The Dark Web, Silk Road, Dread Pirate Roberts… these sinister terms would seem to have nothing at all to do with the closely regulated world of commercial real estate. But the tech-savvy folks in investment and finance are watching the evolution of bitcoin and other digital currencies with great interest.
Established by an unnamed founder in 2009, bitcoin has had a turbulent childhood and still has a shady and disreputable air for many. But the groundbreaking technology behind this digital currency has incredible potential for the mainstream. A recent WSJ article calls bitcoin’s blockchain technology “one of the most powerful innovations in finance in 500 years.”
Into the New Millennium
Financial experts see the technology coming into wider use, eliminating trillions of dollars in transfer fees, facilitating peer to peer property transfers, and creating “smart contracts” that function automatically without an attorney’s input. The potential for saving money and increasing overall efficiency and security is tremendous.
A volunteer army of thousands of the world’s best developers is improving the open-source software behind bitcoin constantly. They’re also building new applications on top of the platform that extend its usefulness and stability dramatically. Digital “wallets” are insurable and trading tools that stabilize prices. The bugs are rapidly being worked out of the system. This development of “bitcoin 2.0” seems poised to have a profound impact upon how we exchange wealth. In 2013, Bill Gates called bitcoin “a techno tour de force.”
Digital currency is not about to replace the dollar, but transactions in 2014 averaged $50 million a day (compared with Visa and Mastercard, which processed $32 billion daily). Advantages of using digital currency include:
- Nearly zero fees
- Little government interference
- No geographic restrictions
- Faster completion of transactions
The Impact Bitcoin Will Have on CRE
The advantages of digital currency apply beautifully to the commercial real estate field. Transactions involving digital currency are becoming more common, and real estate crowdfunding sites like RealtyShares are set up to accommodate bitcoin-based investments. The New York firm BOND has been accepting bitcoin for property transactions since January 2014. Also last year, a Lake Tahoe property was purchased for $1.6 million in bitcoins. That transaction was the seller’s first experience with digital currency, and they’re now open to using it for future deals.
The elimination of intermediary fees for international transactions is a big plus for digital currency users. The cost of transferring funds plummets when banks are removed from the equation. This is a very attractive idea for international investors, and could be the factor that makes a sale in some cases.
Major changes for our industry related to digital currency may be some time away, but some impact will be felt in the coming years. Tech experts compare the state of digital currency today with that of TCP/IP in 1995. It’s just getting started and is poised to change our financial lives in a major way. CRE professionals can’t afford to ignore the possibilities here. It’s a good idea to keep an eye on developments in this field, which promise innovation for buyers and sellers alike.
Have you experienced a bitcoin transaction in your market? We’d love to hear your thoughts on how bitcoin may change the commercial real estate market. Connect with us on Facebook today to continue the conversation.