The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products
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NAREIM DIALOGUES SPRING 2018 39 WHAT IS BLOCKCHAIN? Blockchain was created in 2008 to support a distributed and immutable public ledger for the Bitcoin currency. Allowing the transactions to be timestamped in a public ledger, Blockchain solved the digital currency issue of double-spending, or replicating a digital token twice so it can be spent more than once. Behind the scenes, there is a distributed server that timestamps transactions and saves them to a database without manual intervention over peer-to-peer networks. Most fundamentally, Blockchain technologies provide a trusted architecture that verifies and validates untrusted parties by creating an immutable historical record of transactions. The next generation of Blockchain was introduced in 2014 and has allowed for expanded uses beyond Bitcoin. Separating the underlying technology that operated Bitcoin from the currency, opened up the ability to represent more complex financial instruments like loans or bonds, rather than only cash-like tokens. This lends itself to the potential application of the Blockchain in a distributed ledger to title and parcel history as well as lease transactions in the real estate market. By 2020, IBM predicts that 66% of banks are expected to have Blockchain in commercial production for loan applications. Today, research has shown that 15% of banks are using Blockchain. 1 The predictions for real estate adoption of Blockchain have been less clear, but the fact that a nonprofit organization, International Blockchain Real Estate Association, formed to advocate for Bitcoin and Blockchain education and implementation, signals that real estate has the potential to be a fast follower. HOW CAN BLOCKCHAIN IMPACT REAL ESTATE? The most important thing to know about Blockchain's impact on the real estate industry is that change is happening now. Early focus has been on title transfer and eliminating the need for title insurance. In October of 2016, Chicago's Cook County Recorder of Deeds Office announced a partnership with real estate Blockchain start up, Velox.re (https://www.velox.re/), to test property title transfers on Blockchain. 2 Other uses are also being explored. For example, California-based company, Propy, partners real estate buyers with real estate brokers using Blockchain technology and promote a smarter contract experience. 3 ABN Amro bank is working with IBM to develop a Blockchain that allows buyers, sellers, brokers, and regulators to both record and share real estate transactions. 4 OUR EXPERIMENT AT PRINCIPAL REAL ESTATE INVESTORS At Principal Real Estate Investors, we sought to learn more about Blockchain by getting our hands on the technology and partnering with a company outside of Principal to do a mock exchange. We found an enthusiastic real estate partner, Berkadia (https://www.berkadia.com), and used a hackathon (we call them "code jams") approach to pay an invoice using Blockchain. We teamed remotely with Berkadia and allocated two and a half focused days to make it work. On the first day we decided to try Openchain (https://www.openchain.org) because it seemed relatively simple and appeared to be a fit for our use case. By the end of day one we were Y ou may have heard the term "Blockchain" thrown around at a recent conference or referenced in a Fintech article, but many of us are still trying to understand what it is and how the technology could impact the Real Estate industry. There are a host of questions that many industry stakeholders have regarding the technology. For instance: does Blockchain have the potential to change real estate transaction settlements to the same degree that online shopping has changed the retail experience? If so, how far away is this disruption? What aspects of real estate investing are the most vulnerable to this change? To answer these questions, we must start with providing a bit of history on why Blockchain technology was created in the first place.