Blockchain, NFTs and some applications in Real Estate
All these new technologies will impact and transform the real estate industry. Some of them will not have an immediate effect since most of the people are still learning about them.
Before we look at some future applications of these technologies in real estate let’s start with some definitions.
What is blockchain?
In simple terms blockchain is a database. The data is stored in blocks that are linked together via advanced cryptography.
How does this work?
When a person sends information to another, a transaction is generated. For example, this transaction can be a lease agreement that must be executed by both parties. Once the information has reached the blockchain it must be validated using the consensus algorithm. This technique is used so that it’s not possible to temper information. The purpose of the blockchain is to solve the double records problems with cryptography without the need for a central server.
In our example above, once both parties have digitally signed the lease agreement using the blockchain that contract will not be able to be changed/altered. This transaction will stay inside the “database” and can be viewed by all the members.
Below is a snapshot of the main differences between blockchain and a typical database.
Source www.101blockchains.com
What is an NFT?
NFT stands for a “non-fungible token”. In plain terms an NFT is a non-interchangeable unit of data stored on a blockchain.
NFTs give the ability to claim ownership of any unique piece of digital data, trackable by using blockchain. In real estate context an NFT could represent: a legal document, signature, lease agreement, construction agreement etc. They are created through smart contracts that assign ownership of the creator. The private key of the NFT is the proof-of-ownership of the original. The creator’s public key is the certificate of authenticity for the digital asset.
An NFT can be sold or transferred to another owner. One day someone could buy a property and receive the title documents as an NFT in return.
The most popular blockchain technology to create and store NFTs is Ethereum’s blockchain as a public ledger.
Let’s look at some potential applications of these technologies in real estate
1) Real estate transactions such as leasing or sale/purchase of properties (I believe this has the potential to completely change an industry– an “uberization” of real estate).
Hypothetically if all the landlords / owners of commercial real estate would create a platform where they can lease/sell real estate there would not be a need for a third party such a real estate broker.
Some advantages for all parties include:
- Transparency – tenants, landlords, buyers, sellers will have access to this information. Currently the real estate brokers “keep” this information and only make it available to those interested/ potential clients.
- Reduced cost – with no brokers involved in these transactions/ or having limited involvement all the real estate commissions will decrease. This is a potential win-win scenario for all parties (landlords/tenants etc.).
- All the parties will have access to information about the desired property/transaction and will reduce or eliminate the chances of disputes.
- This can be combined with some other smart technologies such as digital twins to create a cutting-edge platform.
2) An accounting platform based on blockchain
The industry only has limited options when it comes to accounting software for real estate. Some of the major players in this market are Yardi, JDE, SAP. A new company could disrupt this industry with a platform that is robust and is based on blockchain. Since all the transactions will stay in the ledger any real estate auditing will be transparent and could be done in real time.
3) Digitization of ownership documents through NFTs
The cities could digitize all the records about the property owners and transform/mint them as NFTs. Once this is done all the NFTs can be sent/transferred to the actual owners.
When a real estate transaction happens, and the owner wants to sell a property a simple transfer of this NFT will document this transaction. The cities /taxation authorities can update the records in real time with the information about the new owner.
4) Smart Property Management
Traditionally the property management uses a combination of paperwork or software systems to manage properties. This entire process could be transformed using blockchain and smart contracts. All the transactions from filling maintenance reports, signing agreements with vendors, verifying compliance documents such as COIs could be stored more efficiently, secured, and transparent.
5) NFTs for different service/vendor agreements
A property management company can mint NFTs for all the maintenance agreements for example. Vendors can then bid on these NFTs in a transparent process. They can also be linked to the example 4) – once an NFT is sold the vendor will receive access to the smart property management platform where they can store/perform the contractual obligations.
Based on my experience in the industry, it will take years until we will see real changes. I think that any real estate company that will incorporate these new technologies/ applications will have a real advantage over competitors in the years to come.
Bogdan Burlacu
Founder & CEO eProp
www.goeprop.com