You’ve probably already heard of the term ‘Bitcoin’ or ‘cryptocurrency’ & it’s been mainstream talk of the town, the value of many of them has also risen several thousand % over the last couple of years.
The digital currencies that are receiving the most attention are Bitcoin, Ehtereum and Litecoin. In it’s simplistic form, its a type of digital currency which is based on blockchain technology which is essentially a lender or list. This list is held by many computers around the world and regularly compared meaning that there is a definitive list of who owns them and how many. This decentralised ledger principle means that central banks are not required to guarantee or control the currency. It is also encrypted, & it's even been considered as the new gold by Peter Thiel, the co-founder of PayPal.
You will likely need an e-wallet to receive and pay Bitcoin transfers, otherwise it will be pretty much like expecting to read an email without having an address. These transactions are verified through the Bitcoin network. One of the first purchases that was ever bought with Bitcoins were two pizzas, for the price of 10,000 Bitcoins, worth around $40. The meteoric rise has exploded to around $4500 and recently reached around the $7000 mark.
The current trajectory has been sharply upward and although this may or may not continue or go into reverse, this signifies the growing importance of Bitcoin and cyrpocurrency.
One of the most interesting aspects of the Bitcoin is that they arrive in circulation from users who run software which solves complex mathematical problems to ‘mine’ them. In the early days you could mine Bitcoins pretty easily using the average home desktop computer. With fierce competition & the mathematics behind the mining process, it's become far more intense. Only those with vast amounts of electricity & a collection of computers would be able to mine the coins. If you have deep pockets and plenty of hardware it can become a commercial activity.
Can you buy a property with Bitcoin?
This has already become a reality which allows sellers of properties to list their residences and connect with buyers who are interested in paying in bitcoin. Tycoon Michelle Mone is selling her £192m of Dubai apartments in bitcoin. You may be wondering what the pros of this currency are. Here are some of the reasons Bitcoin is becoming so popular:
They can be wrapped up within 15 minutes to a few hours. For instance, whenever you make a payment with bitcoins, the record of the transaction will get sent to the blockchain miners who will then verify the transaction. Although they can take a little long these days, its still much quicker than lengthy bank transfers.
Although the dangers are the currency can 'burst', in this year alone the price of Bitcoin has shot up by 500%. Not only is the asset growing, so is the acceptance of the currency. You now see ‘Bitcoin Accepted Here’ signs in more places and its taken more serious by financial institutions.
As Bitcoins are not linked to any names or addresses or any other private identifying information, this is one of the main benefits to keeping anonymity. However, you need to keep in mind once you want to convert it into regular currency anonymity will be lost.
Unlike other transactions which may involve fees, there are no fees with Bitcoin. So the chance to make a greater profit increases once the value of it grows further. You also dont have a “margin” to convert the currency from one currency to another for international transactions as long as the seller can accept bitcoins.
So if you want to start investing or buying property using Bitcoin what would you need?
You will need to choose a cryptocurrency wallet to store your money, for example, Ledger Nano S or Copay. If are considering entering this market, one thing to point out is Bitcoins are best when the value is at a relatively low point. You can either buy Bitcoins from exchanges or people directly via various cryptocurrency exchanges.
But you may be wondering why a buyer would pay for a property in Bitcoin?
These included but not limited to:
- Diversifying into other asset classes
- Cashing out of bitcoin (foresee a crash) & purchasing something like property which is less volatile and on the upward trend
- Remaining anonymous throughout the property transaction
- The ability to hide funds into assets
The question you might be thinking is ‘do sellers want to accept bitcoin?’
At this early stage when a majority of people don’t know what this is or how it works, the answer will probably be a no. However, the opportunity lies at the brokerage stage to help sellers understand this global market that is immediately opened up through the influence of digital currencies.
It’s important to state a seller's desire to accept bitcoin will not limit someone who wants to spend their bitcoin on property from doing so. For instance, if a buyer has £250,000, GBP equivalent in BTC and wants to buy an flat or a commercial unit with it, all he or she would have to do is exchange the bitcoin via an exchange such as Coinbase or GDAX, convert it into GBP currency. In reality this means every property transaction could take place with bitcoin being converted to the cash equivalent prior to the actual completion. It's not that different than a buyer liquidating stocks, or another property before a completing to have enough cash on hand.
1) Because the technology uses cryptography to allow each participant in the network to manipulate the ledger in a secure way without the need for a central authority - it’s virtually impossible to steal due to the networked pier reviews nature of the ledger. Let’s say you exchange on a property. Now the deal can’t strictly be between the two of you (buyer & seller) – a third party, such as a solicitor, bank/mortgage lender will need to verify the exchange took place. Otherwise there’ll be a situation if, say, the seller claims you never paid them – one big reason all the paperwork and intermediaries exist is to prevent that kind of dispute. With a blockchain however, the transaction takes place over a network involving thousands of computers, all in different places with different owners. When the transaction is made, every single computer on the network will record it. For someone to cheat and change the details, they’d need to break into every single computer on the network.
2) It has a finite supply which theoretically protects it from inflation and monetary manipulation. This blockchain technology could be used for crowdfunding, general purchasing and even adapted to conventional banking. It could ease problems of money laundering and could help in the accuracy of lending criteria.
3) Processing time for property transactions could be cut down significantly with digital contracts – which benefit from the distributed ledger technology (DLT) underlying the bitcoin currency.
4) This could have built-in triggers to release funds or exchange contracts on receipt of payment. Having a binding smart contract could include an agreement by the seller to transfer the property on receipt of funds, which would automatically be recorded on the Land Registry ledger. It could even include an option for a seller to pull out of the transaction but doing so would trigger a compensation payment to the buyer/investor, making a collapse of the deal less likely, or at least less impactful on the buyer/investor if it did happen.
5) Other triggers could be layered onto smart contracts, such as the transfer of a deposit at exchange of contracts, payment of stamp duty land tax (SDLT), or payment of fees by the buyer to their solicitor thus speeding up your property purchases.
Although the Bitcoin Blockchain technology and smart contracts are still considered new in the property market, it’s catching on fast. There are (real) concerns that the bubble may burst, perhaps investing in Bitcoins may be a short to medium term play with smaller amounts of capital which can then be transferred to safer bricks and mortar type investments.
Would you consider buying a property with Bitcoins or would you let the investment run in the actual asset? And will it be good for the property transaction process? Let us know your thoughts below!