Real estate fraud is a growing problem in several parts of the industry. As brokers, agents, and other real estate professionals search for ways to minimize that fraud, there are certain technologies emerging that are proving to be very effective. Blockchain is one such technology and it stands to change the way that real estate transactions are conducted. In a nutshell, blockchain ideally can streamline escrow and document management while making it virtually impossible to commit fraud.
Creating documents that cannot be altered
When a transaction occurs through blockchain technology, it cannot be altered or deleted until all participants in the network agree to their validity. If someone tries to create a new transaction, the system will add it to the chain so it is still attached to previous versions. Each time there is a transaction, it creates a new block, complete with a timestamp, within the chain.
There is also information attached such as who has accessed it, its point of origin, and where it has been. This extra layer of security eliminates the need for disproving or proving the quality and authenticity of the transaction contents, which can prove very helpful when working on significant documents, like those used when during real estate transactions.
Several layers of security
All of this creates a system of checks and balances so certain things must fall into place in order for the individuals involved in the transaction to access the documents. When these features stand-alone, such as permissions or immutability, they are secure but add them together so that one backs up the other, and you have a nearly impenetrable system that is almost impossible to hack or counterfeit. It is important to understand, though, that each of these features must work in tandem with each other if it is going to be successful and fight against fraud.
It’s important to note that to effectively pass on ownership from one party to the next, a real estate transaction needs to be signed cryptographically. Over a recent email with Ruben Merre, CEO of NGRAVE, he mentioned “In blockchain, this happens with “private keys”, which are the cryptographic access keys on which blockchain’s security is reliant. Blockchain’s immutability and other features rely on these private keys, which are inherently unbreakable with today’s (even quantum) computers. However, the issue today with blockchain wallets is exactly that: private keys are mismanaged. For example, if a user keeps his private key somewhere in a folder on his online connected computer, hackers can try to find it, and if they do, they can assume ownership of the key and therefore of the real estate good.”
Merre thinks that “offline hardware wallets” will be crucial going forward, in protecting all your digital assets and is why NGRAVE creates private keys offline without exposing them when signing transactions.
Preventing financial fraud
According to Adrian Tucci, the CEO of MrPaint, “The transparency offered through blockchain technology exceeds that of many corporations today, offering a higher level of financial fraud protection. It demands that all points of a transaction are completely visible by all parties, whether it is currency, documents such as leases or rental agreements, or deposits.” This is why real estate professionals can utilize this technology to enhance and optimize every aspect of the rental process from accepting deposits to submitting maintenance orders, to processing and collecting rent payments.
However, they can also use it to get rental agreements signed, update or amend those agreements, or process additional agreements such as pet policies. Although somewhat still in its infancy regarding widespread public acceptance and knowledge, this high-tech solution to real estate fraud is quickly gaining ground and positioning to become a standard in the industry.