Understanding Blockchain, Smart Contracts and Potential They Hold for Real Estate
If you spend time on social networks and read tech news at least occasionally, you have most certainly noticed that blockchain and smart contracts are now the talk of the town. These technologies seem to be top of mind for people in IT, tech, and related industries. And if you think it’s just another fad that will soon sink into oblivion and be replaced by the new one, you should absolutely change your mind.
Read on to learn why blockchain technology turned the world on its head, how it can transform the real estate, and what potential it holds for the future of rental business.
Blockchain, Smart Contracts, and Tokens Explained
Since the blockchain technology itself is rather early-stage, there’s a lot of confusion associated with its explanation and understanding. Essentially, blockchain is the new type of Internet and at the same time a brand new suite of technologies. The way blockchain technology is used/implemented may vary greatly depending on the objectives and purposes.
Originally used (and most widely known) in relation to digital currencies such as Bitcoin and Ethereum, blockchain technology is now much more than that. The tech community has recognized a myriad of potential uses for this technology, and now it’s clear that it can be applied to virtually any type of transaction that requires transparency and involves value — would it be money, property, or goods. This opens up new opportunities for many industries.
It’s important to understand that blockchain technology provides a decentralized database (aka ‘digital ledger’) of transactions that anyone in the network can see. This network is actually a chain of computers, and in order for a transaction to be completed, verified, and recorded, all these computers must approve it. Since every transaction gets permanently recorded and remains visible to anyone on a public ledger, blockchain is believed to reduce fraud and scam.
One of the most crucial things one should understand about blockchain is that the ‘digital ledger’ is not located in one place. It is instead distributed across participants in the network. As a result, copies of transactions exist and get updated simultaneously with each and every participating node in the system.
What makes blockchain technology so revolutionary is that it eliminates the need for a trusted individual. The way blockchain is organized makes it possible for consumers and suppliers to communicate directly, which removes the need for a third party.
Smart Contracts & Cryptocurrency
Blockchain technology is especially useful when combined with crypto tokensand smart contracts. That’s why we feel obliged to explain the meaning of both.
Self-executing contracts (aka smart contracts) are closely tied to blockchain technology and are now widely used in businesses. And it should be said they’re popular for a reason.
In the case of traditional paper contracts, a person would need to go to a notary, pay them a certain fee, and then wait to receive a document. In the case of smart contracts, however, things become significantly easier. All it takes is to drop a token and a document (no matter if its a rental agreement, driver’s license or escrow) will be delivered to one’s account.
And here’s the best part: not only will smart contracts define the rules and terms around a certain agreement, but they will also enforce all obligations automatically.
Cryptocurrencies, in their turn, are digital currencies that are used for money transfers independent of any third parties, including banks. The encryption techniques are used in order to verify the transfer of funds, which makes the procedure significantly safer, cheaper, and faster.
What About Real Estate?
Cutting a long story short, the potential blockchain technology holds for real estate is huge. To be more specific, there are three things blockchain technology offers to improve the current state of real estate industry. They are reduced costs, lower risk of fraud, and absolute transparency. More details on each one below.
Reduced costs of rental operations can be achieved as blockchain and smart contracts eliminate the need for a middleman when it comes to signing and verifying documents. Rental agreements in a form of smart contracts execute themselves automatically when particular conditions are met.
Lower risk of fraud is another reason why using blockchain in real estate is necessary. It’s widely known that fake listings are one of the most widespread types of rental scam, so it’s pleasing that blockchain can make rental scam a thing of the past with its system of ‘digital ownership certificates’. This means that each property owner will have digital documents that are impossible to duplicate, which will make it easier to control fake property ads.
Absolute transparency is one more factor making blockchain technology so valuable for real estate. Since information in the blockchain is accessible to everyone in the network, all the data becomes immutable and transparent. A decentralized system is built with transparency at heart. When information about past transactions and activities of users (read: potential tenants and landlords) is saved and visible for all, both tenants and landlords can enjoy more confidence when conducting transactions.
Rentberry Turns Into Decentralized Home Rental Platform
Here at Rentberry, we firmly believe that blockchain technology is the inherent part of the upcoming revolution in real estate. Blockchain and associated technologies can bring the security and speed of rental operations to ever new heights, let alone reduced costs and globalized standards of the rental procedure.
We’re now at the stage of integrating blockchain into Rentberry’s platform and are happy to announce a number of improvements that our users will soon get a chance to enjoy. Let’s take a closer look at what’s here now and what is coming.
Innovative Approach to Rental Security Deposits
Did you know there are almost $500 billion frozen in rental security depositsaround the globe? Do you think too that current approach to rental security deposits should be improved? Wouldn’t it be good if you as a tenant won’t have to pay a decent sum of money at the moment of move-in, but at the same time landlord could still have solid financial guarantee while renting out?
It’s all possible, and crowdsourced approach is the answer. As Rentberry turns into a decentralized home rental platform, it will become possible for tenants to save billions blocked in rental security deposits by letting members of Rentberry community to serve as an insurer (and get certain rewards in return). We’re convinced that this social initiative will serve the interests of both landlords and tenants, and unfreeze massive amount of money at the same time.
The reduced financial burden for tenants, the same or even improved security for landlords, and benefits for the members of Rentberry community — this is what Crowdsourced Rental Security Deposits are about.
Proprietary Scoring System for Landlords and Tenants
So far, landlords rely on credit score, employment history, and recommendations from former landlords to make the right decision when choosing among potential tenants. While this system is surely better than nothing, it is associated with a number of drawbacks.
To begin with, credit scores and employment histories are not perfect indicators of how good or bad a potential tenant will be. This information might be exceptionally relevant for banks, credit unions, and other institutions, but it has little to do with renting.
Second of all, credit scores/history and other things that are now used to evaluate tenant applications are usually valid for a country where they’ve been issued and become completely useless abroad. Since immigration rates are increasing year after year, it’s obvious that something needs to be done to help international tenants qualify for rentals overseas.
Third of all, current system favors homeowners but leaves tenants with no tools to screen their potential landlords. Since a rental agreement is a document signed by two parties, it would be right if tenants had some information about their prospective landlords too.
Self-executing Rental Contracts (Smart Rental Contracts)
As it’s been said above, smart contracts are self-executing, which means that they’re programmed to enforce certain actions when the conditions are met. Not only this eliminates the need for third parties and reduces costs associated with their service, but it also minimizes the risk of situations when one of the parties fail to comply with the terms of the contract.
Smart Locks for Open Houses and Move-in/Move-out Events
Yet another implication of blockchain we’re planning to implement is smart locks. Based on smart contracts, smart lock technology will make it much easier for landlords to hold open houses and for tenants to access their rentals on a move-in date without the need to synchronize schedules with homeowners. The way smart lock system will work is as efficient as it is simple. All it needs to open a door is to plug a smartphone into the lock and wait for a few seconds.
The Bottom Line — The Brighter Future
If you’re one of those people who tend to be sceptical about all things that are new, we encourage you to relax and enjoy the changes. Decentralized home rental platforms might be hard to understand but immensely simple to use. Rentberry’s improved version powered by blockchain will surprise you in the most positive way and make you reconsider your current standards of security and transparency. Big changes are coming, stay tuned.
Originally published at rentberry.com on October 26, 2017.