Bitcoin’s Impact on Real Estate
If you’ve been paying attention to the news over the last several months you’ve probably heard about cryptocurrencies, specifically Bitcoin. You may have wondered to yourself or your colleagues, what does this have to do with real estate? As it turns out, quite a bit!
What is Bitcoin?
Bitcoin has been around for about a decade. It is a digital currency independent of governments and banks which means it’s not subject to the same regulations that stocks are – however, this is changing as governments around the world begin to take notice. The number of Bitcoins is limited, which is partially what makes it so valuable. When a user generates a new Bitcoin “wallet”, what they are actually doing is creating a cryptographically secure “public” and “private” key pair. A user’s public key is effectively their address on the blockchain. If Sally wants to send Bitcoin to Bob, she would enter his public key. In order to send the Bitcoin, Sally needs to sign the transaction using her own private key. Since only Sally knows her own private key, she is the only person authorized to send transactions from her own wallet.
It’s important to note that there are tons of cryptocurrencies out there, with new ones popping up practically daily. All of them follow the same basic principles as bitcoin when it comes to trading.
So What is the Blockchain?
Simply put, the blockchain is a distributed, digitized public ledger of all transactions made with cryptocurrency. The blockchain isn’t subject to bank fees, but owners must account for capital gains when they make a purchase, such as buying a house, with cryptocurrency. This is especially helpful when tracking purchase histories of properties and eliminates quite a bit of fraud potential since the blockchain cannot be changed.
Using Bitcoin or other cryptocurrencies to purchase homes is still relatively new. There are just 37 single family homes for sale across the country that accept Bitcoin as a form of payment. There are several factors that play a role in why we aren’t seeing a huge number of homes being bought/sold with cryptocurrencies.
- Cryptocurrency values can change in the blink of an eye – meaning that within a day a home listed in Bitcoin could go from being valued at $3.5 million to $2 million or vice-versa.
- Cryptocurrencies are still relatively new with the majority of investors being millennials. These investors are just coming into the age of home buyers, which is partly why we expect to see a significant rise in property purchases made in cryptocurrencies in the near future.
- It can be difficult to get lending through a traditional route if buyers only want to pay their down payments with cryptocurrencies. Many Bitcoin holders don’t want to sell their coins because they believe the price will continue to appreciate. Soon, however, these individuals may not have to – with startups popping up offering cryptocurrency-collateralized loans and financing.
There is definitely still a very long way the cryptocurrency market and society has to go before we will see a significant number of properties being bought/sold with cryptocurrency. With that being said, Bitcoin and blockchain technology are not going away and they will only become more and more mainstream. It’s truly only a matter of time before we see the true impact of this technology on the real estate industry.