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How BlockChain may solve fraud in Real Estate property industry #CRE

When a TV documentary from channel 4 aired early this year , it involved under cover reporters , emphasising london's property boom is partly being funded, by overseas buyers, laundering money.

Two undercover reporters posed as unscrupulous Russian government official called “Boris” and his mistress “Nastya” whom he wanted to purchase an upmarket property in London for.

The couple [featured in video below]– Russian anti-corruption campaigner Roman Borisovich and Ukrainian investigative reporter Natalia Sedletska – viewed five properties ranging in price from £3m to £15m, on the market with five different west London agents, in Kensington, Chelsea and Notting Hill.

Despite being made aware they were dealing with ill-gotten gains, the estate agents agreed to continue with a potential purchase. In several instances the estate agents recommended law firms to help a buyer hide his identity.

One estate agent named a “very, very good lawyer … the last person I put them was another minister of a previous Soviet state” in a deal worth £10m.

The estate agents suggested that in the capital secretive purchases of multimillion pound houses are common. One claimed that 80% or more of his transactions are with international, overseas-based buyers and “50 or 60%” of them are conducted in “various stages of anonymity … whether it be through a company or an offshore trust”.

"Those caught on camera" included estate agents from high street chains Winkworth, central London specialists Marsh & Parsons which advertises itself under the slogan “The Only Way is Ethics”, Domus Nova , Chard and Bective Leslie Marsh which have been used by fashion designers and actors.

scroll down right hand side bar to play video 

So what can be done apart from prosecuting the guilty, well technology can offer transparency,"a indelible digital paper trail" , speed of transaction and secure payment channel in the form of a digital currency called bitcoin.

How Bitcoin works in 5 mins

The governments of the world don’t have much interest in using the blockchain in the land registry and real estate markets. Will they come around? Would it provide a better solution than that provided by the government?

​There are a growing number of digital currencies, the most well-known is Bitcoin. They are a purely electronic way of making payments anywhere in the world. At present only a very small percentage of the population use them for this purpose. The Bank of England has written two Quarterly Bulletin articles which explain in more detail how digital currencies work and the economics behind them.

BoE Digital currencies: how do they work and what makes them different? 

It is a great undertaking to integrated Bitcoin and Blockchain technologies into the real estate industry.

The president of the International Bitcoin Real Estate Association, Ragnar Lifthrasir say there is great potential of Blockchain technology for development in the real estate industry. His team wants to create a digital alternative for government land and title registries.

“If a buyer and a seller of a property both agree to use Bitcoin Blockchain solutions instead of government solution, nothing will stop them as long as they both agree to use it”, states Ragnar Lifthrasir, the President of International Bitcoin Real Estate Association.

Ragnar has few  ideas about the exact ways of integrating innovations into the real estate industry to make it safer and simpler.

"There are three ways we could use Blockchain technology in the real estate: purchasing real estate; escrowing real estate; recording the transfer of ownership of real estate onto the Blockchain.

Right now, none of those being commonly done but we are working on it to change the situation.

One of our goals is to make Bitcoin easy to use for common users. We are working on creating companies and applications that would use Bitcoin in such a way that users would not even know they’re using it.

Right now our company focuses on real estate titles. We plan to do the record of ownership and put it on the Blockchain. In that case the users wouldn’t know they are using Bitcoin at all. It would be similar to uploading documents to DropBox or GoogleDrive – all simple and familiar.

In terms of escrow we are working on it but that’s a little bit in the future. That would be very similar to making a bank transfer. You put in the amount you need to transfer, then buy the needed amount of Bitcoins and then the Bitcoins will be put into escrow. So it will be very similar to transferring via banks

How exactly does the Blockchain help prevent title deed fraud?

Bitcoin technology can prevent fraud with real estate and titles in two ways. First when you upload your documents to the Blockchain, you prove that you are the first person with that document. And when time comes to reproduce that document – to transfer – you would be able to prove that you have the document in your possession by rehashing it. So basically Blockchain helps by creating a document that is difficult to forge.

We’ll imagine though that someone is still able to forge the document. In that case Blockchain will help you prove you are the first person to have the document. That leads us to the second part of what you need for greater security. And that’s the actual transfer mechanism.

For that, we work to provide the Colored Coin solution similar to the one Overstock and Nasdaq are using. Those two companies are using colored coins to settle security features. But we’re working on using it for real estate assets. Even though trespassers might be able to produce a fraud document they still won’t be able to transfer the property unless they are in control of the private keys. So it’s important not only to have the actual secure document that shows your ownership but also have private keys for transferring that property.

Our organisation works on the provision of both solutions.

What obstacles are there in building a Blockchain based and non-government sanctioned land/title registry? Could the government interfere with your plans?

Right now the obstacle is not the technology. We have all the technology we need and we have had it for at least a year. The real obstacle is simply building the system and then getting people to use it. It’s like with any other business. We need to build it and prove that it’s good and we need to explain people why exactly it is good. We need to develop the right application and establish the right price for it. And that’s just what we’re doing right now. We’re trying to create the product and then we’re going to take it to the market. And charge the right price for it.

The challenge is simply to convince people this new technology is better.

The government doesn’t have a reason to hinder us because we’re not talking about money. The governments are always worried about money laundering and using money for the wrong purposes and money fraud. They don’t have as much of a concern with real estate. Our strategy is not to try to convince government to use Blockchain in their land registry.

Our strategy is to create a product with wide solutions for the industry. And once enough people in the industry will use it, the government would have no choice but to put up with it. If a buyer and a seller of a property both agree to use Bitcoin Blockchain solutions instead of government solution, nothing will stop them as long as they both agree to use it. So you can just imagine that if every big company decides to use it than it will work.

