How Blockchain Can be Used for the Property Industry
At Bridging Loan Hub, we consider ourselves pretty savvy when it comes to finance and technology. The word ‘blockchain’ is the new buzzword and entrepreneurs all over the world are trying to make sense with it and how to use it.
In recent months with the meteoric rise and apparent fall, of Bitcoin, it’s more than likely that you have at least a vague recollection of blockchain. But, perhaps its passed you by amongst the avalanche of head-turning headlines, and you haven’t paid a great deal of attention to it. No harm done, right? Probably, just another bit of technical jargon you tell yourself, that will probably disappear within a few months and so why bother learning more about it. Well, actually, there are quite a few reasons why you should.
The blockchain isn’t just a buzzword, its a breakthrough piece of technology that may radically alter the way transactions take place in the next coming years, and this includes the property sector and the way property industry sales take place. In fact, the Republic of Georgia announced in February 2017 that all property transactions would now take place via blockchain through working with the ‘Bitfury’ the world’s largest full-service blockchain technology company. It is the first national government to use blockchain technology to validate government actions. However, the Swedish land registry has recently finished a pilot of ‘smart contracts’ through using blockchain technology, with more countries in the next couple of years expected to follow a similar route, with technology experts predicting that blockchain transactions in the property sector will become a booming business within the next decade.
We tell you everything you need to know about blockchain, and how it can be used within the property industry.
What is a blockchain?
First things first, it’s good to spell out just exactly what this word means, before being able to understand the potential benefits of using it within the property transaction process. A blockchain is a distributed database through multiple servers or computers and made up of continuous new sets of ‘blocks’ (ie. records) that are secured within the ‘chain’ through the use of cryptography. Each block links together and each contains a timestamp, hence the ‘chain’ methodology. The old blocks are preserved with the new blocks added to the ledger that are immutable, making it incredibly difficult for the manipulation of property transactions to take place. The information held by blockchain also means that all records that are easily verifiable as they are public, and also practically impossible to hack
Whilst the database itself is not managed by any central governing body, the encryption process technique means that whilst everyone has a copy of the entire database information, it is only when a user has a designated cryptographic key that any new ‘block’ can be added to a chain, which is how it makes it difficult to fake documents.
Who created blockchain technology?
The idea was surprisingly brought forward all the way back in 1976, in a research paper, however, it took decades before it was considered seriously, having been previously branded too complicated and unsafe. However, 2008 things started to change, if incredibly slowly when we saw the dawn of cryptocurrency Bitcoin, a simpler form of blockchain technology. The brainchild of a person or potentially even a group, known by the pseudonym Satoshi Nakamoto, the cryptocurrency was one of the first to use peer-to-peer technology in order to complete instant transactions.
How can it be used in the property industry?
The functionality of the blockchain process could be extremely beneficial when it comes to the property industry. It can help dramatically streamline the transaction process in a way hitherto unseen. Below is how blockchain technology does this, step-by-step:
- The digital conveyancing process begins once the property transaction has been agreed upon
- This transaction moves to an open-source, peer-to-peer network which is characterised by multiple ‘nodes’ ie. servers or computers
- This transaction is then validated by the network, and all information referring to the deed, title and associated contract
- Once this has taken place, the ‘block’ (otherwise known as the transaction record) is inextricably linked into the ‘chain’ through the use of cryptography (in other words, it is linked to other transactions)
- Fraud is made then impossible by this process, as all proof of property ownership, transaction, exchange and value are fixed within the network. This means that the technology has essentially created a tamper-proof transaction.
- This means that the property transaction is now finished
The benefits of blockchain the property industry
- As previously stated, the blockchain technology makes it almost impossible for fraudulent transactions to take place, as the ledger is distributed via many servers or computers. Typically, this means that in order to hack at least 51% of the network at the very same time in order to manipulate the records.
- Given that mortgage fraud is estimated by the Financial Conduct Authority to be a whopping £1 billion a year, the widespread implementation of blockchain in the property industry could give lenders peace of mind
- In addition, conveyancers under the system currently in place are limited in the way in which they can KYC on new clients, unlike blockchain
- It can dramatically speed up the stages of the often long-winded process of conveyancing and property registration as using blockchain technology can mean these processes take less than milliseconds, a process that usually takes hours or days. It could change the current UK Land registry system irrevocably.
- It is a transparent form of technology much needed in the property industry needing an overhaul of its systems
- The blockchain technology also allows for greater accountability and potential social impact, and transactions can be easily traced through the blockchain ledger
- Through encryption, it removes any need for a ‘trusted third party, as its mechanism allows numerous parties at once to agree on a set of rules or facts. The blockchain technology also allows people to check that these are accurate through the database, preventing false or changed statements being made, as the parties involved in the transaction will be made immediately aware to any changes made.