The housing market crash due to increased foreclosure rates between 2007 and 2009 caused a number of problems, not only for the real estate industry for the global economy. The greed of big banks ultimately led to the loss of millions of dollars and even worse the livelihood of millions of Americans. Luckily following the crash, certain systems were put into place to make sure the market crash of the early 2000s never happens again. Nonetheless, the real estate industry still faces a slew of problems. Being primarily paper-based, the act of buying or renting a home has become a complex, convoluted and time-consuming process. For far too long, the real estate industry has relied upon outdated systems to conduct business.
At the moment, real estate suffers from three main problems, the lack of cheap funding options for prospective home buyers, an increase in intermediaries, and a high rate of fraud primarily fueled by an outdated paper-based system, as established earlier. Blockchain, a relatively new technology, has become widely recognized as a disrupting forced to industries that have primarily run on paper-based systems in the past. The banking, medical, pharmaceutical, shipping, technology, and many more industries have begun adopting blockchain technology in an effort to reserve a spot in the future business market. Real estate seems to be the next in line to be disrupted by blockchain technology.
What is blockchain?
Blockchain, originally popularized through the Satoshi Nakamoto whitepaper, Bitcoin: A Peer to Peer Electronic Cash System has more recently found more use beyond cryptocurrency technology. Using a digital distributed ledger, blockchain provides businesses with a platform to conduct more reliable, secure, transparent, and effective business practices. A blockchain is viewable by all networks connected to it. This does two things, one, it improves security by running the system through each node in the network, thereby eliminating the ever problematic single point of failure, and two, it improves transparency by providing each member of the chain with access to the exact same information. Information can be added to the chain, and old information altered only through a majority consensus or vote, of the entire chain.
Due to this, blockchain ledgers are considered immutable and trustworthy. By encoding information through cryptographic systems, blockchain is considered by many to be one of the most secure forms of data sharing and storage. The technology is already being developed to provide more efficient supply chain management and logistics, because of this it is being adopted in many industries, such as in banking, medical, education, shipping, and transport. The Internet of Things (IoT), Artificial Intelligence (AI), and blockchain will most likely shape the way business is conducted in the future.
Already multiple startups have begun implementing blockchain into current real estate systems, eventually, blockchain will have the ability to remedy all the problems real estate currently faces. The current problems in real estate Plagued by outdated systems, an improvement to the real estate sector is long overdue. Not only in the US but all throughout the world, real estate is facing three major problems.
All of these issues can be remedied with blockchain, and more minor problems can be addressed as well. Lack of affordable funding options Due to the rise in student debt and the housing market, it is expected that many millennials will be unable to afford a home. And it is not only due to their unhealthy avocado toast addiction but also due to the rising rates of rentals. According to CNBC, people aged between 18 and 34 give 30 percent of their paychecks to their landlord. The economy has changed drastically since the 70s and 80s, and now millennials, with their ridiculous spending habits and disregard of the future must shoulder the consequences. It seems the only solution to this problem is blockchain. Currently, Brickblock, a blockchain startup, is developing blockchain solutions to provide easier means of investing in a home.
Brickblock’s main functions come in two forms.
One is for potential investors, and the second is for companies to raise capital. Brickblock’s blockchain allows its users to raise capital and invest from anywhere in the world. It has been featured on a variety of media sources, such as Forbes and German media corporation Immobilien Zeitung. Real estate is one of the most profitable investment opportunities worldwide but is often time-consuming due to a large amount of paperwork involved. By placing both investment and capital raising opportunities on the blockchain, Brickblock is saving investors both time and money. It provides the tools for millennials to invest in a home, and a platform for companies to raise capital. An increase of intermediaries Investopedia estimates that nearly 80% of homebuyers use a real estate agent or broker. The standard commission for these services hovers around 6%, so in its simplest form, agent’s or brokerage’s fees for a $100,000 home would $6,000. This is a significant amount of money for just showing someone around a house. Unfortunately, at the moment, brokers and agents are a necessary requirement for the real estate industry. Blockchain, however, might just have what it takes to reinvent real estate.
