Cryptocurrency: can you use it for real estate transactions?
If you think cryptocurrency is just a fad, think again. This alternative form of payment is showing up in just about any industry that has a buyer and a seller. A steady increase in real estate transactions have been made with the help of cryptocurrency. What is cryptocurrency and can it be used when you buy or sell your home?
Cryptocurrency and blockchain technology
Cryptocurrency is a digital or virtual form of payment that is not dependent on central banks or a third party to verify transactions. The verification comes from a decentralized ledger of transactions or blockchain technology.
Essential data is stored in groups, known as “blocks” that have a specific capacity to hold information. Once the block is full, another block is attached to the previous block and can be filled with data; this linking concept is known as cryptography. The linking of the blocks is known as “chains”. Once the data is filled in each block, the blocks are immutable, cannot be altered, and they are permanently recorded in a digital ledger in chronological order with individual time stamps.
Public blockchains allow anyone to view the data and add to the chain. Private blockchains are owned by a group or corporation, which invite individuals to view or add data to a new chain. For both types of blockchains, no one individual is in charge.
There are thousands of cryptocurrencies in circulation around the world. Bitcoin was the first and is the most popular with Ethereum being second in rank. Ethereum and all others are known as “altcoin”, short for “alternative coins” from Bitcoin.
Cryptocurrency and real estate transactions
A growing number of real estate agents and developers are wooing potential homebuyers with the option of using cryptocurrency to assist in paying for transactions by cashing out or converting their cryptocurrency to U.S. dollars. Cryptocurrency has been fueled mostly by two groups looking to diversify their investment portfolios: well-established investors and millennials with growing spending power.
A December 2021 Redfin survey revealed 12% of homebuyers sold their cryptocurrency to use toward the cost of a down payment.
In early 2022, Miami-based financial technology company Milo will offer the first 30-year, low interest crypto mortgage. Using Bitcoins only and with an equivalent of $150,000 minimum loan amount, this offer applies to home purchases only, not refinances. There is great interest in crypto mortgage, as there is a waitlist to begin the application to determine Bitcoin holders’s eligibility.
Cryptocurrency has some challenges, as it is a volatile commodity. Without a third party involved, any legal issues to dispute a blockchain error would be difficult to prove. Being in the early stage of technology, cryptocurrency is subject to any new rules and regulations, which could negatively affect some crypto investors. Blockchain technology boasts the nearly impossible ability for hacking. Perhaps since this is an emerging technology, hackers have not perfected the art of breaking blockchain codes yet.
Before you take the plunge in cryptocurrency investing, do your homework and consult a financial advisor to determine your risk assessment.