SMART CONTRACTS IN REAL ESTATE TRANSACTIONS
Smart contracts are protocols in electronic format that transfer information, and fulfill vital contract terms automatically. They operate in a decentralized environment without human intervention.
Today smart contracts are used in many different areas: in elections, in the insurance and taxation sectors, in banking, in trade, and also to conclude real estate transactions. Smart contracts remove the border between the digital and physical world. If the terms of the contract are not fulfilled, smart contracts tell the system not to transfer money, not to turn on the power supply system or not to conduct other operations, thus influencing the physical world.
REAL ESTATE AND SMART CONTRACTS
Smart contracts can be used when buying or renting a property. Smart contracts work in apartment leases in the following way: both parties conclude a contract for a certain period of time; an amount (rent) is placed into a blockchain (a deposit and a payment for 1 month), after which the transaction is considered successful, and the leaseholder receives the keys to the physical property. Some lessors link the apartment lock to the Internet, and if the subsequent payments are not made, it is simply blocked. The deposit is returned to the leaseholder upon the completion of the contract term or is transferred to the lessor’s account if non-compliance with the rental conditions has been recorded.
HOW A SMART CONTRACT WORKS FOR REAL ESTATE SALES?
The first purchase of the apartment using a smart contract was made by Michael Arrington, the founder of the online magazine ‘TechCrunch, in the summer of 2017.
Although cryptocurrency does not have legal status, this does not prevent all taxes arising from the transaction, and all state-designated fees, from being paid, allowing the transaction to be carried out with no issues.
The smart contract was used for fixing the agreement before making the transaction, and a deposit in cryptocurrency was subsequently unblocked and transferred after the registration of change property owner.
Today, a smart contract works with the following algorithm:
1. Confirming the addresses of the cryptocurrency owner and of the property owner, which is necessary for the subsequent refund or payment to the owner of the property.
2. Making a trilateral signature of the preliminary contract and recording the hash of the final version of the signed document. The contract is signed by the owner of the property, the owner of cryptocurrency and the broker.
3. Transferring the deposit in ETH to the smart contract.
4. Making a record of the positive or negative decision of a notary. Depending on the decision, funds from the smart contract can be withdrawn either by the owner of the cryptocurrency or the owner of the property.
5. Making a final transaction of withdrawal of funds to the property owner depending on the results of the whole deal.
A private notary was invited to certify the contract; so far this is a mandatory condition. However, as complete adoption of a blockchain happens long-term, all ownership information will be stored in a distributed data register. This is a great way to save time and money.
THE CREDITS BLOCKCHAIN PLATFORM FOR REAL ESTATE TRANSACTIONS
The CREDITS blockchain platform allows creation of decentralized applications using fully-fledged smart contracts. Using this platform in real estate or any other area is a good solution because of the features of smart contracts:
- Autonomy: there is no need to involve intermediaries during the execution of transactions;
- No costs: if the terms of the electronic contract are fulfilled in full, the parties exchange the assets;
- High level of reliability: the possibility for human error is reduced, the protection of crypto-factor decreases the chance of a hack-attack;
- High-speed online updates allow you to accelerate any business processes and save significant money;
- Confidentiality and security of transactions: it is not possible to adjust the previously developed terms and conditions of a smart contract, as it is located in a decentralized distributed registry.
Here are just some advantages of using the smart contracts of the CREDITS platform in the real estate sector:
- Reduction of expenses,
- Transparency and decentralization,
- Absence of intermediaries,
- Splitting of immovable objects.
Thanks to the blockchain platform which is responsible for most of the work, real estate transactions are simplified and accelerated. A high level of security for all processes is provided by the homomorphic encryption and combined cryptographic principles of the CREDITS platform.
We are at the early stages of implementing smart contracts in this business, but the future is undoubtedly with this technology. In the near future, decentralized applications will allow people to exchange real estate in any country, from any place of the world, with cryptocurrency, and with minimal time and financial expense.
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Rohit Kukreja is a Commerce graduate with Financial Markets expertise involving Stocks, Forex, Futures & Options Market and now Bitcoins & Cryptocurrency Markets. Blockchain Enthusiast but not a techie, Rohit is an active member of various Blockchain & Crypto communities all over India.