Finance

BITCOIN AND PROPERTY

Bitcoin is a mega-hot topic, but in our concentration on its wild fluctuations in price and its prospects of being a mainstream currency, are we missing the fact that it seems set to revolutionise the world of property?

From being the preserve of computer geeks in years gone by, the crypto-currency bitcoin is now at the heart of a huge debate about the future importance and benefits of crypto-currencies in general.

Does bitcoin have a future?

What sort of future does bitcoin have? Will it evolve to play a major role in the future of commercial and financial transactions worldwide – consigning the traditional systems and practices to history?

Will it be shown up as a massive scam destined to fail eventually with gargantuan losses and no prospect of compensation for its millions of victims? Will it be overtaken and replaced by other crypto-currencies?

The simple answer is that no-one can know for certain at this juncture. Undoubtedly we are not even past the opening scene of the bitcoin movie.

Bitcoin hogged the headlines last year due to its meteoric rise during the year – up from about $1000 to a high of $20,000.

But for many observers, that was not the big story. The game-changer was a rapidly-growing appreciation of the powerful potential of “blockchain technology” – the manufacturer of bitcoin.

What is the blockchain?

Bitcoin is created or ‘mined’ on a blockchain software platform – a decentralised digital ledger operating across a network of computers so that the transactions cannot be controlled or altered by powerful third parties.

Advocates of blockchain see its benefits as including:

  • Decentralisation and independence
  • Consensual approval of transactions
  • Verifiable audit trail
  • Efficient peer-to-peer interactions.

Blockchain technology seems set to play a leading role worldwide in a wide range of financial practices, systems and transactions.

There is much talk about the anonymity of the blockchain being a god-send for drug dealers, money launderers and the like. However that is only part of the story.

Big plans for blockchains

All sorts of people – and even governments – in all sorts of ways are latching onto how blockchains may assist them to achieve some or other transactional or operational goal.

In December 2017 Venezuelan president Nicolas Maduro announced that his country was planning to set up an oil-backed cryptocurrency as a way of fighting back against the weakness of the national currency, weakened by the conduct of enemies at home as well as abroad.

Interestingly, Maduro saw the initiative as a way to overcome the financial blockade his country faced and move to “new forms of international financing for the economic and social development of the country.”

 The Reserve Bank of Australia looked into setting up a cryptocurrency but decided against it (for now at least) because of the “harm” it would do to traditional banks.

That is what they call letting the cat out of the bag.

Bitcoin may or may not be a bubble – but the technology which makes it possible seems destined to give an almighty jolt to international banking and finance as we know it.  

Governments fighting back

We are rapidly moving into an era where national governments could increasingly lose the ability to control traditional money in all its guises.

Since the start of the year, several countries have brought in major anti-bitcoin measures, notably:

  • China (move to reduce electricity-guzzling bitcoin mining “farms”)
  • South Korea (plan to ban cryptocurrency trading)
  • India (move by banks to choke bitcoins exchanges by blocking bitcoin payments).

Not a day seems to go by without bitcoin being dealt a hard blow by some or other national government or regulator.

However, there is a sense that government and regulators are reacting late, in a haphazard way, in isolation, and without a clear understanding of, or concerted plan for, the future.

The financial establishment is falling over itself to rubbish, restrict, denigrate, demonise and criminalise the new crypto-currency kids on the block.

A lot of stable doors are being closed fast; however many of the horses have probably already bolted.

The future of bitcoins and blockchains

The future seems certain to be hugely challenging for states and traditional financial institutions as they come to terms with what crypto-currencies and their technology mean for things like taxation and national sovereignty.

Bitcoin is just one of over a thousand cryptocurrencies out there, with the number growing almost daily. Furthermore, they come with different rationale, principles, methods of creation and objectives.

They are not likely to go away any time soon.

Bitcoin and other digital currencies seem likely to seriously revolutionise the concept of money, payments of money and the role and power of states.

Government and regulators will no doubt continue to turn the screw, but there is a real sense in which the sheer width and depth of the developments appear ultimately beyond the scope of traditional governments. 

A wide range of bodies from private companies all the way up to sovereign governments seem certain to increase their use of blockchains given the benefits of decentralisation, independence and verifiable audit trail.

In the end though, blockchains seem to offer more threats than opportunities for governments.

They seem bound to create private online spaces where individuals and groups will be free to transact business largely free from the gaze and control of governments, law officers, tax officers and traditional financial institutions. 

Bitcoin and property transactions 

There are increasing signs that bitcoin and other crypto-currencies are set to play a very important role in property matters and transactions.

Bitcoin is increasingly entering the world of property; the speed is not rapid, but its presence is unmistakable.

In the UK to date, property people have engaged with bitcoins by:

  • Accepting bitcoins for rent
  • Paying management fees in bitcoins
  • Buying property in bitcoins
  • Accepting bitcoins on sales.

In December 2017 developer Go Homes announced that it had sold two luxury new built properties for bitcoins, apparently the first transactions of that kind in the UK.

The solicitors involved considered matters in advance with HM Land Registry and they were prepared to record the transaction in bitcoins if required. The transaction was revolutionary without doubt.

Following the transaction, one of the directors of Go Homes is reported to have said that selling homes for bitcoins “will become common in the next 5 years.”

In September 2017 ITV news reported a Peckham property worth £1.65m being put on the market with the seller willing to accept 500 bitcoins.

In October 2017 a seller placed a £17m Notting Hill mansion on the market requesting payment by bitcoins only.

London property developer The Collective was apparently the first major company to accept rent in bitcoins.

A growing number of private sellers are putting their property on the market expressing a willingness to sell for bitcoins. It is not hard to see why sellers are doing this.

They can make astonishing gains if they sell a property for say several hundred thousand pounds in bitcoins and the value of bitcoins then escalates dramatically over a short period. Of course, however, that is a risky strategy; the value of bitcoins could just as easily fall dramatically.

The growing list of property people willing to transact in bitcoins comes on top of a huge, growing number and range of businesses worldwide willing to use the crypto-currency. 

The blockchain and property transactions

It is not difficult to see how blockchain technology offers numerous positive benefits and opportunities for people involved in a wide range of property transactions:

 

 

  • In poorer countries where there is not an efficient system for the recording and registration of land, blockchains could become private land registries enabling the faster registration of land and the more efficient and effective conduct of real estate enterprise;

 

  • Major building or infrastructure projects could be created, managed, financed and sold within a blockchain involving all the major stakeholders – achieving economies in terms of the communications, procedures and transactions involved;

 

  • Large international development projects could function on a blockchain more efficiently – especially from the funding and financial perspective – by using an agreed currency such a bitcoin, overcoming time-consuming and expensive traditional procedures around the transfer, exchange and verification of currency and financial instruments.

 

It appears very unlikely that the growth of property blockchains will be easy and uncontroversial. Governments and tax officers will be suspicious of their decentralisation and independence.

However, it seems obvious that the state and its many arms will need to get used to not having as much control in the future as it had in the past.

What are your views on the future impact of bitcoins on property investing? What beneficial property uses can you see for blockchains? Let me know: rebel@rebelpropertycoach.com

 

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Dalton Barrett
Rebel Property Coach

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