January 25, 2022

The Basics of Cryptocurrency in Real Estate

The Basics of Cryptocurrency in Real Estate

Last summer, the largest Bitcoin real estate transaction in the United States occurred when Alex Sapir and Giovanni Fasciano acquired Miami’s Arte Building for $22.5 million. Although this was not the first U.S. property purchase using cryptocurrency (the first was a Texas home purchased with Bitcoin in 2017), this did signify that cryptocurrency in real estate was here to stay.

While this topic is complex, we have gathered some basic definitions and links to learn more about how cryptocurrency impacts the real estate industry.

What are Bitcoin, cryptocurrency, and blockchain?

Let’s start with simple definitions. Bitcoin is one type of cryptocurrency (the first to be introduced and arguably the best known). Other types of cryptocurrency include Ethereum, Cardono (ADA), Binance Coin (BNB), Solana, and Dogecoin.

Using a currency like Bitcoin to pay for something essentially cuts out the third party that facilitates the transaction (usually a bank). Unlike flat currency, which is often backed by gold or some other tangible asset, the value of cryptocurrency relies on the blockchain and its algorithms for verification. After a transaction is completed, it is added to and stored on a decentralized, encrypted digital ledger that is sent to the millions of users on the blockchain. This public verification process makes it extremely difficult to fake a transaction.

You can purchase cryptocurrency with U.S. dollars (USD), but the conversion rate fluctuates based on supply and demand and the exchange on which you purchase it. Likewise, the value of cryptocurrency can greatly fluctuate in response to other financial markets and supply/demand.

Why use cryptocurrency at all? Many people see it as an investment, purchasing Bitcoin and/or the other types in hopes that the value increases over time, meaning more buying power or the ability to sell for a gain. Many buyers also choose cryptocurrency as a payment method to avoid bank processing delays and fees.

(Dive deeper into cryptocurrency on NerdWallet and BusinessInsider.)

Cryptocurrency is becoming more widely accepted. In fact, the incoming mayor of New York City recently stated that he plans to take his first three paychecks in Bitcoin, attempting to go head-to-head with Miami as the cryptocurrency capital of America. El Salvador became the first country to use Bitcoin as legal tender in 2021.

It is important to note that this last example also illustrates possible unintended consequences; El Salvadorans protested last fall after economic traders exploited the local cryptocurrency market for profit. Other downsides to cryptocurrency include lack of regulation, the fact that the value can change in minutes, and possible taxes on gains. In fact, some countries have outright banned the use of cryptocurrency.

How does cryptocurrency affect real estate?

Just because you have not yet dealt with cryptocurrency does not mean you will not be affected by it. Experts predict that blockchain as a whole will have a great impact on the future of the industry, like the adoption of smart contracts and codifying fractional ownership. Bitcoin can increase the speed of a transaction, improve record-keeping, and require fewer third-party vendors from coming between the buyer and seller. Plus, many in the industry see huge benefits for cryptocurrency in real estate with international transactions.

According to The Close, buyers who pay for real property with Bitcoin typically convert it into U.S. Dollars (USD) and transfer the funds to the seller using a service called BitPay. True “bitcoin-to-bitcoin” transactions, where money is never converted into USD, are rare.

Some landlords and developers now accept cryptocurrency as a payment method for rent. Real estate agents have access to training on this subject, such as Crypto Certified courses.

Experts predict that it will take the mortgage and title industries longer to widely accept cryptocurrency. With mortgages, many companies require buyers to cash out their cryptocurrency and let the funds “season” in a bank for two months before accepting it. Blockchain has the potential to streamline many components of the title and escrow process, but many manual processes (such as identifying title defects or recording the deed with the county) will be slow or impossible to fully digitize on blockchain.

Cryptocurrency and Bitcoin in real estate are more than a passing trend. As Giovanni Fasciano said in his Forbes article:

“Cryptocurrency is the future of wealth, and we believe this is only the beginning. Arte has set the precedent for what these sales can look like, and how fast they can take place. We’re proud to have laid the groundwork for this new, burgeoning world.”

This article is not intended as financial or legal advice. For guidance on your specific questions, contact your financial advisor and/or real estate attorney.

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