Blockchain is one of the hottest technologies of the 21st century. It is poised to transform the world we conduct business in, impacting most every industry. But how long will it take for commercial real estate to embrace this revolutionary technology?
First, we need to better understand the meaning of ‘blockchain’.
What is Blockchain?
Blockchain is an encryption technology that allows digital information to be distributed (rather than copied) across a peer-to-peer cloud-based network, transforming data-sharing processes and eliminating third-parties (and their associated costs) from transactions. A digital ledger gets created and then updated with each economic transaction – think of it as an online, shared public database that records the history of all transactions. The blockchain is not controlled by any single entity and has no single point of failure, meaning that the data is transparent and incorruptible. The most well-known application for blockchain is cryptocurrency, such as Bitcoin, but other industries are increasingly finding new applications for this technology.
Blockchain: By the Numbers
The following stats highlight the impact blockchain has had across the globe and demonstrate the potential for this powerful technology:
- The global blockchain market is expected to be worth $20 billion by 2024 (Transparency Market Research)
- 80% of executives expect to integrate blockchain into their organizations within the next three years (Accenture)
- Companies have filed over 2,500 patents related to blockchain technology in the past 3 years (World Economic Forum)
- Over $1.4 billion has been invested in blockchain research (First American)
- Blockchain has the potential to reduce financial infrastructure costs by 30%, saving $8 – $12 billion annually (Accenture)
How Blockchain Can Impact the Commercial Real Estate Industry
In today’s hyper-connected, digital world, there is increasing demand for more transparency, security, and accuracy. Blockchain helps the CRE industry to address current insufficiencies in these areas, enabling faster, cheaper, and more secure transactions than traditional systems.
Here are just a few of the areas where blockchain could drive improvements in the commercial real estate industry.
Increase the speed of transactions
Smart contracts represent algorithms that digitally facilitate, verify, and enforce contracts, allowing entities to complete and streamline transactions without involving intermediary services. In commercial real estate, smart contracts drive efficiency and cost savings, speeding up the process of ownership transfer and ensuring that the terms of the agreement remain transparent. The speed offered by blockchain makes real estate assets more liquid and thus more appealing to investors.
Enhance transaction transparency
With a blockchain record, every property would be associated with data such as former owners, construction updates, history of maintenance costs, and inspection records. Because this property and market data be publicly available, all investors and buyers would have access to the same information, effectively leveling the playing field. Blockchain is the answer to the barriers commonly created by outdated, fragmented information.
Improve data accessibility
Over $1.7 trillion is lost every year related to data loss and downtime, and over 2/3 of companies have experienced data loss in the last 12 months. Due to the public, open nature of blockchain, information is readily available, and no single person has control over it. That means firms don’t have to worry about having siloes of information or having data stored across multiple computers or even physical, paper documents. And while the paper trail associated with traditional property transfer (deeds, titles, etc) can easily be counterfeited, the tamper-proof structure of blockchain prevents these types of fraud.
The use of blockchain technology in commercial real estate has the potential to alleviate some of the most common challenges for sponsors. While it is currently at a nascent stage, blockchain has the potential to disrupt the commercial real estate industry, making it both more modern and efficient. The question now is not if the CRE industry will embrace blockchain technology but rather when.
To learn more about Blockchain and its CRE applications, check out our free on-demand webinar!