In this new blog series on Valued Insights we are going to focus on the potential of blockchain in real estate. Over the next three blogs we explore what it is, how it could impact real estate, and what are the risks. But first let us start with the basics.

What is Blockchain?

Blockchain is gaining more and more airtime, but what exactly is it? Given its complexities, we wanted to initially explain the concept and features of the technology in this blog before diving into how it is changing the industrial and logistics sector, and then our final blog will propose the counterargument against the blockchain.

So, first things first, here are two technical terms most commonly used in a blockchain network:

  1. Distributed Ledger: A ledger is a record or database. Almost any record can be kept in a ledger that, instead of being controlled by a central authority (a company, institution, or individual), is dispersed across multiple computers or nodes. For example, cryptocurrencies powered by blockchain, such as Bitcoin, use a distributed ledger to provide a permanent record of transactions between entities.
  1. Node: A node is essentially a computer participating in the blockchain network. Each node in the network has its own copy of the identical blockchain which means a hostile agent (hacker) would need to access every computer instead of just one centralised network in order to manipulate the information (hence distributed) making it highly secure. Each node validates every new block added to the chain. This self-regulation allows blockchain to dispense the need for a third party or centralized authority. 

How does it work?

The concept is similar to some extent to traditional paper file archiving, where information is recorded on a document that is filed in a box with a unique reference number, which is then logically ordered on a shelf for ease of access. Blockchain works in a similar way. Data sits in a digital box (block), which contains a reference number (hash). That box is put in a row with others to form a chain.

Unlike the conventional way of record-keeping, where records are saved in a single, central location, once the block is recorded onto the blockchain, exact copies are distributed to every node in the network. 

What are the advantages?

There are three obvious advantages to the blockchain.

  • Decentralisation: There is no central control of the data, so there is less chance for data to be manipulated. It can be designed to enable total transparency of all data in the network across all users if required.
  • Record Security: Since all the records are distributed across all the nodes in the network, it’s almost impossible to lose data.
  • Crowd Sourcing: All the nodes in the network provide storage space and computing power, this is a network where all protagonists contribute and benefit.

Blockchain has already started to transform many industries. To date, it has already changed several industries. For example, in the insurance industry, it has revolutionised the trust that powers insurance with an immutable foundation of transparency. Underwriting is automated, claims settlements are accelerated and fraud is reduced.

The question we are asking ourselves in the Valuation & Advisory team at CBRE are:

  • Will blockchain technology change how property transactions operate? 
  • Is blockchain good news for the real estate industry and how we value real estate?

In the following two blogs of this series, we are going to discuss the potential applications of blockchain in the logistics and property industry before my colleague Tom Markwell from our National Team will argue that the higher fees and slower transaction time associated with blockchain and the dichotomy between physical real estate and the digital asset scarcity of currency on the blockchain limits the viability of blockchain application in real estate.