Take the Dutch tulip mania of the early 17th century, add the viral qualities of social media, pitch it with seductive terms like cryptocurrency, and you’ve got the makings of the next bubble.
I am not a Luddite. Regardless of being firmly in my middle-age, I consider myself technologically savvy. I Snapchat with my kids, I order groceries through Alexa, and I’m constantly testing new technology, both at home and at work. But I have a reliable bullsh*t detector (I’m a parent of two teenage girls), that is sounding the alarm when it comes to this latest mania.
First of all, blockchain, when you break it down, isn’t very sexy. It’s a digital and decentralized ledger that records transactions.
But how does blockchain affect real estate?
In a perfect world, it would ease some of the shortcomings of the traditional banking system, lower transaction fees, reduce cyber fraud, and allow transactions to process considerably faster. But right now, it’s essentially a gimmick. It may be helpful in drawing attention to a real estate listing, but there are a multitude of structural roadblocks, a few of which I’d like to share.
“Blockchains are networks, and a network of one is not very exciting.” -Bitcoin Developer Jeff Garzik
This quote relates to recording real estate documents at the county level. Property records held by government entities are a natural fit with a database structure that technologically binds each record to its prior record.
But there are over 3,100 counties in the United States. 3,100!
The political hurdle, supported by state regulations and statute, is high. Consider the fact that the first eRecording was accepted almost 20 years ago, yet the document submission industry is still converting paper-only counties to this “new” technology.
In a recent blockchain pilot in Cook County, Illinois, they succeeded in using blockchain technology to “record” a deed. However, because the existing framework is the official record, informing the world of your ownership interest or lien position, the paper deed was then recorded. The same way as every other transaction. It actually made the process more cumbersome. To quote their report, “a blockchain transfer is no different than one nailed to a bulletin board.”
Blockchain is affecting our environment
For those of you religiously separating your recyclables, riding your bike to work, and installing solar panels on your roof, this statistic is for you:
The number of U.S. households powered for one day by the electricity consumed for a single Bitcoin transaction – 11.5.
Or how about this one?
Bitcoin miners currently use about as much electricity as Ireland.
Crazy, huh? How is this?
The reason Bitcoin uses a lot of energy is rooted in the way the network operates. Digital currencies are controlled by a network of users who expend large amounts of computer power, and thus energy, building a so-called “blockchain” of Bitcoin payment transactions. The alarmist predication that Bitcoin will consume “all of the world’s energy by 2020″, will likely not come to pass, but naturally, this is all leading to concerns about its sustainability.
“How many Bitcoins is that house?”
It’s not an easy answer because the currency fluctuates wildly. Bitcoin was down 16.8% the day I wrote this (January 16th, 2018). Based on the average sale price, a home in Seattle that would have cost you 39 Bitcoins on Friday (January 12th, 2018), will now cost you 46. It could swing the other way tomorrow, but as a seller, I’m not accepting a “PowerBall ticket” as payment.
How is this easier than cash, unless you are a drug dealer, money launderer, or hipster anarchist? Call me old-fashioned.
How much of the pain in a real estate transaction is a result of land records, recording, or exchange of funds, anyway? Not a lot, honestly. I don’t need a bionic pinky toe. We are investing a lot of energy in solving the wrong problem.
One blockchain area that shows promise is smart contracts. A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the performance of a contract. Many kinds of clauses may be partially or fully self-executing, self-enforcing, or both. It wouldn’t eliminate the need for escrow entirely, but it would provide security that is superior to traditional contract law and reduce other transaction costs.
It will be a while before counties, title plants, and financial institutions move to blockchain-based systems.
At JetClosing, we will certainly stay at the forefront there, but these aren’t institutions we can significantly influence. Smart contracts, on the other hand, have efficiencies on a per-transaction basis that we use to deliver on our mission to reduce the time, stress, and expense involved in real estate closings.
As I said, I’m all for progress, and I see the future benefits of blockchain, but tonight I’m going to sleep better knowing cash-to-close is coming in the form of a bank wire in US dollars.
“Alexa, order a new shipment of Malbec.”