- Cryptocurrency and blockchain could add real value to the real estate industry
- The value in exceptional record keeping comes with the territory, including minute details
- Blockchain is conducive to the real estate use case but is unpredictable when it will become mainstream
Has cryptocurrency matured enough to buy your morning coffee?
More importantly, can you buy your first or next home with crypto?
The most popular and well-known of the cryptocurrencies, Bitcoin, had its genesis back in 2009, gaining momentum almost a decade later, fetching more than AU$25,000 per Bitcoin.
A recent resurgence saw the price rocket to over $70,000, billionaire and space entrepreneur Elon Musk giving it his blessing in a series of tweets earlier in February.
It’s a lucrative investment, or so it sounds, but how could it benefit you and the property you buy, rent, or develop?
> unencrypt [cryptocurrency] please ;
When you invest in property, you know what it is – bricks and mortar, concrete and rebar, but what is cryptocurrency? What is blockchain?
Associate Professor at Deakin University’s Department of Finance, Dr Adrian Lee, told The Property Tribune that blockchain is a type of database that stores and processes connected information in blocks, hence the name blockchain.
Blockchain is the underlying technology that enables cryptocurrency, or in other words, cryptocurrency is the application of blockchain, with blockchain having wider applications outside of finance including record keeping – keep that in mind for later, in purchasing property in poke bowls.
The currency itself is virtual or digital, and the currency is secured, stored, and managed by cryptography, hence the name.
Dr Lee also said that “crypto is on a public ledger, so everyone can see everything. It’s easier to supervise people where they are using Bitcoin.”
“It facilitates the prevention of money laundering and corruption,” said Dr Lee.
When people invest in crypto, it isn’t a physical asset, it’s intangible, and that’s part of what makes it so valuable.
Where is the value? Why is it expensive?
Dr Lee told The Property Tribune that “people buy crypto for many reasons. Part of why it is so expensive is because of the belief people have in it, it is an asset that is not held or controlled by any government, it is independent of any central authority, and people value having that sort of alternative asset.”
There is also power in the fact it cannot be removed from someone and is scarce, Dr Lee said, in contrast to buying shares and other assets which can legally be removed from you by an authority.
Co-Director of the RMIT Blockchain Innovation Hub, Dr Chris Berg, agreed that part of the value in crypto lay in being uncensorable and not controlled by government. Dr Berg also told The Property Tribune that crypto was “permissionless”, there is no need for the usual financial instruments when making large transactions, no brokers, financial advisers, and doesn’t rely on government and regulations.
“The idea is to build an economic system that doesn’t rely on laws and police to manage itself. It gives us lots of opportunities to open up new business models and ways we organise communities and exchange,” said Dr Berg.
Inflation is also something that crypto is free from, Dr Lee said that crypto “is like gold, the value is not from its physical use.”
Trading such an ethereal (the pun is certainly intended – note, ethereum is a cryptocurrency) “item” might seem foreign to many, but in reality, it likely isn’t.
Dr Berg told The Property Tribune that buying crypto is like an investment in the company that minted the currency, not dissimilar to shares on the ASX.
“A new cloud computing company might have launched a token, it’s functionally a share or stock, and if I believe that’s an appreciating asset, I’d invest in it,” said Dr Berg.
It’s also possible to invest in the exchange of crypto, Dr Berg said in such a situation investors become liquidity providers.
Suffice to say there’s a lot you can do, but you can’t quite buy your daily caffeine fix quite yet.
Purchasing property and poke bowls
It is with a deeply melancholy heart that I must tell you your lunch won’t be purchased by bitcoin any time soon.
As it turns out, it’s very impractical too, Dr Lee said that processing times for crypto can take some 10 minutes; if I were you I’d rather tap my watch, phone, or ring.
Fees are also quite high for small purchases:
“… the larger the fee you pay, the more likely you are to be processed in the next block, hence blockchain; for smaller items, the fee could be too large eclipsing the price of your coffee,” said Dr Lee
There are a lot of challenges for businesses dealing with the technology as well, whether a business chooses to convert into Australian dollars immediately or hedge it, even then it is possible to be subject to capital gains tax and regulations said, Dr Berg.
Larger purchases like property are more likely in the nearer future, the nature of crypto potentially conducive to property and the heavily regulated nature of residential or commercial real estate.
The underlying technology, blockchain, is perfectly suited to property, not just in the trading domain but in supply chain management.
Dr Berg told The Property Tribune that though in recent years companies have created building records, property titling, and other systems, they can come and go, particularly when companies close down. With blockchain, however, it is a powerful, permanent database that will exist forever.
The fees, when compared to the purchase price of a house, are also not as significant, meaning the previous issue of spending more on fees than your actual purchase goes away.
As previously mentioned, transparency is a benefit too:
“When a purchase has been proven on blockchain, it is irrefutable and everyone can see it, you can’t go back and there is no chance of fraud. It is actually ideal [for property],” said Dr Lee.
Once the crypto turns up in your pocket, it can become complicated.
How you treat the currency once it is processed could determine whether you get stung with capital gains tax, or fall under that regulatory framework, but it’s a grey area.
Dr Berg said that the Australian Tax Office (ATO) claims it’s a clear, transparent process, especially considering accounts can be separated into personal and business use. Dr Berg said he believes it is in reality quite opaque.
Suffice to say, see your Bitcoin specialist accountant.