The relevance of Blockchain Technology to Crowdfunding

The Blockchain technology concept is best known as the methodology which underpins the Bitcoin virtual currency, however it is increasingly being studied for its application across many types of transactions – Real Estate crowdfunding is no exception.

What is Blockchain Technology?

Blockchain technology is a method of creating, sharing and verifying data. In practice a blockchain transaction is recorded in a digital ledger which is shared with a distributed network of computers. When a new transaction is to be added or changed, each participant in the network must agree to the addition or change – the transaction is only processed if a majority of participants “approve” the transaction. If the transaction is approved, the new “block” is added to the chain in every copy of the ledger.

The advantages of Blockchain methodology

The Blockchain methodology has several advantages over existing methods of exchanging and validating transactions;

• there is no need for a centralised body (such as a clearing house) to store and maintain transaction data – and of course charge a fee
• blockchain data is extremely difficult to inappropriately create or change as all transactions must be approved by consensus, rather than unilaterally from a single source (ie like a clearing house)
• there is a high degree of redundancy as common data is stored across multiple network computers – in other words a catastrophic loss of information is highly unlikely
• as there is no central third party in a blockchain network it is not possible to charge taxes or transaction costs on individual blockchain transactions

The relevance to Real Estate Crowdfunding

Real Estate crowdfunding appears to have all the hallmarks of an industry ready for Blockchain:

• removal of the need for centralised record keeping bodies such as the Land Titles Office, and replaced by a distributed register of real estate holdings using digital Title Deeds
• the electronic exchange of settlement funds for good title using Bitcoin or potentially a specialised digital currency
• timely and secure transfer of funds using Blockchain technology
• the reduction or removal of unnecessary fees such as transfer fees, title fees, legal fees etc as a result of the “peer to peer” nature of Blockchain transactions
• reduced fraud potential arising from the Blockchain “consensus” verification and approval methodology

Where to from here

The Blockchain methodology is being actively explored by a raft of organisations and companies around the world, for example the R3 consortium which now includes some 50 financial institutions. In Real Estate, an International Blockchain Real Estate Association has been formed boasting some 700 members.

Of course blockchain has a long to go way to become commercially viable and widely adopted, however it is progressing rapidly and seems to have an air of inevitability about it. It seems that Blockchain disruption of Real Estate is on its way.

Related articles

• What is a Neo Bank
• How Blockchain is transforming traditional Asset Management
• Security Token Offerings shaping Real Estate investing

The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.