Blockchain promises to transform how transactions are managed
Blockchain technology enables the incorruptible, irrefutable recording of transactions and value, all on a distributed ledger that is validated by and stored across all the computers that maintain it. By transactions, we literally mean anything from currency trading to sales transactions, and by value we mean anything from land ownership to medical records.
It is the “distributed trust network that the internet never had but always wanted” (Tapscott and Tapscott, 2016). Blockchain is a type of digital network for storing and sharing value, rather than the internet which is primarily a network for storing and sharing information. The underlying technological principles behind blockchain are not new; the original concepts date back to 1991. Blockchain is just one type of Distributed Ledger Technology (which in itself is a concept that’s existed since the Romans!), but the reason why it’s attracted the so much hype recently is that it solves the fundamental issue of shared trust.
Through the “proof of work” consensus protocol (we won’t get into it!), Blockchain enables the full decentralised storage, and therefore transaction, of value.
CBRE’s Thomas Herr and Achim Jedelsky, President of FIBREE and Head of Processes and IT at Daimler Real Estate Gmbh, demystify blockchain and explore how it is incrementally improving various real estate functions, but requires further commitment from organisations to fully understand and utilise its capabilities.
FIBREE is the leading international network for exchanging knowledge between the real estate industry, the IT sector and blockchain technology.
- Automation of supply chains for occupiers: Smart contracts on the blockchain can enable the self-execution of pre-arranged conditions in the supply chain logistics process.
- Efficient documentation of the history of assets: Using the blockchain, the history of repairs, maintenance and environmental credentials of a building can be stored in perpetuity, enabling a more transparent view of the history of assets.
- Speeding up the leasing and sales transaction process: Utilising an industry-standard blockchain as a land registry would enable faster and more accurate (perhaps even safer) transaction processes. There a multiple barriers for this to happen and so may take several years to materialise.
Blockchain technology could provide the mechanism to store an asset’s ‘health records’. Not only could an industry-wide blockchain store all previous ownership of assets (or portfolios), but it could store the history of its health; which repairs have been done and when, which equipment (AC, lighting etc.) has been installed over the years and what the environmental credentials of the building are. This would enable more accurate and efficient due diligence processes when purchasing a building as an investor or leasing a building as an occupier.
Perhaps the most obvious impact is on the transaction process from both a leasing and sales transactions point of view. However, it would rely heavily on industry collaboration between purchaser, vendor and intermediary. It’s important to remember that blockchain in itself is completely incapable of advising on decision-making processes, and its main application would be in speeding up and reducing the costs of transaction processes, as well as potentially making investments more secure.
More efficient supply chains through the use of smart contracts (enabled by IoT). The end-result will eventually be far more pressure on retail and logistics assets to be more adaptable, as occupiers use them in a more fluid way.
If landlords can enable this then their assets will be more attractive (and therefore profitable).
There are very few direct effects on end-user experience in a commercial real estate context. The area where there are increasing case studies is in improving the efficiency and ‘enjoyability’ of the residential sales and letting process.
- Objective: Pilot asset transaction on private blockchain.
- What they did: Using a multitude of partners, from banks, consultancies and start-ups, the Swedish Land Registry have successfully demonstrated the possibility of transacting a real estate asset between buyer and seller.
- Outcome: Remains to be seen but after two years of continued piloting, the results are promising.
- Public, Private or Consortium blockchain? Different blockchain types serve different purposes – choose the right one for the right solution.
- If something goes wrong using blockchains, who would resolve the disputes? Particularly in the case of public or consortium blockchains, there are governance issues around who would take responsibility in the event of disputes. While there is no obvious solution for this at the moment, the success of blockchain initiatives relies on extensive collaborations between all parties using the blockchain.
- Develop an ecosystem of partners: The only way that the exponential value of blockchain will be achieved is through collaborating with partners across the entire value-chain, from policy makers and governments, right through to advisors and clients. Regulatory uncertainty is the top challenge to blockchain adoption according to some surveys.
- What are the barriers to Blockchain implementation? RICS, 2019
- Only 30% of companies think blockchain is very likely to disrupt operations in the next three years KPMG, 2018
- A third of CIOs have no interest in making blockchain plans Gartner, 2018
- Blockchain and IoT used together have the potential to cure pain points BCG, 2018
- The blockchain revolution may be a little bit behind schedule, but its value for real estate is clear ULI, Patrick J. Kiger, 2018
- Fully explore the legal ramifications of deploying blockchain! DWF, 2018
- The biggest barrier to deploying blockchain is regulatory uncertainty PWC, 2018