The Blockchain Can Save the Real Estate Industry Significant Amounts of Money

When discussing the advantages of the Bitcoin blockchain for property title management, Ragnar Lifthrasir was quick to point out the current costs associated with title insurance and title fraud:
“Putting property titles on the Bitcoin blockchain will bring the real estate industry out of its existing 18th century technology. Title insurance is a £13.5 billion industry. It’s estimated that the total annual cost of fighting and resolving title fraud is £670 m.”
Lifthrasir also noted how easy it is for a criminal to create fake documents that can cause serious issues for homeowners. In his view, the Bitcoin blockchain can offer an improved system for tracking property ownership records. He explained:
“Using Photoshop and a £13.50 stamp, a criminal can create a fake document that transfers ownership of your house to himself. Compare that to what it would take for that criminal to break the cryptography behind Bitcoin. I can’t predict exactly how much time and money would be saved by using the Bitcoin Blockchain for real estate titles, but clearly, it’s significant.”
Lifthrasir is a big believer in the idea of smart property, and he’s currently working with a group of individuals from the International Bitcoin Real Estate Association on an application that will streamline the entire property transfer process. He noted:
“I want to also say that uploading a deed to the blockchain is only half the solution. For full security, the actual transfer of real estate needs to be done with the Bitcoin token. 

By that I mean a colored coin solution similar to the one NASDAQ and Overstock are using. A couple of us at the International Bitcoin Real Estate Association are currently working on a combination title document plus property transfer app.”

Don’t Waste Time Selling Blockchain Technology to Governments

Most people think about government records when it comes to titles to houses, cars, and other forms of property, and it would appear that Bitcoin could offer serious improvements over the current system. Having said that, Ragnar Lifthrasir does not believe people should waste their time teaching governments about the blockchain. 

“It’d be great if the government used the Bitcoin blockchain to track property. But I don’t think it’s worth much time or effort to convince them to do it. Real estate companies and investors don’t need the government to transact amongst themselves. The clerk’s office at the county is just a central place to keep photocopies. There’s nothing magical about it.“

Lifthrasir added that the Bitcoin blockchain allows the real estate industry to avoid the inefficiencies associated with the current government record keeping structure:

“But now we have Bitcoin. At its most basic, Bitcoin is a better way for disparate parties to achieve consensus about who owns an asset, especially when one party is trying to cheat another, as happens in property titles. So, as long as people in the real estate industry start deciding to use the Bitcoin blockchain to record the transfer of properties, why bother with the delay, cost, and inefficiency of the government?”

The Blockchain is Superior to Government Record Keeping
Many bitcoin enthusiasts find the digital commodity to be an improvement over the current fiat currency system, but the Bitcoin blockchain can be used for much more than just money. Lifthrasir described the International Bitcoin Real Estate Association’s intention to bring together professionals from the industry who would like to move various aspects of the business onto the blockchain:

Bitcoin disruptive tech and Big Banks view, Interview with Andreas Antonopoulos more employment innovation within financial services. 

“Just as bitcoin the currency offers a superior alternative to government currency, Bitcoin the blockchain offers a superior alternative to government record keeping. One of our main efforts at The International Bitcoin Real Estate Association is to connect real estate professionals who want to use Bitcoin for purchasing, escrowing, and recording the transfer of properties.”

Although many people still believe Bitcoin has not completely proved itself, Lifthrasir believes that the technology is now mature enough to be used in the real estate industry. 

“Bitcoin is finally technologically mature enough to be used in real estate. Now what we need are more startups to produce good industry products and services. I think 2016 
will be the year of Bitcoin real estate.”

Visa, Nasdaq and Citi Ventures — a part of Citigroup that invests in financial services start-ups — joined Capital One, Fiserv and Orange in participating in a £20.1m equity financing round for Chain, a 
company that helps financial institutions build blockchain networks. No valuation was given.

“Blockchain technology represents a fundamental, generational shift for financial services, and Chain’s platform is enabling and accelerating this transformation,” said Ramneek Gupta, co-head of global venture investing at Citi Ventures. “We hope to leverage Chain’s platform to rapidly test and develop applications as part of Citi’s multi-faceted blockchain strategy which has the potential to greatly enhance our customers’ experience well beyond just currencies and payments.”

Chain’s new investors will also form a working group with the company, which launched just over a year ago, to explore the application of the technology in various markets.

Transactions visualised > Bitcoin Blockchain Ethereum - Vitalik Buterin

Jim Robinson, a former chief executive at American Express, is joining Chain’s board of directors, the company also said.

Nasdaq already has said it will use Chain’s blockchain technology to underpin its new private share-trading market, in one of its most high-profile applications to date. 

Former New York Stock Exchange chief Duncan Niederauer and former JPMorgan banker Blythe Masters have also lent their support to start-ups exploring its use.
Former Merrill Lynch executive Bob Wigley recently hailed the cost-cutting potential of bitcoin and the technology underpinning the controversial currency.

The group’s former head for Europe, the Middle East and Africa called bitcoin a potential “leading global payments system”, saying he had invested an undisclosed amount in Blockchain, a UK-based company that derives its name from the underlying technology, and was now advising the group.

Blockchain claims to be the leading supplier of consumer bitcoin “wallets” — software used for receiving and making payments with the currency. Last year, the company raised £20.1m in funding from investors including Sir Richard Branson, Lightspeed Ventures and Wicklow Capital, which at the time was the largest single funding round by a bitcoin business.

In september a UK start-up claimed a breakthrough in the financial services industry’s attempts to turn the technology behind bitcoin into a large-scale workable model by processing more than a billion potential payments a day.

Setl, a London-based group founded by a group of hedge fund investors and trading executives this year, is also in discussions with about 20 institutions to develop the prototype as a way to standardise processing of payments, from foreign exchange trading to consumer loans.

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