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The role of cryptocurrency in the real estate industry
Dated: August 28 2021
Cryptocurrency is like any other kind of currency. It has an assigned arbitrary value and can be used as a medium of exchange for goods or services. There are two key differences, however, that set it apart from the bills and coins we normally use:
- It is a virtual currency. Cryptocurrency is not something you can physically hold. Rather, it is a digital asset secured through complex encryption techniques (known as cryptography). This makes it incredibly difficult to counterfeit or double-spend.
- It is a decentralized market. Cryptocurrencies run on blockchain technology. These are networks distributed over tons of computers that verify and protect the integrity of transactions and fund transfers. Despite not being fully controlled by the government, it is lauded for its transparency and resistance to inflation.
High risks, high rewards
Cryptocurrency draws a lot of divided opinions. For real estate investors, this volatile financial tool can yield many make-or-break investment opportunities.
Faster, easier, and more secure
From the perspective of industries like real estate, the potential of cryptocurrency is in its blockchain technology. It can revolutionize the real estate industry through:
- Improved efficiency. Lengthy transactions and volumes of paperwork are the most dreaded parts of any real estate deal. But with blockchain platforms functioning as “smart contracts,” buyers and sellers enjoy quicker transactions. The shortened process can even make real estate a more liquid asset.
- Fractional ownership and investment. Blockchain allows more possibilities for buyers and investors. For instance, it allows funds from different people to be combined for a single purchase. Blockchain also enables people to partially buy or sell major properties that are tokenized so that property investment can become a possibility for everyone.
- Better privacy and security. Blockchain’s decentralized structure and highly secure technology can make important information easier to verify and make transactions more secure. Although there have been instances of hacking, the technology is the same as – if not better than – the technology used in our “traditional” transactions.
Intense value fluctuations
Cryptocurrencies are designed to have a high degree of scarcity. Their market prices, however, are still based on supply and demand. As a result, cryptocurrency exchange rates widely vary.
Bitcoin’s value, for example, started to skyrocket after 2014 when someone used it to buy a luxury property worth $1.6 million. But after reaching heights of $19,000 per Bitcoin in December 2017, it just as quickly dropped to $7,000 after a few months due to the meager public response.
If you are interested in using cryptocurrency for your real estate transactions, do note that it appreciates faster than properties. You may miss out on future appreciation rates if you liquidate your virtual coins into a property. Likewise, there is either great potential for appreciation or potential profit losses in selling your property for cryptocurrency depending on the timing of the transaction.
If there’s one thing cryptocurrency and the real estate market have in common, it’s that it’s best to work with expert professionals. Get in touch with the real estate agents of Aeris House Properties today by calling 602.671.2343 or emailing email@example.com.