LOCKDOWN SERIES PART TWO: Understanding blockchain 

Blockchain Research Institute co-founder Don Tapscott said the technology will have a bigger impact over the next few decades than social media, big data, robotics  and even artificial intelligence – which is why ANZPJ has published a guide to understanding blockchain.

While some people might have heard of blockchain being underlying technology of digital cryptocurrencies like Bitcoin, the technology is also ideal for documenting transaction documents such as property deeds, mortgages, and shareholder agreements.

Speaking to the ANZPJ’s Lockdown Special podcast series, Cushman and Wakefield national director of research Tony Crabb said blockchain already has an extraordinary number of applications, which will only be enhanced through the rollout of 5G – the next generation of mobile technology.

Understanding 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.

READ MORE FROM ANZPJ’S LOCKDOWN SPECIAL:

PART ONE: ECONOMIC RISE OF CHINA AND PROPERTY 

PART THREE: MELB WOMAN BUYS 25 PROPERTIES IN 25 WEEKS

PART FOUR: APIV SCHEME – EVERYTHING YOU NEED TO KNOW

Mr Crabb explained blockchain as a “continuity of events” forming a chain, which will need to be authenticated by every single person involved.

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.

“What you’re doing with that chain is giving everyone access to look at it and to authenticate it – there are a whole bunch of rules for the authentication process, which are a blessing for anybody who wants a single source of truth,” he said.

Understanding blockchain and currency

Blockchain is the tamper-proof online ledger technology that underpins digital coins like Bitcoin and Ethereum, however it’s increasingly gaining attention from traditional currencies.

“It’s my understanding that every free currency in the world will move to blockchain,” Mr Crabb explained.

China began the first steps to becoming the country to put its currency fully on a permissioned blockchain in 2020 when it started allowing a digital version yuan to be spent cross-border between Hong Kong and neighbouring Shenzhen and is continuing to develop the platform for making the currency internationally viable.

“China is the first country to do so and I think the other banks are sitting back and looking at it,” he said.

“Having the currency on blockchain also helps governments monitor transactions, meaning people would be unable to avoid tax and payments and would be followed wherever they go.

“Once it goes mainstream like that, I think we will find blockchain is used everywhere for the transfer of goods and services in all of the transactions we undertake.”

Understanding blockchain and valuation

Blockchain has the power to greatly improve the speed, accuracy and security of valuations.

“If you want to undertake the valuation of building, every item would be reconcilable and instantly reconcilable using the blockchain – the CapEx budget, the leases and all of the terms and conditions,” he said.

“It’s then continuously updated in real-time, meaning inputs into valuations are going to get faster. This might see us move from quarterly valuations to monthly valuations or rolling valuations on a weekly basis because information will be accessed, updated and reconciled instantly.”

While blockchain will streamline the valuation process, Mr Crabb said professional valuers will always be needed in the industry.

“You will still need the valuer to wander through the building to see that everything exists and that all these things are happening as they say they are happening, but in terms of doing the grunt work in the data side of things, a lot of that will be done on the blockchain,” he said

“The great work of the valuer is the art of the outgoing, the leases and all that stuff, which will become more automated because the blockchain will allow that and you’ll be able to rely on it – you won’t have to cite the leases because they will be authenticated on the blockchain as a single source of truth.

“Removing the processing work away from valuers will free up time to do the important things like looking into the future and predicting how that assest will perform.”

LISTEN TO EACH EPISODE ON SPOTIFY AND APPLE PODCAST 

EPISODE ONE: ECONMIC RISE OF CHINA AND PROPERTY

EPISODE TWO: UNDERSTANDING BLOCKCHAIN AND PROPERTY 

EPISODE THREE: MELB WOMAN BUYS 25 PROPERTIES IN 25 WEEKS

EPISODE FOUR: APIV SCHEME – EVERYTHING YOU NEED TO KNOW 

Benefits for property sector

As deeds of trust, equity agreements, loan terms, regulatory compliance documentation, and other transaction data are all recorded in the blockchain ledger, making it an ideal technology for the real estate sector for the who have an understanding blockchain.

When you talk about the title for a property – that title will be viewed by the bank, the insurance company, the lawyer and the buyer and the seller. At the moment [all that information is recorded on] a piece of paper and everybody has a copy of that piece of paper,” he said.

“If somebody makes a change, that doesn’t appear on my copy, it only appears on the copy that person has. So, you have to photocopy or scan that document and email it around to everybody else for them to look at or make a change.

“It’s all very cumbersome when you think about all the people involved and how many times it has to be replicated.”

Mr Crabb said if this same change was made on the blockchain, it would happen instantly and is then be authenticated by all parties involved.

“As long as everybody agrees this is all happening and presses a button, it happens instantly. In the past, it might have taken weeks,” he said.

