What You Need to Know About Crypto’s Influence on New York City Real Estate
More than 40 million people worldwide use some type of cryptocurrency to make transactions. Yet, the technology and particulars about these virtual currencies are somewhat elusive to most people.
The crypto landscape is ever-changing and evolving. And lately, it’s making its way into the New York City residential real estate and New York City commercial real estate niche.
We’ve decided to put together a series of articles that focus on the nuances of crypto and New York City real estate. Let’s start with the basics by looking into these currencies’ nature and examining how they are becoming mediums for real estate investing. Following this overview article, we will publish pieces that look at the following topics:
- Alleviate Buyers’ and Sellers’ Fears About Using Crypto
- How the Global Crypto Boom is Will Benefit the Real Estate Market
- Tokenization’s Impact on Real Estate Funds and Asset Management
The Basics—What is Crypto?
A cryptocurrency is a form of virtual currency capable of being exchanged for goods and services. Many companies have introduced currencies, commonly referred to as tokens. Brokers must sell these tokens for the purchase of goods and services offered by the company.
Transactions using cryptocurrencies are likened to cash transactions because of their encrypted nature. Cryptocurrency is powered by a technology known as Blockchain. Blockchain is a technology spread across various computers that manage and document transactions.
Part of the allure of virtual currencies is their security and decentralization. While Bitcoin is the original, most popular, and most heavily traded virtual currency, as of Spring 2021, there were more than 6,700 distinctive cryptocurrencies and counting.
The Beginning of Crypto–The Birth of Bitcoin
Bitcoin was the brainchild of an unknown creator that goes by the name Satoshi Nakamoto. In the announcement about Bitcoin on October 31st, 2008, Satoshi proclaimed that he developed a “peer-to-peer electronic cash system.” He intended to create something that others had failed to do in the past.
After watching centralized currency attempts fail, Satoshi decided to design a virtual currency that operated more like cash in the real world. In other words, he intended to make transactions that were encrypted and had no transaction paper trail.
The anonymity that this task demanded required a technology that maintained a higher level of encryption than was available at the time. This motivated Satoshi to invent Blockchain technology.
The Security of Crypto–Blockchain Technology
If you know anything about cryptocurrency, then you have undoubtedly heard about Blockchain technology. A blockchain is a distributed ledger, written and stored on a network of computers that store it –a number of thousands or millions.
Due to its nature, no individual or company controls owns the ledger, which prevents data from moving and cannot be compromised. In other words, this database provides a clear definition – an essential part of all business.
To make purchases with cryptocurrency, you need to have a Blockchain wallet. A wallet is a program that allows you to make transactions using cryptocurrencies such as Bitcoin, Ethereum, and others. These wallets are encrypted with cryptography.
Enter the Market–How Crypto Transactions Work
A Blockchain is a ledger or spreadsheet that contains information about transactions. Each transaction creates a hash. A hash is a series of encrypted numbers and letters. Each transaction is entered in the order in which it occurred.
The hash is not only dependent upon the transaction but also on the hash of the previous transaction. Even small changes in a transaction will generate an entirely new hash.
Every computer in the network is called a node. Nodes check the contract to ensure that transactions are not altered by inspecting the hash. If the majority of the nodes validate the transaction, it will be written into the block. Each block references the previous block, and together they make the Blockchain.
A Blockchain is efficiently distributed across multiple computers, each with a copy of the Blockchain. Every 10 minutes, the Blockchain is updated.
Requirements for Using Crypto for a Real Estate Purchase
The only actual requirement for using cryptocurrency to purchase real estate is an agreement between the seller and buyer to use virtual currency. This means that both parties must own cryptocurrency wallets and must be acclimated to how these currencies work.
It’s crucial to keep in mind that real estate transactions made using crypto are not reversible due to their encryption nature. This means that sellers need to clearly understand these currencies and have sufficient trust in the other party.
Traditional title companies and escrow agents may not be familiar with using crypto for transactions, so they may not be prepared to close deals with virtual currencies. With the rise in the use of these currencies, there are now escrow firms capable of facilitating transactions using crypto.
The Beginning of a New Wave in Real Estate Investing
The first real estate transaction closed using crypto was done with Bitcoin on September 18th, 2017. The Austin, Texas real estate brokerage firm Kuper Sotheby’s International Realty facilitated the transaction.
Another notable example of real estate being purchased with virtual currency was the house attached to Lambeau Field in Green Bay, Wisconsin. The property was listed for what was the equivalent of $1 million in Bitcoin. The so-called “Packer House” was listed by the property’s owner, former Facebook executive Chris Murphy.
Since the value of crypto fluctuates with fiat currency, the purchase price will need to be negotiated based on the property’s value in terms of fiat currency.
Benefits of Using Crypto for Real Estate Deals
Leaders in payment processing gateways are trying to make it easier for crypto holders to spend crypto in bulk. Recently, PayPal, Visa, and Square have developed ways for crypto investors to transfer currencies. As a result, more people want to turn their digital assets into tangible possessions to diversify their portfolios. New York City real estate is a profitable investment, so it’s attractive to many crypto holders.
Crypto eliminates a significant number of fees typically associated with real estate agreements. Inviting blockchain technology into real estate means streamlined transactions that remove a lot of affiliate costs such as:
- broker fees
- lender chargers
- closing costs
- appraisals
- inspections
- legal fees.
The preparation of these documents accounts for quite a bit of time and money. Eliminating them speeds up the process and reduces the cost of closing real estate contracts.
As long as all parties agree and fully understand how crypto transactions work, these purchases can be simpler and swifter than fiat currency.
Conclusion
The future of crypto for real estate investing looks extremely bright. The diversity of these currencies and the emergence of escrow services to handle these types of purchases will provide the perfect environment for investing in real estate with crypto.
Are you interested in learning more about crypto and New York City commercial and New York City residential real estate? Check back next week and when we review how to alleviate buyers’ and sellers’ fears about using crypto for real estate transactions.