One topic that has been on the minds of many people in the real estate industry has been that of cyber security and reducing fraud.
While title agents and real estate agents continue to educate their clients to prevent wire fraud scams, some experts in real estate and tech are predicting that Blockchain technology will revolutionize the buying and selling of property.
So what is blockchain technology?
If you've been hearing a lot about Bitcoin and not really sure what it means or how it works, you're not alone. It's a complicated concept. Rosamund Hutt with the World Economic Forum shares a quick definition, stating that blockchain removes the bank as the middleman and allows consumers and suppliers to connect directly.
"Using cryptography to keep exchanges secure, blockchain provides a decentralized database, or “digital ledger”, of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded."
If you are new to the concept or not convinced of its usefulness, here are four things to consider as a real estate and title professional:
1. Although blockchain technology like Bitcoin is notorious for illegal purchases on the "dark web," the technology can be utilized in multiple industries.
Each transaction in a blockchain network is received in a “block” connected to the previous so anyone in the system with the proper authorization can trace back to the original within the chain. The system is self- controlling and requires no bank to verify the funds or information contained within the ledger. The information cannot be altered once it has been verified and made public. In order to forge information, you would have to convince 51% of the participants to endorse your forgery. Therefore, unlike paper documentation, it's a lot harder for instances of mortgage fraud or forged deeds to occur.
Any sort of asset can be moved within a blockchain system from money and securities, to intellectual and real property. Ethereum is another blockchain system that is more than just virtual currency. Its protocols also include the ability to create “smart contracts.” This could be anything from a deed to a ledger containing a person’s financial history and credit rating.
2. Not all Blockchain systems are public and transparent.
Public systems are truly transparent, whereas private systems are controlled by an entity with their own interests at play. A public blockchain like Bitcoin uses a lottery to encourage a "miner" to be the first to verify a block. In a private blockchain system like start-up ChormaWay, "miners" are vetted by private owners and do not benefit from the network effect. Many people argue that private blockchains are not really blockchains, but actually distributed ledger technology.
3. The technology promises to be more robust against security breaches and document forgery.
Some experts estimate this will mean saving millions of dollars for mortgage lenders. However, there are some potential vulnerabilities. If a group of hackers were able to gain control of 51% of miners' computers, they would be able to disrupt the recording of new blocks. This would, of course, be a massive attack many believe would be difficult to achieve.
4. The technology is already changing the real estate industry around the world.
Sweden’s land registry, Lantmateriet, has officially begun to implement a private blockchain network in the sale of land and property. In April, Ubitquity, which is the infrastructure provider for Bitcoin, helped the Brazilian government establish a public system for their land records bureaus.
In the United States, there has been no regulatory oversight or implementation of any blockchain system. In 2013, the Treasury Department’s Financial Crimes Enforcement Network issued a guidance discussing the application of the Bank Secrecy Act regulations to blockchain and individuals who use those systems. The CFPB hasn’t released any statements on the use of blockchain but it has issued warnings regarding the risks.
While we are moving further away from paper documents and fiat currencies, it will still be some time before blockchain technology will be implemented by mortgage and title professionals in the United States. Advancements to increase the data storage of the blocks, decrease the verification time, and regulations to mitigate risk will make systems like Bitcoin and Ethereum a valuable tool in real estate transaction of the future. Be sure to check out the session Notable: How New Tech Creates New Risk for more insights on how new technology will impact your business practices.