Bitcoin has hit the Australian property market. The owner of a property on Victoria’s Mount Macedon has offered his mansion in exchange for Bitcoins. A 1000sqm block in The Basin, was offered with “Owner is agreeable to accept part-payment in Bitcoin”. And on the Gold Coast, a financial planner offered his Sovereign Islands mansion on the market for 500 Bitcoins, that’s an equivalent of over AUD$5 million. As of November 2017, 1 Bitcoin has hit the value of AUD$10,000 from just AUD$1,000 at the beginning of the year. What is bitcoin? How does it work? And why are early adopters using it for their regular purchases or as payment for property?'
What is Bitcoin?
Bitcoin is a digital currency. There is no physical equivalent to this currency and there is no national currency that backs it. It is purely virtual.
Bitcoin was created by Satoshi Nakamoto because according to him:
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with hardly a fraction in reserve.”
So he designed the Bitcoin system to be decentralised with not one person or entity having the power over it. Not the banks, nor any government. This is where blockchain comes in.
Imagine the blockchain as a digital ledger where all bitcoin transactions are recorded. This ledger is publicly shared and open to anyone who wants to be part of the bitcoin system.
Currently, there are approximately 9,500 people (or groups) who have contributed their computers to being part of this shared ledger, which makes the blockchain so effective and difficult to cheat. Thousands of computers verify transactions and transfers of Bitcoins. And once it’s validated, the system will add a new block to the chain of information & updates all computers connected to the ledger.
Why would anyone want to dedicate their computers to record Bitcoin transactions? Because bookkeepers are rewarded by the blockchain with Bitcoins.
Miners are the bookkeepers. They are the stewards of the Bitcoin system.
Anyone who wants to dedicate the computing power of their computer to validate and record transactions in the blockchain is rewarded by the same ledger with Bitcoins. Thus the term miners. The interesting thing is, the Bitcoin blockchain was programmed from its inception to only release 21 million Bitcoins and miners are in a “gold rush” because there are already 16 million Bitcoins in circulation.
If you are considering to be a miner, you need a very powerful computer because there are more than 200,000,000 recorded transactions as of November 2017.
BITCOIN IN THE REAL WORLD
The advantages of using Bitcoin is that transfers happen in minutes instead of days and there are no currency exchange fees. 1 Bitcoin sent from Australia is received as 1 Bitcoin in Japan. That’s why a large number of people in Argentina and Venezuela use their income to buy Bitcoins to avoid losing their savings due to their country’s currency inflation. Bitcoin has been gaining popularity because people actually use it to buy just about anything. From high profile businesses like Microsoft, Expedia, Bloomberg, Subway, down to your usual cafes and restaurants. It’s pretty much straightforward to transact. You just have to download an app which acts as your Bitcoin wallet, convert cash to Bitcoins and you’re set. You don’t need to buy 1 Bitcoin. Some wallets start for as low as $10AUD which is, as of November 30, equal to approximately, 0.000659 Satoshi – Bitcoin’s smallest denomination named after its creator. If you’re in a café and you want to use Bitcoin to pay for your coffee, the café will produce a QR code from their own Bitcoin wallet, you scan that code with your own Bitcoin wallet, and off you go with your latté. Recently, Japan has recognised Bitcoin as an official currency and here in Australia, the government is starting to weigh in on the use of Bitcoin as currency.
BITCOIN AND REAL ESTATE
Millennials who have cashed in on this digital currency opened up a new market of trading in this manner. That’s why property developers from the US and Dubai are now accepting Bitcoin payments for real estate assets. Ben Shaoul, a developer in New York said, “Our buyer has evolved, they've moved from mom and pops to young people who want to pay with various forms of payment… and of course when somebody wants to pay you with a different form of payment, you're going to try to work with them and give them what they want, especially in a very busy real estate market." A vendor in Texas who agreed to be paid in Bitcoins received the payments in minutes after the agreement. This is the edge that property developers are looking for, a new market in payments, not to mention the speed at which transactions are finalised. Here in Australia, a survey of experts and analysts found that 94% of respondents believed that the technology behind Bitcoins ledger system, the blockchain, will be adopted sooner than expected because of the benefits at which transactions become more agile, with less processing fees and operate within an information network that make records undisputable.
As millennials are slowly influencing businesses and the way the world transacts, the process of purchasing will most likely change with the rise of new investors from this demographic. And like early adopters of this currency, the commercial real estate industry will need to adopt with this change to unlock opportunities in this new market. At GormanKelly, we are discovering new ways to service our customers using the latest technology that’s available and reliable. And when Bitcoin becomes a generally accepted form of payment in the industry, we will ensure that we will be taking the first steps towards this change as we have done for the last 24 years.