Thursday , 20 September 2018

Blockchain: A Brief Overview

Nearly a decade ago a new technology was deployed to create a peer-to-peer version of electronic cash, Bitcoin. Announced in a 2008, paper claiming to be authored by Satoshi Nakamoto who remains unidentified; Bitcoin was the first application of Blockchain technology and remains the most visible application, at least for now.

So, what is Blockchain? A Blockchain is an open-source data structure used to keep a ledger. It is neither software or a program. There are several key features of Blockchain technology:

  • It provides a method for managing data
  • It is a distributed, decentralized database
  • It operates using peer-to-peer networking
  • It creates an immutable and secure record

One way to think of Blockchain is to think of it as Microsoft Excel in the sky. It provides data management similarly to Excel but it is distributed throughout a network instead of on one computer at a time. Once an entry is made to a block and validated, it cannot be undone – even if it is bad data; a new “block” would need to be created issuing a correction to the previous block.

Cryptocurrency and Blockchain

Bitcoin is the world’s first decentralized digital currency; there is no intermediary. But, the digital piece isn’t new, we have been transacting digitally for quite some time. Most of us pay bills online without ever seeing cash or writing a check, we use PayPal and Apply Pay without blinking, hotel and airline rewards are all essentially digital currency. Even ACH transactions are just ledger entries; no cash actually changes hands. However, in each of these cases, there is a third party that serves as the “trust” agent between the transacting parties.

Cryptocurrencies and Blockchain do some remarkable and game-changing things. Initial attention has been on removing the third-party intermediary. Let’s go back to PayPal for a minute. PayPal does two basic things. First, it verifies that you have the authority to enter the transaction in the first place. For example, if you don’t have sufficient funds in your account that can be verified by PayPal you will not be authorized to complete the purchase. Second, PayPal keeps the ledger. When either party to the transaction wants to know what the record looks like they go to PayPal.

Digital currency built on Blockchain technology allows people who do not know or trust each other to exchange without a third party intermediary by creating a distributed, immutable record that requires digital assent or authentication up and down the “chain”. In the case of cryptocurrency, each transaction must be validated by other computers. The ledger is replicated on thousands of computers (called “nodes”) globally and each transaction requires the assent of the nodes to be completed. Although the ledger is widely distributed, blockchain uses a public-key, private-key infrastructure to restrict access to the contents of individual blocks. In short, I publicly prove that I have a private key without revealing the private key itself and thus the content of the block is not revealed.

Bitcoin (and Blockchain) also created digital scarcity. Scarcity only existed in the physical world. Think of what happens when you send a photo, MP3 file or appraisal report. When you send it the recipient gets it but they get a copy – you still have the original. Further, the recipient can now instantly share their copy with anyone and everyone they know and this can be replicated down the line in seconds. Your photo can be on a million computers in seconds and you have no control nor do you have any idea. In the past, if you wanted a song on an album I owned, I gave you a 45 or an LP, (or a CD for the younger crowd) and once you had it, I no longer did; only one of us could use it at a time.

Transactions conducted using Blockchain technology and digital currency in particular, create a means by which only one person can have a given asset at any one time. When I send a token to you, you get it and I no longer have it. The blockchain provides a complete transaction history and it provides proof of who owns the transacted item at any given point.

Blockchain technology is also extensible, meaning it can be built upon. An important extension is smart contracts, also called self-executing contracts. The contract is written as code into the blockchain. A triggering event occurs, and the contract executes itself according to the coded terms. This has enormous implications for real estate, commodities, and a myriad of other business transactions.

What are the applications for Real Estate?

A lot remains to be discovered in terms of the application of Blockchain technology. Blockchain today is where the internet was in the early 1990’s – we knew it was a game changer, we just couldn’t foresee the specific applications.

Every major bank in the world is exploring Blockchain. NASDAQ uses blockchain to record trades in privately held companies. The Big 4 accounting firms have formed Blockchain advisory groups.

Propy, a global real estate firm, is using Blockchain to create decentralized title and deed registries and has created a platform with smart contracts to facilitate online transactions worldwide.

The Society of Industrial and Office Realtors (SIOR) foresees “a blockchain-based universal MLS service that could prevent the need for multiple MLS services, and provide better real-time information on listings, reducing human error, and safeguarding sensitive proprietary information from being shared or commoditized.”

In the field of real estate appraisal, smart contracts could prove beneficial to appraisers and users of appraisal services. There are certainly some hurdles but imagine delivering an appraisal report to a blockchain wherein it could only be accessed by the client. Upon acceptance of the appraisal by the client, the smart contract would instantly fulfill payment to the appraiser. Any changes to the appraisal report would be logged allowing only certain users to always know they are accessing the final report.

As the creative thinkers in our profession turn their energy towards this technology, many opportunities and applications will be realized. As with any new disruptive technology some will be disrupted while others will do the disrupting. Either way, this profession will look different in a very short time because of Blockchain technology and its’ many yet to be seen implications.

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About Bill King

Bill King
William (Bill) King is President and Chief Valuation Officer at Real Info, Inc. Based in Buffalo, NY, Real Info has been providing Automated Valuation Models (AVMs) and automated real estate analytics to national clients since 1995. Real Info provides access to one of the most comprehensive parcel databases containing assessment, ownership and sales data on over 110 million properties. The database serves as the foundation for the company’s real estate reporting, home price indices, neighborhood & sales analytics, and proprietary Automated Valuation Models. Mr. King is a licensed real estate broker and certified residential real estate appraiser in Washington State, and nationally recognized instructor of real estate and appraisal courses and seminars. Mr. King has over 35 years of experience in real estate and valuation; he has served as a forensic expert on valuation and housing issues in local, regional and national cases. In addition, he has taught dozens of appraisal courses and contributed to the country’s most widely used appraisal textbook, The Appraisal Institute’s The Appraisal of Real Estate. He was a key member of the Appraisal Institute for several project teams, and has published dozens of industry-related articles and papers. Mr. King has extensive experience in real estate and valuation technology. He has been a valuation representative to the Mortgage Industry Standards Maintenance Organization (MISMO), consulted with the GSEs on USPAP issues for UCDP, and participated in the creation of the Uniform Appraisal Dataset (UAD). He was a Co-Founder and Board Member of the Appraiser’s Coalition of Washington, Founder, President and Chief Appraiser of ValueOne Appraisal, and Regional Sales Manager for FNC. Prior to joining Real Info, Inc., King served as SVP, Valuation Solutions for Platinum Data Solutions in Aliso Viejo, CA.

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