Bitcoin smart contracts lay the foundation for tokenized real property
For people active in the real estate industry, new buzzwords seem to be appearing every day. Many have heard the word “blockchain”. Even more may have heard about “tokenizing real estate”, “smart contracts”, or “fractionalizing real estate”.
These buzzwords and catchphrases are used to paint an exciting picture of the future — a future where a farmer in Africa can use a smartphone to buy a piece of commercial property in Tokyo, where a smart home automatically pays its own utility bills, or at least a future where we don’t have to wait so long for the property management company to respond to our emails about leaky faucets.
The race is on to try to build the products and services that will make this future a reality. But few in this race are addressing the fundamental issue which blocks them from moving forward: the entire industry still runs on paper.
The internet revolution, thus far, has not really affected the way this industry works. All over the world, deeds continue to be written on paper and stored in file cabinets, and signatures are still hand-written with an ink pen. How can you “tokenize” real estate if all of the underlying systems and procedures still rely on paper?
Before anything else can be done, we first have to solve this difficult problem of “digitizing real estate”. This does not mean providing access to existing databases through a web browser, as many website already do today. Digitizing real estate means we store all important documents, such as deed, insurance, taxes, etc. in an unalterable electronic format.
The property we want to give the electronic documents is called “immutability”. Immutable electronic documents are much easier to access and share than paper documents, and they cannot be lost in a fire, nor be modified after war has torn apart the region where the land registry office exists.
With immutable electronic documents, the world of possibilities that was described by buzzwords opens up. The process of buying and selling property can become much more efficient. And we can use Bitcoin to do this.
With Bitcoin smart contracts, transactions can be completed at a distance and could even be automated. It will also become much easier to add significantly more detail to the existing property records. Land registry offices typically use a street address, street number, postal code, and often latitude and longitude to identity a property on deed documents. To further remove doubt about which property a document refers to, a reference to a three dimensional computer model of the land and the improvements on that land could be added. All of this additional data could help improve the quality of the title, and further help us to visualize the invisible link between the rights holder and the property.
How does this all work in practice? Elea Labs in Switzerland is working on an implementation which, if successful, could become a new global standard for how we buy, sell, manage, rent, insure, develop, and live in real estate.
On a fundamental level, real estate is all about contracts. And Elea Labs is planning to make these contracts “smart” by using Bitcoin; not only as a means of conveyance and payment but also as a tool for time stamping important documents. The Elea Labs project is a peer-to-peer network where users control data about the real estate they own, manage, and live in. There are no “tokens” to buy; users download the free software and start using it like they might use accounting or property management software.
This software can be incredibly powerful: simply flag your property “for sale”, and peers can discover it. Identities of property owners and managers are secured through notarized digital signatures to protect against fraud, and even transactions involving multiple parties and complex conditions can be completed from anywhere in the world using Bitcoin smart contracts. The data each peer has can also be valuable to insurance companies and banks, as it would help them write more accurate insurance policies and mortgages, or even offer these in the form of programmatic “smart” contracts.
With this and other projects now underway, we’re getting ever closer to having a solid foundation for realizing significant improvements in the real estate industry. The house closings and costs we usually have to deal with, the enormous costs we incur to determine a fair price, and many other real estate related pains points will hopefully soon be a relic of the past.
About the author — Justin Smith (CTO, Elea Labs)
Justin Smith is the CTO of Elea Labs AG in Zug, Switzerland. Elea Labs focuses on the research and development of cryptofinance systems in the context of the real estate industry and the broader financial industry, such as securities issuance and trading. Justin is also the founder and CEO of the X Wallet project. The X Wallet is an iOS wallet interface for the privacy-focused cryptocurrency Monero.