Is a Bitcoin mortgage in your future? Probably not. Mortgages will not be in Bitcoin in the near future. But that doesn’t mean that the blockchain technology that underlies cryptocurrency won’t be making the real estate transaction cheaper and more efficient.
Brad Finkelstein reported on the difficulties of a Bitcoin mortgage (Virtually No Chance Soon for Any Bitcoin Denominated Mortgages; National Mortgage News, 2014). Cryptocurrencies have a history of volatility, Bitcoin most recently lost about a third of its value (see: Bitcoin at crossroads after shedding more than $27 billion in value; marketwatch.com; September 14, 2017). Instability of the currency is a major issue for a thirty-year mortgage. Finkelstein stated that such short-term losses could cause the mortgage holder to “lose their shorts,” and cause the borrower to default. He also pointed out that regulatory hurdles will be difficult to transcend, stating that mortgage rules and closing disclosures are calculated in dollars. Not to mention the difficulty of appraising a home’s value in Bitcoin. Additionally, all parties that are part of the transaction (such as appraisers) need to accept payment in Bitcoin.
Finkelstein also pointed out other cryptocurrency flaws. Unlike currencies such as the euro or yen, cryptocurrencies are not backed by a government that guarantee an exchange rate. Because of the lack of government backing, cryptocurrency values are easily manipulated. Cryptocurrencies have also been associated with illicit internet transactions.
Although cryptocurrency mortgages may not be feasible, Finkelstein noted that “cash” transactions conducted in Bitcoin is a possibility. Luke Stangel reported on a Miami mansion recently listed for sale in Bitcoin (Brother, Can You Spare a Bitcoin? Miami Mansion Is Listed for About 1,400 Bitcoins; realtor.com; September 6, 2017). Two real estate agents interviewed about the sale stated that some aspects of the transaction may still be traditional, such as an escrow being deposited as well as title transfer. However, the transferred funds would be Bitcoin.
Stengel’s report suggested that the interest in conducting real estate deals in cryptocurrencies is to speed up the sales process and provide a secure transaction. However, because of the associated processes that occur during a transaction, the timing of such a transaction may not differ much from any other cash transaction. Security is another issue and can be debated as Bitcoin and other cryptocurrencies have had their share of hacking too.
With so many issues and hurdles, cryptocurrency on its own may not be the (immediate) future of real estate. However, its underlying technology is of interest. The technology that makes Bitcoin and other cryptocurrencies possible is called blockchain.
Blockchain technology has the potential to revolutionize the real estate transaction by reducing the time and cost needed for processing a mortgage and title. Blockchain technology is essentially a chain of blocks. Each block records and holds information. When a block is recorded, it is encrypted and cannot be changed. The recorded information can be currency (such as a Bitcoin transaction), records, contracts, etc. The draw to blockchain is that it is decentralized, making it difficult to corrupt and easy to restore. Additionally, retrieving information is much faster because the chain of information is essentially available at your fingertips.
Many are skeptical of blockchain technology. Not so much because of its disruptive potential, but because it is not impervious to problems. Some issues include security, cost and complexity. A revealing critique of blockchain was written by Jason Bloomberg (Eight Reasons To Be Skeptical About Blockchain; forbes.com; May 31, 2017).
However, blockchain advocates still maintain that the technology provides ease of access and secure recording of blocks of information. The touted benefits are claimed to decrease the time of the average real estate transaction, and reduce the cost to the consumer as well.
Copyright© Dan Krell
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