Cryptocurrency (Crypto) or Bitcoin is a digital, virtual currency that is generally without physical coins or bills. It can be converted to cash, but currently must be sold (or bought) via a cryptocurrency exchange. Cryptocurrency falls into two main categories: coins or tokens. Some notable coin-based cryptocurrencies include Bitcoin, Ethereum and Dogecoin. Bitcoin and Ether from Ethereum are also considered tokens. In this world, transactions are public and every payment is verified via the digital ledger known as the blockchain.
Cryptocurrencies have value because they can be used as a unit of exchange. The value is based upon scarcity (a finite supply) and utility (ability to use in commerce). Some experts believe cryptocurrency could become a more efficient commodity than gold. It has a decentralized structure, meaning no government, bank or single person has control. Accordingly, it is less likely to be toppled by corruption at the top as it is open-source and available to anyone.
Cryptocurrency does not have intrinsic value, which lends itself to the volatile nature we have recently seen covered in the media. Its strength lies in its network of users, making it more acceptable and more easily utilized. Some believe within the next five years, crypto is likely to replace 5% of gold in the market.
But can you use it to buy a house? Largely, the answer is still no, and it will likely be quite some time before we see this trend catch on across the industry. Unfortunately, everything that makes cryptocurrency exciting to its proponents are the things that work against it in the traditional marketplace.
For now, it does not work in the traditional real estate market, with conventional styles of financing as it is simply too volatile: Lending institutions, whose money is based on the U.S. dollar, would not know how to value it when determining a buyer’s creditworthiness. Title companies are also not set up to accept this type of currency—any crypto used in a real estate transaction would need to be “cashed” and turned into regular U.S. funds first.
Proponents of using crypto in real estate assert that it provides additional privacy when purchasing property, creates a streamlined, cost-effective real estate transaction in bypassing the need for face-to-face interactions, and is a secure and trustworthy method given is open-source nature. In fact, Vermont and Arizona have already passed smart contract legislation, adding to the protections provided for buyers and sellers using crypto in real estate.
On the flip side, experts also caution there are “many dangers of getting involved with cryptocurrencies,” including risk of loss due to hackers and/or hyper volatility, risk of new regulations, no downside protection or hard collateral.
All that said, if the increasing number of tech companies focused on bringing blockchain tech to real estate is any sign, it would seem that it’s only a matter of time before crypto makes its way into real estate in a more mainstream way. You can already find a micro-market of properties for sale on Realtor.com that will accept bitcoin as payment.
What the future will hold for cryptocurrency and if, how, or when the real estate industry will adopt this new technology is still open to debate, but ultimately, time will tell!