Imagine that, early this year, you sold a property for $10m and opted to take payment in Bitcoin.
Perhaps your $10m of Bitcoin was transferred to you on January 6, when a Bitcoin was worth $17,135.84. If you didn’t use those funds by, say, the next Tuesday, your store of Bitcoin would have fallen in value by 16%. If you waited another week to spend those coins, you would find they’d plummeted 55% in value. Of course, had the sale taken place exactly a year earlier, you could have watched your $10m of Bitcoin turn into more than $200m by the end of 2017.
With this level of currency fluctuation, whether the real estate deal was a good one scarcely matters. At present, crypto-currencies are too unstable to act as a viable store of value for investors.
In June, the Bank of International Settlements (BIS) said crypto-currencies would never be a practical alternative to mainstream currencies because they were too unstable, subject to too much manipulation and fraud and also that they are killing the planet – Bitcoin mining currently uses as much electricity as Switzerland.
However, the travails of Bitcoin and other crypto-currencies do not mean that the underlying blockchain technology has no practical application. There are a number of potential uses for real estate for example.
Blockchain allows information relating to a series of transactions to be distributed across a network of computers (known as nodes). Blockchain creates digital records that are shared, transparent, rapidly updatable and very difficult to hack.
A crucial element is that blockchain eliminates the need for a central authority to approve transactions and verify identities as the ledger for transactions is distributed over a network. This makes a transaction harder to falsify.
The benefits for real estate could be huge as title searches and transfers could be verified instantly. This will be particularly important in Asia’s developing markets, where security of title is a major headache for investors. Incomplete, out-of-date land registry information could become a thing of the past.
It is not just developing markets which can take advantage of blockchain: Japan is understood to be examining moving real estate information to a distributed network, so it can be more efficiently updated.
Blockchain coins or tokens can also be used to share office space. European company Primalbase operates a tech-flavoured coworking business, which is set to open in Singapore this year. Occupiers gain access to the Primalbase network by buying one of the 1250 coins in issue, thus stabilising office costs.
“Buying a Primalbase token is a one-time fee for life membership which provides you free and unlimited access to amenities: Internet access, digital printing, meeting rooms,” the company says.
The most desired use for blockchain technology looks at present as the least likely to succeed. Using blockchain to fractionalise ownership of real estate would massively increase liquidity. Singapore-based real estate crowdfunding company InvestaCrowd says it plans to launch its own ‘coin offering’ this year.
However, at present using the technology in this way subjects investors to the vagaries of the crypto-currency market. And this is before regulators in Asia Pacific get to grips with cyber-currencies; the attitude of the BIS demonstrates that blockchain transactions will remain on the fringes for the time being.