Justin Segal, speaks about Blockchain and how Real Estate may be impacted in this podcast from Building Success – A Real Estate Podcast
What is block chain?
It’s a hot topic these days and many people use the terminology, but don’t really have a working definition. It’s similar, in many ways how people think about the Internet. It’s an interesting challenge question to say to somebody, do you use the internet? Do you know what it is? And they say, yes, and you say: can you define it for me? And you get a little bewildered look sometimes. So, I would think about that as a proxy. So we say, what is the Internet? And it’s basically a series of computers that are connected and interact with each other using an established set of protocols. And that’s a great place to start when we define Blockchain.
Thinking about Blockchain in general. I’m going to start off talking about the public Blockchain and then later we can distinguish between public and private Blockchain. A public Blockchain is a series of computers that are owned by different people, individuals or companies sometimes. And those computers interact with each other and share information, typically replicating information between themselves using an established set of protocols. When they do that, they use very complicated math problems basically, they keep track of things using complicated math that is resource intensive and requires a lot of processing power and so forth. And that’s the Blockchain. Now what happens with it is a bit of a longer conversation, but generally speaking, the reason people call it a distributed ledger is because it’s distributed in a sense that there are many different computers owned by different people. So if you want to hack into it and corrupt something, you’d have to do it with all of them in order for them to really be compromised. And then it’s a ledger, because what it’s doing is keeping track of things, kind of like you would in an old fashioned ledger every time something happens you write it down. This is what’s particularly interesting with Blockchain is that you have a lot of different computers and if they don’t agree, you know that there’s a problem. If they do agree, then you know that something happened when you said it did and the information is accurate.
So, carrying on, what happens is, these computers are connected together. They’re sharing information, and somebody is paying for all of this. These computers are very sophisticated, they use a lot of power, they need a lot of cooling and someone has to pay for that. And now talking about the Bitcoin Blockchain as an example, why would somebody contribute their computer hardware, connectivity, power bill, etc? The answer is that as the Blockchain processes this information it rewards the people who are contributing their computing power by giving them bitcoins. So if you’re a Bitcoin miner, you’re on the Blockchain, it does all this math, keeps track of a bunch of things, makes sure that it agrees with a bunch of computers and in return for that, you get something of value, mainly a bitcoin. There’s some mechanism in place as to how that actually happens but basically that’s what powers the Blockchain. And then you can use those bitcoins to buy things in the real world or avail yourself of the services of the Blockchain itself.
So what it sounds like to me in kind of a laymen’s standpoint is you have a system of “witnesses and individualized records in other words to prevent fraud.”
If you and I were having a conversation between just the two of us, your word would be as good as mine. But if we were having the conversation in front of a large audience and every single person was hearing what we were saying and later voted on which version of the conversation was accurate, then we would have a lot more trust in the situation or whatever telling of it was the truth. So what’s happening is, with all of these different computers agreeing on things we’re decentralizing the trust associated with a given transaction. In other words, we don’t have to trust one record keeper; we can believe that the system is correct if everyone says it’s correct. And when people talk about Blockchain having the opportunity to eliminate the trust deficit that’s really what they’re saying. Is that we don’t have to trust one company, one person or one system, or in many cases, one government, we can trust the Blockchain overall.
Let’s talk about some examples of uses for Blockchain:
What are some other industries that can and probably already is being utilized?
First of all, currency is something many people talk about, I would distinguish between two types of currency or rather than saying currency, maybe we can talk about things that hold value. We have something like a dollar bill, which carries value and standing behind is the US government but if someone wants to use a value that is not trackable or enforceable and not related to a government then they might use something like a bitcoin. I would refer to that as a general currency. There are other specific use currencies that might allow you to do or pay for a specific thing, for example AirBnB might float a coin that is usable to rent AirBnB accommodations that are marketed through their site or McDonald’s might create something that would allow you to trade it in for hamburgers
Let’s talk about Real Estate and where possible applications for Blockchain exist:
There’s a lot of conversations about change of Title. If you’re familiar with how Title insurance works and how land records work. If someone is going to buy a piece of property they get the legal description of the property and maybe a deed and they would go to the recorder’s office and trace that back to make sure that there was a chain of title going all the way back to a certain time where they felt it was a reliable ownership. Then they would trace it back to make sure it wasn’t sold to two people. And then follow it back to all of the other owners to make sure they didn’t sell it to more than one person and that way I know I’m not buying something with a defective title. And I’m buying something that you actually can sell me. With Blockchain that can happen much, much more elegantly because there’s a computerized and non-fakable record and so we can just go back down the blockchain and know that it hasn’t been sold to two people because you can only transfer it to one person on the blockchain. That’s one example in relation to Title and Title insurance, which is just records.
The next thing is actual transfer of ownership or property rights. For example, right now I’m a landlord and give you rights to lease space in my property. I sign a lease with you. The lease document is what gives you and controls your right of access to use that property. We rely on that paper document to show your interest in the property. If I want to transfer that to someone else, the questions of the validity of it, terms of it or if it can be enforced, again, we’re going back to paper, as opposed to something that is more reliable which would be Blockchain. It doesn’t magically get rid of disagreements. You can still have an agreement that says: they can’t sublease the space and because someone transfers an interest on the Blockchain doesn’t suddenly invalidate the terms of the original agreement. On the other hand, it does open opportunities that wouldn’t be there otherwise.
It sounds like it works almost like a digital notary. Yes, there’s a component of that and you’re able to validate that someone signed an agreement when and in the form that they said they did.
Listen to the rest on Building Success – A Real Estate Podcast