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Late last year, a precedent-setting property sale in Vermont became the first real estate transaction in the United States to use blockchain, portending a new era in the sale of land and improvements.
Blockchain technology is an industry disrupter on the cusp of improving transactions across all sectors and borders. It is suggested that blockchain may do for the $217 trillion U.S. real estate market what the portable phone did for communications, and that may be an understatement.
Blockchain will address high transaction costs, long time delays, and heterogeneity of real estate transaction types, accelerating the investment in real estate across sectors, the nation, and the globe.
Blockchain is a digitized, distributed ledger that records and shares information. It could enable the real estate industry to address many of its inefficiencies. Think of blockchain as the technology, or better yet the operating system, that supports Bitcoin, the digital currency launched in 2009. Cryptocurrency is only one of an untold number of applications for blockchain. In another high-profile application, Walmart just announced it is requiring suppliers of leafy green vegetables to upload growing and shipping data to blockchain by September 2019.
There is no requirement that a cryptocurrency (Bitcoin or something else) be used in a blockchain transaction. Payment can be made by any ordinary means that the parties agree to.
A highly regulated industry
Real estate is a highly regulated industry and real estate transactions must be recorded in a government ledger to be recognized. There are more than 3,600 governmental jurisdictions in the United States alone where real estate deeds are filed. The vast majority are paper instruments filed with a court clerk. Documents are not easily accessible, except to a dinosaur industry of local courthouse title abstracters supported by a coterie of indemnity title insurance companies.
There have been government studies and pilot programs, including the much-ballyhooed Cook County, Illinois, pilot that designed blockchain real estate conveyance software. But no actual transactions took place.
Then Propy, a private company based in Palo Alto, California, announced that it had used blockchain for a property purchase on February 20, 2018 in Chittenden County, Vermont, a first in the U.S.
I posted this blog last year when Propy announced the very first blockchain sale anywhere: the sale of an apartment in Kiev, Ukraine, in 2017. And on October 9, 2018, Propy announced it had used blockchain for a property purchase in Seville, Spain.
State laws are being updated
Laws will need to be changed across the U.S. and the globe to allow more than the old-fashioned register of deeds. Today, in most of the thousands of local jurisdictions in the U.S., the transfer of ownership of real estate is enforceable only when the deed is presented for recording among the land records in the courthouse.
There is, of course, some risk that a patchwork of state laws may inhibit blockchain’s growth, so most states are adopting minimalist legislation demonstrating that the jurisdiction and its courts are blockchain-friendly.
States have been actively making the necessary changes in law since 2016.
Vermont that year enacted House Bill 868, now a model across the country, that provides for the enforcement of transactions using blockchain by providing a rebuttable presumption of admissibility of a blockchain-based digital record as a “business record” under Vermont’s rules of evidence.
Here’s what the law says: “A digital record electronically registered in a blockchain, if accompanied by a declaration that meets the requirements of subdivision (1) of this subsection [notarized], shall be considered a record of regularly conducted business activity pursuant to Vermont Rule of Evidence 803(6).”
Similarly, in 2018, Ohio passed Senate Bill 200. It provides that “a record or contract that is secured through blockchain technology is considered to be in an electronic form and to be an electronic record.” Electronic signatures secured through blockchain technology are considered to have the same legal standing as any other electronic signature.
In 2017, Arizona went even further by enacting House Bill 2417, which recognizes blockchain signatures and smart contracts as electronic records. Lawmakers also adopted Senate Bill 1084, which requires governmental agencies to allow the use of electronic records or electronic signatures, including for the transfer of real estate.
At least 25 other states have some blockchain authorizing law, as do Dubai, Israel, Canada, Sweden, and Ukraine.
Look for blockchain in lease agreements
This law firm has worked with clients in the outdoor sports apparel and agricultural sectors in matters of blockchain and we see the application in real estate.
Interestingly, it may well be leasing that will elevate blockchain in the real estate marketplace ahead of deeds because most leasing transactions do not require involvement of a government registrar.
Owners of green buildings, among some of the most progressive in the real estate industry, will all but certainly be at the forefront of this technological revolution. But all owners of commercial real estate risk becoming as outmoded as the buggy whip industry if they do not consider adopting blockchain technology.
Stuart Kaplow is an attorney specializing in environmental law. This post originally appeared at his blog, Green Building Law Update.
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11 Comments
Hi all,
Someone who is actually knowledgeable about blockchain here. Sorry to say, blockchain has a very limited application, if any, for real estate transactions, for reasons I will explain later in this comment. Before that though, I want to be clear: blockchain is *not* a green technology, and has no business being anywhere near this site.
This is because blockchain technologies use a truly absurd amount of power. The largest project in this sphere, the infamous Bitcoin, uses about
50 TWh(!) a year, roughly equivalent to the electricity consumption of the entire country of Singapore. The electricity used in a single transaction is enough to power more than a dozen homes for a day, and the project will release tens of thousands of kilotons of CO2 into the atmosphere. Since Bitcoin is roughly half the total market cap of the entire cryptocurrency sphere, it is reasonable to estimate the worldwide energy consumption for maintaining blockchain records is roughly double that of bitcoin alone. This is all despite the fact that blockchain is not a widely adopted technology -- indeed, the only proven use case is buying drugs on the internet, and perhaps speculation and market manipulation if you are feeling generous. Any widespread adoption would increase energy consumption exponentially.
