The spectacular rise of bitcoin has attracted enormous interest in topics like crypto currencies and block chain. Turkey like the rest of the world is looking to exploit this newfound wave of digitization and in March 2018, Istanbul will host a blockchain and bitcoin conference at the Inter-Continental hotel. Hence, it is important for the real estate industry to understand these terms and how it affects them.
Before discussing the practical aspects of blockchain, it is imperative to clarify a few basic points. Blockchain and bitcoin are not the same, and mean different things. Blockchain is founded on the concept of a distributed ledger (DL) and bitcoin is a specific application of blockchain pertaining to digital crypto-currencies. Other applications of blockchain include, smart contracts, identity management, record tracking, issuance of certificates etc.
A DL is a distributed database that stores identical information in real time across multiple locations. Each location has an identical copy of the transaction without the need for a trusted party to authenticate and complete the transaction. Blockchain is a specific implementation of the DL concepts, which removes the need for a trusted party, eliminates fees charged by an intermediary body, and the transaction completes instantaneously. Using cryptography the record of the transaction or block is bot secure and resilient to fraud.
Hence, it is easy to see why blockchain is rapidly gaining popularity over contemporary centralized ledger systems. For example, banks work on a centralized ledger principle and act as the trusted party that verifies the identity between two transacting parties. Once the identity is established, and transaction details recorded, the money exchange is then completed for a small fee. Additionally, it takes the bank a few days to complete the transaction. Blockchain based crypto currencies like bitcoin have eliminated the need for banks. There is no need for a trusted party to complete the transaction, which takes place instantaneously and without incurring a fee.
Today blockchain applications have the ability to eliminate intermediaries like recruitment agents, insurance brokers, financial advisors, export-import traders, distributors of goods and so forth. Because blockchain verifies the source of the transacting party, it is employed to minimise medical prescription and insurance claim fraud, safe issuance of academic certificates, incorruptibility of client data, secure traceability of government records etc.
There are several applications of block chain, which real estate industry should seriously consider. First is the secure issuance of title deeds. Despite stringent mechanisms employed by developers and central government, properties sold multiple times are always prone to the falsification of title deeds and this erodes investor confidence. Blockchain is a game changer in this respect, and readily prevents the tampering of title deeds once issued.
Second, foreign investors have to rely on third parties like banks or exchanges houses to pay installments. Often the investors experience hefty fees and losses through the exchange rate. Crypto-currencies issued by developers could not only overcome this headache faced by thousands of investors but speed up payment of installments.
Third, developers and investors struggle to agree on statement of accounts (how much was paid by whom and when) as well as the articles of the contract (contract is sent over between the parties multiple times before agreement is reached).Smart contracts based on blockchain can significantly reduce the aggravation caused by such items.
Fourth, developers, real estate brokers, contractors are often subjected to audit and compliance inspections by government agencies. Again, blockchain-based applications provide secure traceability of audit and compliance records, which removes the need for multiple audits and reviews.
Deciding where to use blockchain is the easy part, however, the difficulty lies in its implementation. The real estate industry can choose from a host of options and each one is accompanied by its own advantages and disadvantages. In the first instance, the real industry and the government can combine efforts to produce their own DL standard, which could take considerable time and effort. On the other hand, the same parties could invest in blockchain tools and infrastructure to publish their own crypto currencies, smart contracts and other applications.
In the interest of saving time and costs, real estate developers may decide to go it alone and subscribe to BCaaS (Block Chain as a Service) from IBM, Amazon or Microsoft to develop and issue their own crypto tokens and smart contracts. BCaaS does not involve any capex costs related to hardware and software, but will involve costs pertaining to developing blockchain applications.
Whatever option is chosen, one thing is dead certain—early adopters of blockchain could have a tremendous impact on Turkey’s real estate sector and beyond. Are you one of them?
About the author
Abid Mustafa is a special guest writer for PropertyTR. He is a digital transformation expert and his specialism includes building digital life styles, Artificial Intelligence and Robotics. He can be contacted through PropertyTR for advisory and consulting services.
