Blockchain technology and its unfulfilled CRE potential

Blockchain is on everyone’s mind. And for CRE professionals, there’s some concern about disintermediation. Should you be worried? Excited? Here’s a primer for how blockchain technology will and won’t affect you.

What is blockchain?

When you think of blockchain, you might think of it synonymously with bitcoin. Blockchain first emerged as the backbone of bitcoin, they are not one and the same.

When bitcoin was first conceived, its developer (or developers) needed a way to know who had how much of the cryptocurrency, but they also wanted to keep it totally decentralized. To achieve that aim, they created a publicly distributed ledger called the blockchain that is maintained by a network of communicating nodes.[1] Bitcoin wouldn’t have been possible without blockchain, but blockchain has many applications beyond recording bitcoin transactions.

According to Business Insider and Autonomous Research, a blockchain is any “database or ledger that maintains a continuously growing list of data records or transactions. Blockchains accept inputs from lots of different parties. The ledger can only be changed when there is a consensus among the group. That makes them more secure and it means there’s no need for a central authority to approve all the transactions.”

The real power of blockchain lies in the fact that it is a distributed database, or collection of data housed in multiple physical locations. In theory, that feature gives blockchain the potential to speed up transactions, make data more secure, power smart contracts and more.

How blockchain technology relates to CRE

Many people are beginning to speculate about how blockchain will be used in CRE, and while the verdict is still out, the possibilities seem almost endless.

The most obvious application of a distributed ledger would be title management. Currently, every transaction has title insurance overhead in place to manage the centuries-old ledger of titles for a property.

But because blockchains are software, they can be extended to do more than just track contacts. They can be programmed to make dynamic, intelligent contracts that process records of transaction amounts, funding sources and investment terms and approvals as well. When certain criteria are reached thanks to input from various sources, funds could be automatically released into escrow. The blockchain would then verify and finalize contracts automatically and greatly reduce the time brokers spend on contract-related work.

Some companies are thinking far beyond smart contracts and exploring how blockchain could be used to decentralize and streamline the entire CRE transaction process. One example is REX and its “global MLS,” which will run through the combined power of blockchain, distributed ledger technology and a “rex” token. REX aims to make listing and searching for properties free and give users control of their data, all while speeding up transactions, and it’s scheduled to launch in December of 2017.

Why blockchain isn’t going to change the industry yet

Aside from Rex and one pilot program led by a bank in the Netherlands, blockchain technology has not yet worked its way into commercial real estate in any meaningful way, and it’s likely a long way from becoming a mainstay in our industry. The technology will need to evolve and develop a great deal before it gains any kind of meaningful adoption in CRE.

But if blockchain does become an integral part of the CRE landscape, will it take the place of the broker in the dealmaking process? No.

As we’ve said before, technology can’t replace the role brokers play as trusted advisors to their clients, especially when it comes to large commercial real estate transactions. As long as you continue to position yourself as a strategic resource to your clients, technology like blockchain won’t take your job, even if it does truly take off.

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