The emergence of blockchain and cryptocurrencies has been one of the most significant advances in digital technology in recent years. While Bitcoin and other leading digital currencies remain confusing and alien to many, they are becoming more commonly used and there could come a time when their presence becomes as common to everyday life as traditional currencies have been for centuries.
To the uninitiated, cryptocurrencies have largely been viewed as a trading commodity – and a highly volatile one at that. We all remember the news stories of when Bitcoin hit an all-time high value of $19,800 in December 2017, only for it to plummet to less than $11,000 just a few weeks later. One Bitcoin, as of the start of June 2019, is valued at around $7,900.
Yet, Bitcoin, Ethereum, Litecoin and other cryptocurrencies can be used to pay for an increasing amount of “real world” things.
More than 100,000 merchants, including Microsoft and Overstock, around the world now accept digital currencies. You can book flights and holidays on Expedia and Cheap Air, while certain NBA teams – pioneered by the Sacramento Kings – are accepting cryptocurrencies for tickets and merchandise. You can also play popular online casino games using Bitcoin. And the list seems to go on and on.
How Bitcoin purchases work
It was therefore only inevitable that cryptocurrencies would make their way into the Real Estate market. But how does the whole process work when it comes to purchasing a property?
Essentially, there is only one thing needed for any real estate purchase to be completed using a cryptocurrency, and that is for both parties – the buyer and the seller – to agree for the transaction to take place using such a currency.
Although all currencies are prone to market fluctuations, the volatility of Bitcoin and other cryptocurrencies means it is only possible for a sale to be agreed if both sides agree on the value of that particular currency.
Should the seller want to then convert the Bitcoins into dollars, they would use a service like Bitpay, which is what the seller of the first Bitcoin-purchased property – in Austin, Texas – did as they had agreed to sell their property at a fixed dollar price.
Plenty of risk involved
Of course, both sides of the transaction take on a great amount of risk at present, given the instability in value of these digital currencies. Imagine for a moment that you had agreed to sell your property for $500,000 when Bitcoin was worth its highest value of $19,800. You would have received approximately 25 Bitcoins in return.
If those were converted immediately into dollars, then you would be safe, but if you opted to hold on to those Bitcoins, they are now worth almost 40 per cent less. There is the possibility that those coins increase in value again, of course, but given the very nature of the deregulated currency and its lack of a central bank, it really is impossible to accurately predict what the value might be in the future.
While there may be plenty of risk involved, that hasn’t stopped plenty of developers and sellers from advertising Bitcoin-valued properties.
A developer based in the Isle of Man off the coast of the United Kingdom announced in 2017 a $325 million property development in Dubai with purchasers encouraged to buy the properties using Bitcoin.
Meanwhile, Real Estate companies across the United States – including in Florida, New York, and Texas – are accepting Bitcoins for deposits and purchases. There have also been cases of Bitcoin being used to purchase properties in Bali, Indonesia.
Is crypto the future?
When it comes to the various taxes that could be applicable, it is likely to be the same as a traditional cash transaction, in that the taxes would depend on the country in which the property is being purchased.
At present, cryptocurrency transactions for properties can only be completed in full, meaning that there is not mortgage service – at least not yet. Ethereum announced in March that they plan to roll out mortgages this summer through fintech startup Fluidity.
“We’ll tokenize the house, which will effectively take the collateral that is the equity of the house,” said Fluidity chief architect Todd Lippiatt. “You’re pledging the house and you get an advanced rate back in terms of dollars.”
For now, the volatility and unpredictability of cryptocurrencies makes it too great a risk for many people who are not dedicated miners or people actively involved in this industry.But for those who are, the option to use cryptocurrency for property purchases has been an exciting development in recent years. As digital currencies continue to become more refined and more commonly used, expect this to one day become as regular as traditional money transactions.