“Pretend you’re in a theater, and you have an audience of 5,000 people,” said Douglas Elliman’s Chief Technology Officer, Jeff Hummel. “You and I are going to do a transaction—I hand you the keys to my car, and you hand me your purse. And we say, ‘You now own my car, and I now own the contents of your purse.’ And 5,000 people confirmed it. That’s basically blockchain.”
Blockchain is a digital, decentralized ledger of transactions. The record of a transaction is distributed across a network to provide validity and transparency. Though it’s often used for digital currency like Bitcoin, blockchain can be used to record any type of transaction.
When utilizing blockchain to facilitate a transaction, thousands of millions of records of that transaction are created, that then exist all across the internet and all around the world.
Roni Rose, a Douglas Elliman agent and host of blockchain podcast, Blockchain Bea, explained why blockchain is useful. “By distributing the power to confirm transactions across a decentralized network, you minimize the risk of fraud or hacking. The network has to reach consensus before a transaction is approved, so you can trust it more,” she said.
This advancement in technology has a few major advantages. “Things can move across borders with ease,” Rose said. Now, instead of sending money through multiple banks or paying large fees, blockchain can record and validate a monetary transaction between two parties, anywhere in the world.
Blockchain also provides the ability to create zero-knowledge proofs. At its most basic level, a zero-knowledge proof, or ZKP, allows one party to prove or confirm that something is true to a second party—all without revealing any additional information. When applied to real estate, this helps protect privacy by keeping extra details of the transaction hidden.
For example, if someone is interested in purchasing a home, the seller can confirm the potential buyer has sufficient funds—without knowing the buyer’s exact account balance—by using a zero-knowledge proof.
Because the blockchain records exist in thousands of places, they are also nearly impossible to alter or hack, said Hummel. “Blockchain is a ledger system that’s encrypted. It’s secure because every piece of it is encrypted along the way,” he said. “The sanctity of a transaction is now a lot better than it was previously.”
It is also cost-effective and much faster than tradition transactions said Ace Watanasuparp, vice president of residential lending at Citizens Bank. “The number of transactions that it can process in a minute—it’s quite substantial compared to today’s technology, and the speed allows everyone to work on more transactions. Because you’re able to do a lot more in a lesser time frame, the cost becomes that much lower.”
Though there are many pros to utilizing blockchain, few transactions have taken place in the US with bitcoin or other blockchain tech. “There are quite a few regulatory hurdles, and those will need to evolve with the advancement of technology. I think we’ll see its use grow in the next five years, especially with fractional ownership, cross-border transactions and ZKPs for proof of funds,” said Rose who recently led a New York Real Estate Summit panel on Blockchain, “Beyond Theory and into Practice.”
Traditionally slow portions of buying or selling a property, like closing and transferring titles, could be sped up by using blockchain. “I think blockchain will transform real estate on the services side,” said Hummel. “All the ancillary services—title, escrow, attorney’s office—I see all those services being able to harness the power of what blockchain is. This new technology won’t replace the agent, but it will simply enhance their tools.”
Real estate agents, however, will still play a vital role. “A lot of times, these technology platforms are great for the transaction, but it doesn’t tell the whole story,” said Watanasuparp. “It doesn’t tell where the market is going, and what neighborhoods are hot or not. You’ll still need that TLC from the agents.”
“Being that expert on how to move transactions forward, that’s where the real estate agents come in. We’re facilitators. Agents will always have a role here, even with blockchain,” said Rose.