Blockchain technology makes it possible to deliver property transactions with unrivalled speed, security, transparency, and efficiency.
What is blockchain?
Blockchain is essentially a self-managed distributed ledger of transactions duplicated and distributed across a network of global computer servers.
As the same record of an event or transaction in a ledger is distributed across multiple self-managed server nodes, they offer consensus that the recorded event or transaction is valid.
Each record is also encrypted, making the ledger highly secure and impossible to alter or erase.
If there is information representing an agreement or record, the blockchain can record, encrypt, and protect that information from being altered or erased.
This makes the blockchain technology ideal for documenting transaction documents such as property deeds, mortgages, and shareholder agreements.
What are the advantages of blockchain?
Blockchain expert and University of Technology Sydney lecturer Dr George Tian said transparency, control and real-time information were among several key advantages of using the technology to execute finance and investment agreements.
“Security is based on the consensus mechanism used by the particular blockchain. Particularly for public and private permissioned blockchains. Information can be added onto a blockchain only if all, or a defined number of participants in the network agree on the correctness of information. Because of this fraud is less likely and more easily detected.” he told ANZPJ.
Dr Tian added the distributed structure of a blockchain eliminates the single point of failure, which further improves the security.
“As a blockchain is spread over several computers of blockchain or DLT participants (nodes) on the Internet, a single system crash or failure (failure of a single node) will not result in loss of transaction records. Even if one part of the network goes down, the blockchain will continue to function,” he said.
How blockchain is transforming commercial real estate?
Using blockchain technology can drastically reduces the time and associated expenses required to execute finance and investment agreements.
Updates to the digital ledger are automatic and the ledger is programmed to be 100 percent secure and tamper-proof, empowering every participant in the transaction to securely create and share the same data, removing reliance upon attorneys and other such parties.
Deeds of trust, equity agreements, loan terms, regulatory compliance documentation, and other transaction data are all recorded in the blockchain ledger. Thus, a blockchain is ideal for documenting payments and financial records for CRE transactions.
Smart contracts and the blockchain
So-called “smart contracts” help people exchange money, property, shares, or anything of value in a transparent, conflict-free way, while avoiding the services of a middleman.
Dr Tian said describes smart contracts as “programs that are written on the underlying distributed ledger (blockchain) which are “executed automatically by nodes on the network”.
“Although they can be used to execute digital contracts, smart contracts are programs rather than digital format contracts,” he said.
“Smart contracts are pieces of code that are stored in a blockchain, and which automatically take certain actions if predefined conditions are met.
“Generally speaking, transactions or data recorded on the distributed ledger/blockchain will trigger the smart contract and the actions taken will be in turn recorded in the ledger/blockchain.”
What does the Australian Government think?
The Australian Government’s Digital Transformation Agency (DTA) believes blockchain is only one of many data storage and exchange solutions, however it suggests more mature alternatives are better for immediate use.
“Blockchain technology is still new and should be investigated with the mindset of ‘how could blockchain technology potentially benefit us?’ rather than ‘how can we make our problem fit into the blockchain technology paradigm?’. Organisations should treat blockchain technology like they would any other technological solution at their disposal and use it in appropriate situations,” DTA reported.
As blockchains are by definition append-only – users can only add data to the blockchain, not edit or delete existing data – the DTA has highlighted “significant issues” could arise if “sensitive personal details are misrecorded against the wrong person” or if they need to “delete someone’s personal details”.
It warns limitations of blockchain should be carefully weighed against any unique benefits provided by a blockchain-specific solution.