Jeff Garzik: Blockchain is Dawn of New Era in Real Estate
Bitcoin has already found success as a payment system for certain types of online transactions, but it may be time for people to use this distributed ledger system for more than just payments. Bloq Co-Founder and early contributor to Bitcoin Core Jeff Garzik was recently the keynote speaker at the International Blockchain Real Estate Association Conference in Newport Beach, California, and he explained some of the key properties of blockchain technology that can be applied to the real estate industry.
“I really do feel that blockchain and real estate have a synergistic relationship,” said Garzik. “I do believe that it’s a dawn of a new era in real estate.”
Better Property Records in Developing World
After giving a brief intro on some of the basics of blockchain technology, Garzik cut right to the chase and discussed how these new systems can be applied to property ownership and the real estate industry. “To give a specific example: Down in Honduras, people were looking at using property titling with blockchain because if you have a padded envelope with the right amount of cash, you just slip it to the right politician [and] he goes in [and] changes a computer entry in a property database at the government that says, ‘Okay. You’re now the owner of this property,’” explained Garzik.
The longtime Bitcoin developer went on to talk about the blockchain’s ability to guard against corruption and disenfranchisement in parts of the developing world. In particular, Garzik believes there is potential for this technology In war-torn regions and failed states. “They have a unique opportunity to sort of clean [the] slate, start with this new technology, and make sure that all the typically disenfranchised (the poor, the lower class, etc) have access to the same property records, the same access to data that everyone else has,” he stated.
While the availability of an immutable record would definitely be a move in the right direction, it’s important to remember that a dictator or tyrannical state has the ability to choose which record of property titles is enforced by the authorities. Having a decentralized ledger for property titles may have value, but it will be somewhat useless if it is simply ignored by the state. At the end of the day, a tyrant can still send thugs to a home and claim it belongs to someone else.
Issues related to property titles in the underdeveloped world are about much more than the lack of a proper registry, but anything that makes it more difficult for a bureaucrat to lie should be applauded.
No Counterparty Needed
In addition to the blockchain’s usefulness for managing property titles, Garzik also pointed out how the technology can remove the need for third parties in real estate transactions. “Blockchain and Bitcoin essentially recreate or reinvent a business process where you don’t need a counterparty to securely transfer assets between two people — and that includes [physical assets],” he stated.
Garzik noted that the blockchain has the ability to shift trust in real estate transactions from a fallible person, who could be corrupted or bribed, to a trust-minimizing network like Bitcoin. In fact, transactions involving smart property can be made atomic, meaning the property title and the cash can be swapped at the same exact time.
Smart Property and Smart Contracts
Smart property was mentioned above, and Garzik provided a brief description of what this feature of the blockchain means during his talk. “[Bitcoins] can be used as secure digital tokens for any asset, and this is what we call smart property,” he explained. “That’s where you take a physical piece of property, such as a car or house, and you associate it with a digital token; that’s called tokenization.”
According to Garzik, once a property title has been tokenized, it can essentially be traded as a bearer asset. Having said that, Princeton’s Arvind Narayanan has noted that there are still some unsolved issues with smart property. For example, problems can arise when someone loses the private key to their property token or the token is transferred to the wrong address. For Narayanan, real-world enforcement is still needed for this type of technology to work.
If these sorts of issues are resolved, then a whole new world of possibilities could open up for managing property ownership. “You don’t have to say, ‘Here is my proof that I sent the funds to the bank account. Now we can close, and you can give me the title,’” noted Garzik. “The smart contract guarantees that all of those conditions are either met or not met . . . You have 100 percent certainty of where the assets are, where the funds are, where the records are, etc.”
Garzik went on to point out specific, real-world applications of the blockchain for real estate such as digital titles, crowdfunding from non-traditional sources, multisig escrow, and increased liquidity due to more efficient settlement. Four startups pitched their blockchain real estate ideas at the conference.