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Real estate transactions on the blockchain

Real estate transactions on the blockchain

Zain Jaffer is a real estate and property tech investor who sold his mobile ad startup Vungle in 2019 to private equity firm Blackstone.

If you have been keeping abreast of developments in the real estate space, you have probably heard something about how blockchains will transform the industry. Here's how it generally works:

A blockchain is simply a way to track sequential transactions and ownership transfers digitally online, and have those records stored in multiple global servers. So if Bob sells a house to Alice, then Alice sells to Susan, and Susan sells to Ricky, then the blockchain records in the different places would reflect that fact. 

It is of course a bit more sophisticated than that, but suffice for your understanding to know that Daniel is not in the sequential ownership transfer records, and any attempt to fraudulently introduce him would be detected.

So what exactly can be done with real estate properties on the blockchain? Sellers can list their properties and include details like location, price, and features like the number of toilets and rooms. In turn buyers can search for the properties they want using different filters. But that is something that even an Excel spreadsheet or database can do, so nothing new there.

In reality the only real difference is that the sequential transaction trail, while doable on a spreadsheet or database, is replicated in many places and is made immutable - meaning no changes are allowed by the system when a new sales record is burned into the blockchain. So you can add a new transaction (or sales record) to all the previous ones, but aside from that you cannot change the previous record trail.

Blockchains often use smart contracts, which are self-executing software contracts with the contract terms directly written into the code. For now these can only work with cryptotokens or stablecoins, which are cryptotokens that are locked in value to a real world currency. 

So if the blockchain smart contract detects that the agreed amount between the buyer and seller is detected as deposited and received, the smart contract then proceeds to add the new sale transaction to the blockchain. For example if Sarah deposits $500,000 worth of Ethereum (or USD stablecoin or whatever) into the destination smart contract, the system would add Sarah as the new owner of the real estate property in the blockchain record for that property.

Blockchains ensure that these transactions and sales records are transparent for all to see and immutable which reduces fraud and dispute risk.

Another benefit of using blockchains for real estate is that it allows tokenization. When a Real World Asset (RWA) like a land or house property is tokenized, it allows for fractional ownership, allowing multiple investors to buy and sell fractional shares of real estate properties, using the possession of tokens in their wallets as the proof of ownership.

Of course before this happens, this all needs to be legal and in compliance with the real estate regulations and laws in the different jurisdictions. Functions such as title transfers, escrow services, and regulatory filings are defined under these local laws. Before blockchains can be used in a particular place, the local and national legislatures need to amend laws to allow it.

Blockchains can simplify real estate transactions by automating many of the manual functions that lawyers, brokers, and other humans do. It will take a while to implement in many places because of the way real estate laws are written, but eventually it is a superior technology that will help make buying, selling, and investing in properties safer and easier to do.

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