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How To: Understand Bitcoin & Its Impact on Real Estate

November 29, 2017

Despite being scorned by most financial analysts for years, Bitcoin has experienced a meteoric rise to prominence in 2017. Earlier this week, Bitcoin’s market capitalization hit $160 billion USD, propelling the cryptocurrency past major corporations, including Nike, Disney, McDonald’s, and IBM in financial worth.  As of this writing, Bitcoin’s market cap has surpassed $180 billion USD.

Bitcoin is poised to become the biggest – and possibly most exciting – emerging trend to impact the global real estate industry in 2018. In spite of its popularity, Bitcoin and other forms of cryptocurrency, remain largely a mystery to many within the real estate community.

While complex, it should not be ignored by the modern realtor. It is only a matter of time before cryptocurrency is integrated into our daily lives and those of our clients. As such, the savvy real estate professional must be aware of its existence, understand how it works, and embrace opportunities that lie ahead.

Bitcoin Miami real estate

What is Bitcoin? Where did it come from? And perhaps most importantly, how will it impact the real estate industry? This is your beginner’s guide to Bitcoin for realtors.

What is Bitcoin?

Bitcoin is the original form of cryptocurrency, which is a decentralized digital currency. It can be used as a global exchange to purchase goods and services just like any other physical currency in use today. At present, there are over a thousand unique forms of cryptocurrencies. Bitcoin remains the most popular.

Bitcoin was first introduced in 2009 by “Satoshi Nakamoto” in response to the 2008 Financial Crisis and the ensuing widespread accusations against mainstream financial institutions, including the misuse of borrowers’ money, taking advantage of clients, rigging the system, overcharged fees and unfairly increased rates. Nakamoto designed Bitcoin to give individuals more power by creating an online peer-to-peer network for currency exchange in order to eliminate traditional financial institutions from the transaction process. Most importantly, he sought to make transactions more transparent through the introduction of an innovative, new technology known as “Blockchain.”  

Blockchain:

Blockchain is perhaps the most important advancement generated by the introduction of Bitcoin. The Blockchain is a public ledger that contains a digital record of all past Bitcoin transactions on the peer-to-peer network. The information within this ledger is constantly updated through a process called “Bitcoin Mining.” 

What is Blockchain?

Bitcoin Mining:

Bitcoin Mining, as defined by Investopedia, “is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released. Anyone with access to the internet and suitable hardware can participate in mining.  The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle.” The result of each completed process is a digital signature known as “Hash,” which is then stored at the end of the Blockchain.

Hash:

The Hash is significant because it serves as a digital “receipt” of sorts or Proof of Work, which provides confirmation that each block contained within the Blockchain is legitimate. Any change to even a single character in a Hash would be identified as an illegitimate transaction and rejected by miners on the peer-to-peer network.

The process, while complexing, provides an extremely high level of security making Bitcoin permanent, safe and secure. 

The Evolution of Bitcoin

We now live in the birth of Cryptocurrency. Governments and regulatory systems across the globe are still trying to figure out how to adopt this into public policy, creating new laws to govern its use and related activities. Each new regulation serves to further legitimize Bitcoin and subsequently increase its worth.

Bitcoin’s rise to prominence was not without critical resistance. Early on, financial analysists, business moguls and entire national governments were hesitant to embrace it and other cryptocurrencies. Among Bitcoin’s biggest detractors included Jamie Dimon, CEO of J.P. Morgan Chase, who said in 2014 that “Bitcoin is a terrible store of value,” that it would not survive and went as far as to condemn it as “a fraud.”

Others, like Bill Gates, had a more positive outlook saying, “Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient."  

A Brief Timeline of the Bitcoin Journey:

  • 2008: Satoshi Nakamoto, Bitcoin’s founder, publishes Bitcoin: A Peer-to-Peer Electronic Cash System in the wake of Financial Crisis
  • 2009: Nakamoto releases the first Bitcoin software; launches network containing the first units of the Bitcoin cryptocurrency
  • 2010: One Bitcoin is worth $0.06 USD
  • 2011: Other cryptocurrencies start to emerge based on Bitcoin’s open source code
  • August 2014: 1.4 acres of land in Lake Tahoe purchased with Bitcoin for $1.6M USD
  • September 2014: Paypal announces Bitcoin integration
  • January 2015: One Bitcoin is worth $217.41 USD
  • December 2016: One Bitcoin is worth $968.58 USD, increasing $749.17 since January 2015
  • September 2017: China’s government announces a ban on the sale and trading of ICO tokens, deeming them illegal across China
  • November 21, 2017: Wall Street Journal reports that J.P. Morgan Chase is looking at allowing its clients to trade Bitcoin Futures
  • November 27, 2017: Bitcoin’s market capitalization reaches $160 Billion USD, surpassing  Disney, Mastercard, Boeing, IBM and McDonald's
  • November 29, 2017: Nasdaq announces plans to launch Bitcoin Futures in first half of 2018; Bitcoin market cap reaches $180 Billion USD
  • November 30, 2017: CME Group, the world’s leading and most diverse derivatives marketplace, completes self-certification with the Commodity Futures Trading Comission to launch its Bitcoin Futures contract on December 18, 2017

Today, Bitcoin’s popularity is at an all-time high. And for the early adopters bold enough to bet on cryptocurrencies, the rewards thus far proved astronomical.

This week, the value of one Bitcoin surpassed $11,290 USD. If you owned $100 USD of Bitcoin in 2010, your $100 would be worth over $18.8M USD today (as of November 29).

Bitcoin Trends in Real Estate

As more people become educated about cryptocurrency, Bitcoin adoption, value, and spending will exceedingly increase.  Naturally, many will look to real estate as a source of converting their digital currency into a tangible asset.

Earlier this year, signs of this brewing trend became evident locally, nationally and abroad.

Mike Komaransky, a Miami millionaire, announced that he would accept Bitcoin on his Coral Gables home listed for $6.4M USD; as did the owners of a penthouse at the Blue Diamond high-rise condominium in Miami Beach.

Elsewhere in the U.S., the first bitcoin-only residential real estate transaction was completed on the sale of a home in Austin, TX.

On the other side of the world, Aston Plaza and Residences in Dubai, a 2.4 million square foot pre-construction project, became the first major global development to accept Bitcoin as a form of payment. 

Future Forecast

Bitcoin is poised to be the biggest game changer in the real estate market in 2018 and years to come. Expect to see the most visible signs of this at the closing phase. At the moment, there are no set protocols, rules or regulations when it comes to a cryptocurrency transaction for real estate. Challenges are bound to arise as monies are exchanged and titles are transferred all the while staying within compliance of current U.S. laws and regulations.

On the other hand, if Blockchain technology were applied to contracts, titles, property history, and transfer of money, it could increase transparency and help prevent fraud. Another benefit: anyone, anywhere can own bitcoin now. Receiving that money through an international wire can sometimes take days whereas now, that money can be transferred within minutes.

Who will be using cryptocurrency to buy real estate?

"I think the demographic of the crypto user is a younger millennial, but, that being said, you have a lot of people come over from other countries, who are buyers from different places, who like to trade in different types of currency,” said Ben Shaoul, president of Magnum Real Estate Group headquartered in New York City. “Not everyone wants to trade in dollars or yen or euros."

Much like the Internet boom, this new technology will be here to stay. With each new regulation and ever-increasing consumer awareness, Bitcoin inches closer and closer towards integrating itself into our daily lives. It’s not a matter of if, but when. 

About the Author:

Bowie Stephens is a manager for Cervera Real Estate's Asia Division. She in an in-house sales associate for the new construction project, University Bridge.

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