Get to Know the Basics of Blockchain With RGS Title

Blockchain, bitcoin, cryptocurrency—if you’re reading the news, you’ve probably heard these terms, sometimes in relation to real estate. But what exactly do they mean and how are they related? And what do they mean for the future of real estate?

Don Tomlinson, Esq., of RGS Title, a Long & Foster Settlement Services partner, explains and shares his thoughts on blockchain in real estate.

What is blockchain?

DT: Blockchain uses ledger technology to store data. At a basic level, it is digital technology that records transactions. The transaction becomes a block, which is chained together with other blocks. Special permission must be given to add or alter the blocks.

How would blockchain work in real estate?

DT: Blockchain creates a peer-to-peer system. For real estate purposes, blockchain could look something like this: a real estate transaction occurs (think of a closing) and the result is encoded into a block of digital data. That block is uniquely signed or identified. The block is then connected to the one before and after it, creating a chain (like a chain of title). The blocks continue to be chained together, preventing any block from being altered in form or in order.

Where did blockchain originate?

DT: Initially, blockchain was created to be used with bitcoin. Over time, the concept expanded to allow for bitcoin and other cryptocurrencies to be recorded both publicly and chronologically. Blockchain and bitcoin are not the same thing, though. Cryptocurrency is digital form of money created from code.

What areas of business use blockchain?

DT: Many—blockchain has progressed from being used to record cryptocurrency transactions to uses with tangible assets such as real estate, cars and food.

Are there any states using blockchain in real estate transactions?

DT: Yes, but it is very limited in scope. South Burlington, Vermont, and Cook County, Illinois, both had a small pilot program. The Vermont pilot proved too expensive and the Illinois pilot noted additional laws were needed as well as further technology advances. It appears blockchain isn’t going away, but it will fully not take over industries at this time. Rather, it will be used as a specialized database for parts of business.

What are the potential benefits of blockchain?

DT: There are some theoretical benefits to blockchain. The concept allows for a shared system of records with specific permission requirements that create an immutable chain of record. If it worked perfectly, blockchain would create a system of easy-to-find, paperless transactions that reduce human error and allows for new methods of payment.

What is the downside to blockchain?

DT: You can imagine what blockchain could potentially do to real estate. Peer-to-peer transactions could take away real estate agents, lenders and title agents. Our expertise is critical to buyers and sellers. Additionally, blockchain has a very uncertain regulatory status and no legal constraints. Who monitors the data? Who verifies the data? It is untested and unproven. Blockchain also exists in a world of speculative markets at potentially great costs to localities. Over 300 years of data has to be encrypted and everyone must be on board (for example, the land records office in every county) for blockchain to be effective.

Are you scared of blockchain?

Dt: Yes, of course. We all should be wary of the impact of technology. Everyone says it is a technological “advancement,” but is it really an advancement to remove the human element completely? Where is the expertise? Who corrects the errors? How does it get insured? We seem to be in such a rush to make things move quicker, yet this is one of the biggest purchases in a person’s life. Should speed be the ultimate goal? No. The goal should be accuracy and legitimacy – not speed.

Our job is to protect our clients and to accomplish that we must closely examine what we provide. Advocating for blockchain to me is another attempt to impact our industry in a negative way. My job – your job – cannot be accomplished by a computer in a matter of seconds. We have real value and blockchain implies that doesn’t exist. I don’t buy it.