Editors Note: The following article was republished with permission by BiggerPockets Blog
This is no ordinary article or time in history. If you haven’t heard some rumblings about a new technology called “blockchain” and how people are almost printing money with “bitcoin,” you’ve probably been living under a rock the last few months.
I think we will all look back and marvel at the change and growth in a world that we’ve only started to scratch the surface of understanding.
A few notes before we start:
The focus of this article isn’t to give an exhaustive explanation of blockchain technology or bitcoin. Many others have done a remarkable job explaining this in better detail than I ever could. Here is a good place to start.
My interest in this technological tangent was first sparked by observing the insane gains made by people who had simply purchased bitcoin at the right time and held it. No value created, no improvements made, just pure timing. At its core, this doesn’t fit within the the model of a real estate investor or developer. My success is built on identifying needs and creating tangible value that solves those needs.
This inconsistency led me to dig deeper and realize that bitcoin was the tip of a much larger and more interesting technological revolution called blockchain. Today, I seek to lay out a few reasons why I think this technology will have a profound impact on the real estate industry.
The words below are simply my thoughts, musings, and ideas. I am by no means an expert in any of this and am not espousing you invest in cryptocurrency, bitcoin, or anything else that you have not adequately researched and understand. Find your niche and stick to it. This has worked well for me in real estate, and I intend to continue this philosophy in all future investing. Caveat emptor!
I’m a real estate investor and developer; I’m completely self-made and have devoted the majority of my professional life to learning about the nuances of this incredible industry and wealth-generating tool. You and I probably ended up in real estate for many of the same reasons: It’s stable, it’s tangible, and it produces cashflow (something we all need to live and function in modern society).
Thankfully, I don’t think we are going to innovate ourselves out of the undeniable power that comes with investing, owning, and developing real estate. But every now and then, something pushes an entire industry, generation, and even world forward (think the electric light, modern medicine, the internet, etc.).
I’m taking what some would consider to be a risky stance: I consider blockchain technology to be one of those innovations.
Right now, while the majority of the world is caught up in the hype of bitcoin, ethereum, and litecoin that just in the last year has gone up 6,072% (talk about a solid annual ROI!), many are missing the truly world-changing shift that could take place if this technology is correctly shepherded.
Here’s why.
4 Reasons Bitcoin & Blockchain Technology Will Transform Real Estate
1. Our monetary system is broken, and cryptocurrencies could be the fix.
We as real estate investors understand this better than pretty much anyone else. I have never trusted or invested in centralized banking, fiat currency, and the stock market. I want to control the assets I’ve worked so hard to build. Real estate to a large degree allows me to do this. Nobody can create more land right next to mine and cause the value of my property to tank. That can and does happen with centralized banking and government controlled currency. The amount of trust we are forced to exercise when depositing money into our local banks is a little bit terrifying.
We have been off the gold standard for decades, fractional reserve banking has led to economic meltdown more than once, and the Federal Reserve that’s supposed to guarantee our deposits only keeps enough cash on hand to satisfy 1% of these transactions. Talk about disconcerting.
The fundamental concept behind blockchain and bitcoin is we now don’t have to blindly trust. All cryptocurrencies are built on a decentralized network that is made up of each individual who owns any piece of the digital currency. There is no single point where an individual, organization, or government can manipulate the system for their gain.
Why does this matter to real estate?
We real estate investors already enjoy a hedge of protection that most other types of investments don’t. Theoretically, our property would go up in value at a similar rate to even out hyperinflation. We also have the added benefit of being able to utilize a property to provide basic needs (namely shelter or food) if we reached a level of economic instability that took us back to bartering and trade.
I, for one, though, don’t relish the fact that the currency I use to purchase, invest, and improve my real estate is always teetering on the brink of a large-scale meltdown. A stable, decentralized currency WILL benefit all real estate investors and developers.
2. Blockchain technology provides an easy way to transact money and data safely.
Now, here’s where things get really interesting. The way the decentralized network of bitcoin works is on something called a blockchain. This is essentially a way of creating a transparent ledger that is next to impossible to fraudulently manipulate. When information is entered on this blockchain and spread out to a network of millions, tens of millions, or billions of people, hacking into and manipulating the data inside becomes extremely difficult. (For the sake of brevity, I’m glossing over a TON of details.) So you’ve basically created a very secure way to transfer money, data, etc.
In real estate, what types of data are important to transfer without risk of manipulation or fraud?
Contracts! Deeds! Titles! Heck, every building block of our entire industry!