Real Estate Investor Magazine South Africa July 2018 | Page 14

TRENDING Bit by Bit FEATURE ARTICLE Blockchain and the future of real estate BY MONIQUE DU TOIT Y ou’d have a hard time turn- ing your head without hearing someone, somewhere, talking about blockchain. Over the course of a year, Google searches for the term increased by 250%, governments are looking at ways to regulate the use of cryptocurrency, and supermarkets are trialling accepting payment with e-money. All in all, we’ve entered an era where the seemingly impossible is be- coming increasingly probable. But just how affected will the real estate industry be by the blockchain and cryptocurrency movement? The answer, largely, depends on who you ask. Blockchain Richard Bradley, a director at Deloitte offers a simple-to-understand explana- tion of blockchain: You (a “node”) have a file of transactions on your computer (a “ledger”). Two government accoun- tants (let’s call them “miners”) have the same file on theirs (so it’s “distributed”). As you make a transaction, your com- puter sends an e-mail to each accoun- tant to inform them. Each accountant rushes to be the first to check whether you can afford it (and be paid their sal- ary “Bitcoins”). The first to check and validate hits “REPLY ALL”, attaching their logic for ver ifying the transaction (“Proof of Work”). If the other accoun- tant agrees, everyone updates their file… This concept is enabled by “Blockchain” technology.” This decentralised ledger ensures that new information can be added, but ex- isting or previous blocks can’t be edited or removed. “This is accomplished by using cryptography to link the contents 12 JULY/AUGUST 2018 SA Real Estate Investor Magazine of the newly added block with each block before it, such that any change to the contents of a previous block in the chain would invalidate the data in all blocks after it,” explains Arthur Iinuma, President and co-founder of ISBX. He goes on to explain that blockchains are consensus driven: “A large number of computers are connected to the network, and to reduce the ability for an attacker to maliciously add transactions on the network, those adding to the blockchain must compete to solve a mathematical proof. The results are shared with all other computers on the network. The computers, or nodes, connected to this network must agree on the solution” Lisa Stanley, CEO of OSCRE In- ternational explains: “The permanence of this ledger means it lives as a perma- nent record of activities between parties. These activities can include recording property transfers, asset digitization, HVAC system activities, occupancy of cubicles, or security access. Over time, this historical perspective can enable you to improve your decision-making, make decisions faster, and be shared with other emerging technologies, like artificial intelligence.” That’s where the apparent fun starts. Many experts are claiming that block- chain will be the biggest shift seen in our generation. More than just a vehi- cle for a new currency or two, it’s being claimed that blockchain will change how we do business and go about our daily lives. Applying it to business While blockchain promises to have a far-reaching impact, not all business- es will see the same results or even be affected by the spread thereof. Iinu- ma holds the opinion that the types of businesses that will benefit from block- chain technology are those that possess specific qualities: Transaction-based, benefits from public scrutiny, benefits from history that can’t be rewritten, de- centralization benefits the end user or customer. According to Tom Bill, Residential Research Associate at Knight Frank, it’s time to start paying attention: “As national land registries start using Blockchain technology, now is the time to look beyond the hype and ask more profound questions about how it could influence buyer behaviour and pricing in real estate markets.” The first shift to pay attention to is the rise in liquidity. Between lengthy transaction processes and having to find willing buyers when the time comes to sell, liquidity is notoriously absent in real estate. Sweden has already trialled using blockchain technology for trans- fers and according to Mats Snall, chief digital officer at the Swedish Land Reg- istry: “It’s possible to shorten the pro- cess a lot, but one of the most successful aspects of the trial was security and the verification of contracts.” According to Bill, the second and far more influential aspect of blockchain technology comes in the form of token- isation. “Enabling buyers to trade “units” in real estate online, the impact of this on markets and pricing is potentially far greater than removing frictions from the sale process,” he says. He cites the exam- ple of Estatechain - a marketplace for SA Real Estate Investor Magazine JULY/AUGUST 2018 13