There are a few blockchain startups developing blockchains to rid the market of intermediaries, Propy is one of them. Propy is basically a real estate search engine. It connects people looking to sell their homes and people looking to buy, by effect streamlining the purchase of new homes. It allows potential home buyers a search engine where they can apply a variety of filters to buy the home that is right for them. Propy is a worldwide blockchain with listings located in China, the US, the UK, India, and various other countries. Here, blockchain allows to secure the data storage and exchange on the platform. The Propy platform is currently complete, with new homes being added to their service on a regular basis. What about rentals? Rentals suffer from the same system the home market does. Real estate agents over profit through the selling of rental units.
Rentberry is a startup that is looking to disrupt that market. Rentberry uses a decentralized ledger to make finding and renting an apartment easier. It allows tenants to find apartments and even pay their rental fees online. Through the service, tenants can request maintenance, provide credit reports to landlords along with other features. Landlords can use the service to promote rentals they manage and to communicate with tenants in a secure and convenient manner. Without the need of a real estate agent, landlords can decrease the price for their rental units as they do not need to provide a fee to agents. Ultimately this benefits both buyer and seller, as buyers have access to cheaper units. Real estate suffers from a high rate of fraud Fraud runs rampant in the real estate sector, not necessarily in America, but mainly in areas such as Brazil, the Middle East, China, and other nations throughout the globe. In Brazil, huge amounts of rainforest are being taken over and chopped down illegally. This is mainly due to accessing this land through violence, bribery, or fraudulent documents.
Currently, the Republic of Georgia is toying with blockchain to provide more legitimate means of detecting fraud. The Republic of Georgia became the first national government to use blockchain technology to conduct land title registrations. The country relied on Bitfury’s blockchain platform to perform the first transaction of its kind. Eventually, the Republic of Georgia hopes to expand the service to include the purchase and sale of land titles, demolition of property, rentals, mortgages, notary services and the registration of new land titles. It is one of many countries now looking into blockchain technology to streamline government responsibilities related to real estate. Hopefully, this first step by Bitfury and the Republic of Georgia is one that Brazil can benefit from. The Republic of Georgia is setting the standard for land titles, eventually, maybe even Brazil will follow. So why isn’t the real estate industry improving yet? There are many reasons why the real estate industry has remained stagnant. For one, blockchain technology is still way too new. Not very many people know about it and therefore cannot benefit from it.
Secondly, think about how many intermediaries there are in the real estate sector. There hundreds of thousands of real estate agents and probably thousands of brokers. These people most likely would like to ensure the safety of their jobs, so why would they adopt the use of blockchain? Blockchain will not bring any significant changes to any markets anytime soon. That includes banking, pharmaceuticals and all the other industries that will eventually benefit from the technologies adoption.
So, in order for blockchain to begin bringing about the changes that so many people are hyped on, it needs to be adopted on a mass scale. This provides a variety of problems. One, blockchain is new and humanity is always hesitant to change. Two, blockchain is associated with cryptocurrencies, which have always had a bad rap, and three, the mass adoption of blockchain could eventually lead to the loss of many jobs. The entire real estate market could become a thing of the past if blockchain was adopted into it. Bring on blockchain At the moment only the largest companies are using blockchain technology. IBM has already dumped millions of dollars into the nascent technology, with most likely more millions to come. At the moment blockchain technology is most suitable for large corporations, which is why they are leading in the blockchain sector.
However, once these systems become more mainstream, eventually smaller businesses will be able to adapt their business to bring blockchain in. At that point, business will never be the same. Blockchain, IoT, AI, all of these new technologies are bringing about drastic change, not only to businesses but to our daily lives. These technologies now a thing of the future, will eventually be a thing of the past. However, it will be a long time before we reach that point. In the meantime, blockchain remains to be more hype than anything. Until the mass adoption of blockchain occurs, it will remain an unknown system based on theory rather than results. Use cases exist, but often times technology cannot seem to catch up. Until these things are addressed, blockchain will continue to be more hype than help.
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