The only thing constant in this world is change, and real estate will continue to change with real estate smart contracts. Smart contracts uses the blockchain, a revolutionary technology used to make industries and transactions more efficient and cheaper. It is important to distinguish blockchain technology from Bitcoin and other cryptocurrencies. The blockchain uses cryptographic techniques to verify data, and resolve discrepancies in the computer network. This is important because it eliminates the need for a central control or a trusted third party.
Smart Contracts help with Transactions
Without the need for a trusted third party, smart contracts are rising to be a major player on the blockchain. Smart Contracts are basically computer codes on top of the blockchain ledger that are based on if-then scenarios Boolean Logic. A popular blockchain to use smart contracts is on the Ethereum network. Smart contracts help individuals exchange money, property, shares, or really anything of value in a transparent and conflict-free way without the need of a middleman. Similar and carrying on the theme of other blockchain-based technologies, the smart contract is designed to function without reliance on a centralized authority. Ethereum’s ERC-20 tokens are a common path to tokenization of assets such as real estate.
Real Estate Smart Contracts will Control the Entire Process
Real estate smart contracts will either eliminate or make certain transactions cheaper and more efficient. For example, the real estate industry often requires money to be held in escrow and routinely charge a percentage of the value of the money held as a fee. This equates to billions of dollars every year. With smart contracts, the blockchain could control the entire real estate process with the property buyer purchasing tokens and sending the tokens to a specific address on the blockchain.
Once all of the home buying steps are completed, the tokens would automatically release to the seller who could convert them back into fiat currency. The entire purchase process could become automated because e-signatures can be handled on the blockchain, and title deeds and home inspection certificates can have coding that will feed necessary information to the smart contracts. Smart Contracts become more important when entire real estate assets such as condominiums and other commercial buildings become tokenized.
Real Estate can be Fractionalized into Tokens
Tokenization will change the way large real estate transactions are funded. Real estate is considered an illiquid asset because of the lack of ready, willing, and constant buyers compared to other investments such as stocks and commodities. But, the ability to tokenize real estate changes this because real estate can be fractionalized into tokens and sold on the blockchain exchange markets. The rest of the world now has the ability to invest in the funding of a condominium or new hotel. Investors can also quickly liquidate their real estate tokens because there will be an audience ready to buy.
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