilizing any number of Chainlink nodes, removing any points of failure in the sourcing and delivery of external data on-chain. SmartZip and ProspectNow are two real estate data providers that are supplying high quality datasets through the Chainlink network. SmartZip has over 1 billion data points on residential real estate, ranging from current market valuations, rental rates, regional trends, and predictive pricing models to smart contracts. ProspectNow provides extensive information on every property registered in the United States, including approximately 100 million residential and 42 million commercial properties all over the country.

appstore-300x300About the Author

Alejandro E. Jordan, Esq. is the Chair of the ESQ.title | Real Estate Law’s Residential and Commercial Real Estate Closing/Title Insurance Group, with nearly two decades of experience in the business of real estate closings, finance, and development.  His broad base of knowledge allows him to stay ahead of the game and keep abreast of the latest market trends.  If you have any questions on whether or not a particular real estate investment is right for you or your buyers or sellers, need assistance in drafting offers, contracts, LOIs, or in analyzing due diligence on a particular opportunity, or just have a question on your next real estate closing or potential transaction, contact us at 305-501-2836 or visit us at www.esqtitle.law for immediate assistance.

 

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