Blockchain is typically associated with Bitcoin and a raft of other cryptocurrencies that have emerged over the past decade. And, despite now being well established, it’s fair to say the technology still confuses a lot of people.
The truth is, Blockchain, albeit surrounded by an air of mystery, controversy and debate – especially after the Bitcoin crash of 2018 – is actually a straightforward concept. Essentially, it allows people and companies to transact directly without verifying intermediaries like banks, government and other institutions.
How Blockchain works
Instead of transaction details being facilitated and recorded by third parties, all information related to a dealing is stored in a ‘block’ which is then shared on a network of computers (referred to as a distributed ledger). With no single central authority controlling these transactions, tampering or manipulating information becomes almost impossible because if one block falls over, the others know about it.
It’s not surprising, then, that the application of Blockchain technology could extend far beyond currency to a variety of different industries that rely on central authorities for transactions, such as pharmaceuticals, food distribution, healthcare and insurance – the list could go on. And now, we’re seeing a rising curiosity in Australia around how Blockchain could be used in real estate.
Here are some ways that Blockchain could make its mark in the real estate sector.
Tackling ELNO interoperability
Now that electronic settlements are mandated across much of the country, tackling ELNO interoperability is becoming increasingly important for state governments seeking to stimulate competition in the e-settlement service market. While PEXA monopolised the space for many years, the new player, Sympli, recently entered the Australian market giving conveyancers choice around their service for the first time.
South Australia is currently trialling the use of Blockchain to allow different Electronic Lodgement Network Operators to interact during property transactions. In effect, this will mean a vendor’s conveyancer and a purchaser’s conveyancer will be able to seamlessly and securely share information when completing e-conveyancing transactions, even if they use different systems.
Property prices in Sydney and Melbourne are on the rise again while the Brisbane and Adelaide markets are expected to be two of Australia’s strongest performers this year. Unsurprisingly, would-be first home buyers are under increasing pressure to think outside the box when it comes to getting a foothold in the market.
The concept of ‘tokenisation’ sees the whole value of one property broken up into smaller proportions (known as tokens) which can be bought and sold using Blockchain technology. And once again, South Australia appears to be leading the charge. As part of a new pioneering experiment, two apartments within Adelaide’s tallest residential building, The Kodo, have each been divided up into 20 “Bricklets” worth $25,000 each. Ownership rights for each Bricklet are exchanged through Blockchain and it’s reported that there’s already a waiting list for one of the 40 that have so far been created.
A property transaction using a smart contract would require all documentation and information relating to the purchase of an asset to be encrypted and stored on a block (one distributed ledger). These include property searches, title deeds, finance agreements and property valuations, all of which traditionally remain in the possession of different stakeholders.
Equipped with all the information, a Blockchain enabled smart contract would execute the various stages of a property transaction and enter agreement once certain conditions have been met and the parties have digitally confirmed their elements of the transaction are complete. In the end, this could even result in the automatic transfer of funds from the buyer’s account. But smart contracts won’t come without a few limitations; these self-executing agreements might pose some challenges when it comes to altering or terminating agreements and interpreting tricky terms.
By saving time and reducing the risk of manual errors, smart contracts could go a long way towards helping conveyancers offer more advisory services for people making important financial decisions.
Despite the years Blockchain has been in existence, the real practical application of the technology across a variety of industries and transactions is still yet to be determined. As we enter a new era of experimentation, lawyers and conveyancers should aim to keep updated and informed about what’s working and what’s not and how it might change the way they work in future.