EPISODE 1: ECONMIC RISE OF CHINA AND PROPERTY

EPISODE TWO: UNDERSTANDING BLOCKCHAIN AND PROPERTY 

EPISODE THREE: MELB WOMAN BUYS 25 PROPERTIES IN 25 WEEKS

EPISODE FOUR: APIV SCHEME – EVERYTHING YOU NEED TO KNOW 

Another example of blockchain in the industry is KPMG Australia’s collaboration with the construction industry to develop a new blockchain-enabled system, which will allow insurers and property buyers to compare the trustworthiness of buildings – by putting data at the heart of the construction process.

Devised in response to the spate of recent issues in the construction industry, and developed with the support of the NSW Government, the Building Assurance Solution (BAS) will use several advanced technologies (like blockchain) to provide a trusted and immutable source of data about a building from inception throughout its lifecycle.

It will store detailed records throughout the development and construction process, including materials and methods used, certifications achieved, and contractor details. The end goal is to provide a transparent Trustworthy Index for buildings that has benefits for multiple stakeholders.

It will provide investors and buyers with assurance about the quality of the property they purchase, and help insurers make smarter decisions about the risks and associated premiums. The system will also allow regulators to track products from source to installation.

Blockchain and commercial property

Blockchain technology makes information significantly more transparent and safer than conventional ledgers, with the platform able to store information about an asset on a ledger, instantly available to any party anywhere on the network.

Commercial real estate behemoth JLL believe blockchain is shaping the future of commercial real estate.

“With increasing use, blockchain adaptation has become a priority across industries, with services like financial, intelligence, and voting protocols being at the forefront,” the company explained.

“Similarly, even in real estate, cases of its adaptation are numerous. Blockchain is consistently transforming the real estate landscape, be it investments or assets and operations management.”

Using blockchain for a sale or lease of commercial properties can remove the need for middlemen, who often make it difficult to gather accurate information transfer from the seller of the property to the buyer or the lessor to the lessee.

“One can build a real estate marketplace on a blockchain technology where stakeholders can communicate and transact freely and directly without a mediator,” JLL explained.

“The stakeholders on this marketplace can have 100 per cent confidence that the information is not tampered with. Besides, it enables smoother transactions in the fastest time possible.

“Furthermore, in most countries, real estate primarily attracts local investors. With globalisation, transactions across borders should be seamless but it is a cumbersome process in reality.”

Fractional real estate economy

A new cryptocurrency built for the fractional real estate sharing economy has been released and hopes to build a blockchain-based transparent and trust- incentivising system.

Is blockchain safe?

Understanding blockchain’s ability to provide decentralisation, transparency and immutability, has seen the technology spread across a number of established sectors.

Designed to secure key assets and information, blockchain has become synonymous with privacy because of how it protects data stored from unwarranted parties.

“You can’t go back and author a document on the blockchain without everyone else who is party to it agreeing, meaning you could keep a false document but it would never be validated,” Mr Crabb told ANZPJ’s Lockdown Special podcast series.

“If you think about all of the things in the world that you could falsify – from currency to art to wine – it undermines trust and confidence in the system.

“Blockchain really goes a long way around securing the authenticity of almost everything and that’s a wonderful thing for people who have invested substantially.”

Blockchain expert and University of Technology Sydney lecturer Dr George Tian agreed transparency, control and real-time information were among several key advantages of using the technology to execute financial 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.

Are there cons to blockchain?

The problem with blockchain at the moment is it’s lack of plug and play capabilities, Mr Crabb told Lockdown Special podcast series.

“There isn’t really any off-the-shelf product, you can’t walk into JB Hi-Fi and buy a box with blockchain inside,” he joked.

There is a global agreed standard of the blockchain and its use, with plenty of companies around the globe using blockchain as part of their businesses and enterprises. However, it’s commercial use hasn’t kicked off yet.”

Understanding blockchain, he added the other issue with the technology is its speed when dealing with large ledgers, with workarounds posing potential security risks.

“Every authentication requires the software to go back to the start and validate all of the entries from number one each time,” he said.

“If you’re dealing with a land title, it might only have five or six ledgers, but when dealing with currencies, you’re going to have billions.

“They are trying to do workaround, but that could lead to problems down the track.”

Blockchain supply chains

Understanding blockchain can help when handling common issues with supply chains, such as validation, theft and fraud.

“If you’re an international supply chain and you’re looking to move widgets from Italy, down the Middle East and through to Australia, the supplier wants to know they have left and wants to keep an eye on them as they move through all the processes and procedures” Mr Crabb explained.

“The person who is purchasing, wants to see all that as well and they also want a validation of the quantity – blockchain goes a long way of helping achieve this.”

Further to supply chains, blockchain is also helping with so-called “smart contracts”, which 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 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.”

Australia’s view on blockchain

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 – showing they need for education for understanding blockchain.

“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.