The world is changing rapidly including business and real estate as we know it. The speed of technology is disrupting our old traditional ways. It was Chinese philosopher Lao Tzu that said, “Life is a series of natural and spontaneous changes. Don’t resist them; that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.”
You have probably heard about ‘Blockchain’ which is arguably the most significant technological development since the Internet. No central person or company owns it. It is information stored across a system of many computers without a middleman. It will impact everything from banking and payments, cyber security, internet of things such as cars and buildings embedded with software, communications, government bureaucracy, healthcare and the way we transact in real estate.
A key part of what makes a well-designed Blockchain so incredibly secure is the unimaginably massive amount of computer processing power required to do the math, run the algorithm and generate a fake key that could fool the majority of servers on a large distributed network. The three most talked-about usage Blockchain cases in commercial real estate are title transfers, peer-to-peer lodging and smart grid systems.
Property title transfers requires an exhaustive amount of research, which frequently includes visiting the local municipality and combing through your records, stored mostly on a microfiche or photographic file. Imagine if all the commercial title records in your city going back more than 100 years were converted to a standardized digital file living on a Blockchain ledger? The title search would amount to little more than plugging a digital key into a computer, unlocking the file containing the property’s title deed and then dealing with any possible issues.
Peer-to-peer lodging apps like Airbnb have already disrupted the hospitality industry. In 2015, 79 million room nights were booked through Airbnb and only two years later they are on pace to top 200 million. Experts are questioning if the ceiling is on the horizon. How can Blockchain change this? Each person’s file sits on a Blockchain and instantly updates when guest or host reviews are submitted, nights are booked and payments go through. Once a guest and host establish communication through the Airbnb app, a “smart contract” is immediately generated. This contains each party’s up-to-date file and allows each user to pull necessary information, including reviews and even criminal history. This indicates possible red flags about a guest or host by putting critical information at people’s’ fingertips.
Smart grid, however, could be the most disruptive Blockchain user of all. If you want electricity to run your home or commercial asset you’ve had little choice but to just pay. On Blockchain, eventually property owners will be able generate actual revenue by selling their excess electricity directly to other users. A peer-to-peer distribution system can’t operate on a centralized data and transaction platform. It would quickly get too massive to administer efficiently, too slow to process a constant flow of transactions and too vulnerable to data security threats. A decentralized smart grid will eventually generate up to $7 billion per year in energy revenue according to Goldman Sachs, of which very little will go to a large monopoly.
To benefit we need to learn from the people using Blockchain and understand how this new technology will improve and streamline our lives in transacting in real estate. We go in-depth in part two of our Blockchain series inside this edition of REIM with our local Blockchain expert Werner Riekert.
Clay Christensen a Harvard Business School professor said: “An innovation will only get traction if it helps people get something they’re already doing in their lives done better.” If this is the case, at least in real estate, we are about to see how a single technology can revolutionize a multiple trillion dollar real estate industry worldwide.