With a global value of more than $217 trillion, real estate is the largest asset class in the world, accounting for 60% of the world’s mainstream assets. Historically, real estate is where fortunes are made, yet access to this lucrative wealth builder has always had high barriers to entry. Now, with blockchain technology, real estate investing is trickling down to the mainstream investor. 

While real estate is a way to build wealth quickly, it’s always been a Catch-22. If you don’t already have a substantial amount of liquid assets you can’t even get in the game. Adding to the headache for investors are high transaction fees, a severe lack of transparency, hard-to-get financing and slow transaction speeds. Blockchain is poised to change all that.

Originally created for cryptocurrency, blockchain technology has evolved to include much more than that. Each block of data is secured and tied to others using cryptographic principles. Blockchain data is decentralized, immutable and transparent. In real estate this means that entities, or people, can make major transactions directly without using a third party like a bank. 

Here are three ways blockchain will change real estate in 2020:

Tokenization 

Tokenization is the process of turning sensitive data into non-sensitive data that can be used in a database without bringing it into scope. A token is a digital representation of a real-world asset, value, or function. Tokenization increases the liquidity of assets making it possible to trade those assets without a third party. In the blockchain space there are three types of tokens including payment coins, utility tokens and security tokens. Real estate will become tokenized through security tokens in 2020.

Tokens will change the real estate game in that they allow fractional ownership of property. This means that the staggering amount of upfront cash that is required to purchase property, especially commercial assets, can be spread out across multiple buyers. For example, a property that costs $1 million could be tokenized and have five buyers opting in for $200,000. 

Tokenization also means it will be easier to sell real estate. Instead of waiting for a property to sell, you can liquidate your tokens on an exchange. It also allows greater diversification in a portfolio since less money is locked up in a single property. 

Smart Contracts

Traditionally, real estate contracts have a lot of middlemen. Using a smart contract brings it down to just the buyer and seller without the need for human interaction. Because these contracts are generated on the blockchain, they are immutable and transparent, unless privacy features are selected. The nature of the contract means there is a far less chance of fraud. 

By eliminating the middlemen, many traditional fees are removed from tokenized real estate transactions. These substantial cost savings are the greatest benefit to the smart contract. Smart contracts also speed up the transaction timetable and ensure the legitimacy of the transaction, with no agreement able to be completed until all terms are met.

These smart contracts would include rules for fractional ownership, if multiple buyers were purchasing a property.

Title

While blockchain may not eliminate title insurance, it will impact and improve the industry. Title companies ensure that property transfers and mortgages are processed correctly. The insurance exits because of the high amount of inaccuracies in traditional record keeping. According to the American Land Title Association, more than 25% of title reports show some type of problem with title. 

Blockchain will eliminate most of the fraud and tampering in ownership records by converting records to a distributed ledger. Whenever a record is updated, the trusted parties stamp it. Each future entry stands on the validity of the prior entry creating dependency from record-to-record. The blockchain algorithm will prevent bad information from seeping into the chain. 

With the mainstreaming of blockchain into the real estate industry, 2020 is poised to become a transformative year, opening up the world’s largest asset class to a slew of new investors.