The reason for this ridiculous energy usage is because nearly every project uses "proof of work" to verify transactions and keep the networks secure. I'll try not to get too technical, but this model relies on multiple computer entities to verify each new transaction on a consensus model. Ideally, these entities are independent of each other and not malicious. However, if someone wants to verify a fraudulent transaction (i.e. steal), all they would have to do is control 51% of the network. The only disincentive to this is the amount of computation necessary -- ideally, you want your blockchain network to have *a lot* of computers constantly doing computations and consuming energy, so that it would simply be too expensive to buy enough power to have 51% control of the network. This means your network uses a huge amount of energy, *proportional to the cost of energy*. In the world of cheap, green electricity, blockchain technologies would compensate by consuming even more electricity.
Now, there are alternatives to proof of work that are being experimented with. In the case of the blockchain companies working in the real estate sector, their solution is to centralize the ledger, placing it in the control of the company. That's nice and all, but *entirely defeats the purpose of blockchains*. Any trusted, centralized party can already verify real estate transactions. That's how the entire goddamn market works. Having that company use a "blockchain" to do so adds absolutely no value to the process; at that point the company is just maintaining a fancy, inefficient database. It's all just buzz. After all, all this blockchain stuff is very technology-y, such things often inspire well-meaning people to say things like we "risk becoming as outmoded as the buggy whip industry if they do not consider adopting blockchain technology." Unfortunately, these companies are simply attempting to cash in on the hype surrounding cryptocurrencies and selling their blockchain applications to technologically-illiterate investors as the "next big thing".
In other words, it is a scam.
Don't get me wrong, there are some techno-utopian developers out there that absolutely believe in the whole project, who drank the kool-aid, so to speak. There are a lot of interesting ideas in the technology that have attracted many people. Additionally, people will believe in a lot of things when doing so will make them fabulously wealthy. But nine times out of ten, it is a simple get-rich-quick scheme.
The value this reprinted article adds to this website is questionable, and personally I'd recommend removing it. At the very least though, I recommend adding in some sort of comment from a credentialed computer science expert that is not trying to sell you something.
Thanks for highlighting the blindspot of the crypto-currency community.
I'm glad you posted to reveal the "other side" to the argument. I can only imagine all the servers and electronics involved in keeping the blockchain going and information stored. These servers use a lot of electricity. I am not an IT person but I've seen server rooms and they are huge and have temperature controlled AC Units running 24/7 to keep the room in the 70F degree range. All the hard drive fans turning 24/7, computers, switches, etc.
I wonder how this plays into billing companies wanting to go "paperless" as part of a "green" effort? I figured there was an ulterior motive involved. In other words, the billing companies don't want to pay for paper statements, mail postage, and the labor involved to send out the statement. It's less expensive for the company to send an email and do an electronic transfer from your account. It's not "green" as much as it is a cost savings for the company, disguised under the environmental cause.
Don't conflate blockchain and cryptocurrency, which are energy intensive by design, with e-mailing invoices. The energy cost of sending, receiving and storing an e-mail is negligible. The embodied energy in a piece of paper is definitely much higher. While I'm sure the companies pushing paperless are motivated by the bottom line, the net result is still very "green".
Aedi really summarized things well. And saved me from writing a lot. :-)
Bruce Schneier (a renowned computer security expert) just wrote a very relevant article on this topic: https://www.schneier.com/blog/archives/2019/02/blockchain_and_.html
Long story short, we should not be looking to blockchain to solve these perceived problems.
This article, as others have pointed out, seems to have no place on this site.
On top of that, it is doesn't provide any evidence about how exactly blockchain would improve the real estate process. It just postures the following without support:
"Blockchain will address high transaction costs, long time delays, and heterogeneity of real estate transaction types, accelerating the investment in real estate across sectors, the nation, and the globe....Blockchain is a digitized, distributed ledger that records and shares information. It could enable the real estate industry to address many of its inefficiencies."
You need to at least walk through a hypothetical scenario of how a blockchain transaction would integrate with and compare to the existing process. Why is a distributed electronic real estate ledger better than a centralized electronic ledger?
For the average residential transaction, title search amounts to less than a few hundred dollars and a couple days. Recording fees are on the order of a few hundred dollars. How much better are these going to get using blockchain?
The real inefficiency in the real estate market is in the marketing/brokering side that consumes 3-6% of a transaction. The stuff blockchain could address seems in the noise.
I am going to go so far as to suggest this article should be removed.
Matt wrote: "I am going to go so far as to suggest this article should be removed."
I understand where you are coming from, but the comments it has elicited have been very helpful to people like me who don't have any real understanding of the technology, and your critique allows us to rebut these sorts of claims, which are also no doubt being made elsewhere.
So I'd vote for leaving the article - and many thanks to those of you who have chimed in.
I agree the comments, largely spear headed by Aedi, are informative. He managed to tie some of this back to topics many of here care about. An article including background support for some of the energy issues he addresses might work here.
The editorial staff should consider that simply adding the tag line “Owners of green buildings are likely to be at the forefront of this technological revolution” does not make a green building article. These guest blogs obviously are not the same as GBA produced articles, which are often very good, but should be held to similar standards.
A pox on the whole real estate industry!
Matt,
GBA has a very small number of employees, and readers are fairly familiar with the opinions of GBA employees. We like to widen the conversation on our site by inviting guest bloggers to express their opinions. These opinions are not necessarily shared by GBA editors -- we recognize that our own arguments are strengthened when we allow ourselves to listen to a diversity of opinions.
We also trust our readers to engage in vigorous debate when they see the need to do so. We all benefit from this debate.
I'd like to thank everyone who has contributed comments to Stuart Kaplow's guest blog.
Blockchain was originally created as a technology for data encryption and the preservation of personal information. I think introducing blockchain in real estate can improve the security system and increase the trust between real estate agents and clients. I am investing in cryptocurrency using Cryptex Pay, but I understand that blockchain technology can be used in many areas, bringing benefits. The main problem is that few people understand blockchain well enough to adapt to new requests. What do you think about it?
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