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February 09, 2017

Are you ready for the Internet of Money?

Major technological advances, such as programmable, digital currencies; smart, self-executing and self-enforcing contracts; and ownerless blockchain ledgers are all changing the way we look at money, and in turn, changing the way we conduct business. All industries will be affected by this new layer of the internet, often called the Internet of Money or the Internet of Value, but none has more potential to be transformed than real estate.

The Internet of Money Emerges

In 2008, a shadowy figure known by the pseudonym Satoshi Nakamoto published a paper describing a purely digital currency he named Bitcoin as well as a controlling mechanism for it, which has become known as blockchain.

Satoshi envisioned his digital currency as solving the problem of trust­ for electronic transactions—thus eliminating the requirement for a third party, such as a bank, be involved as a trusted intermediary to verify the authenticity of the elements of a transaction. Bitcoin and the participants using it in each instance of a transaction would have a unique, digital identity that would be recorded in every transaction and it would be nearly impossible to tamper with. For example, while a check could potentially be deposited—fraudulently—multiple times through photography, a bitcoin could not be duplicated for double-spending in this way. The underlying technology that supports this “trustless”, disintermediated transaction system is called blockchain.

Understanding Blockchain

At its core, blockchain is a ledger. What makes it revolutionary is that is has no owner and no central repository. Instead, a copy of the blockchain ledger could potentially be installed on the computers of every party who has participated in the chain of transactions that it records.

It’s also important to understand that blockchain currencies are not sanctioned by any government in any way similar to national currencies. Use of them is essentially an agreement between participating parties that they mutually recognize and accept the value.

One of the beauties of blockchain ledgers is that they are nearly impossible to corrupt. That isn’t to say that fraud isn’t possible—humans, after all, are endlessly creative—but the very nature of blockchain as a distributed, ownerless ledger built on complex links hardens it against tampering.

Another potential benefit and capability of blockchain is that of programmable actions, which could lead to the possibility of self-executing and/or self-enforcing contracts. 

Are you ready for the Internet of Money?

Possibilities for Real Estate

Imagine this scenario in the world of real estate: Because a tenant has not made a scheduled rent payment for the third time, he is automatically locked out of his space—not because the landlord has acted physically, but because the lease is governed by a smart contract, executed through a blockchain ledger, which interacts with the programmable smart locks on the premises. Once the ledger recognizes that the due date and any programmed “grace period” have expired without payment being received, it sends a message to the locking system to execute the lockout.

This is just the beginning. Escrow and title transfers are other topics that come up often in discussions of the potential for blockchain in real estate, where a blockchain ledger could eliminate the need for a middle man or verification service, and all the fees associated with their services. Innovation with blockchain will take root in a number of settings, and as it does, our world will get that much more wired, connected and complex.

If you would like to read more about this topic, be sure to check out my entire series about the Internet of Money and its potential capabilities and benefits here.

Dave Karpook
Strategic Business Consultant Planon North America