Developing Thoughts on the Intersection of Cryptocurrencies and Real Estate Transactions

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Bitcoin and other cryptocurrencies are real things. At this time they are non-governmental, non-fiat, private, and electronic/digitized cash-like units of valuation and exchange. They are not (at this time) heavily regulated, although they are gaining increased attention from governmental tax and securities authorities due to their transactional and investment uses.

On April 11, 2019 this writer gave a presentation to the Gainesville-Alachua County chapter of the Women’s Council of Realtors® “Bitcoin – What Is It Really? And Can It Really Be Used For Real Estate Transactions?”1 (As frequent readers of this column will recall, a good deal of attention has already been devoted to the development of Bitcoin, other cryptocurrencies, and the blockchain.2)

Gold nugget and a bitcoin

The question on the table that day was the nature of Bitcoin, other cryptocurrencies, and the blockchain, and particularly their ‘usability’ for real estate transactions. At no extra charge to ‘you’, today’s reader, is a copy of the slide-set which was used during the Women’s Council of Realtors® presentation – (download the PDF here)3. And here is a synopsis of the conclusions from that discussion – Not quite yet. But increasingly they will be used over time. Especially the blockchain. And one day they will likely be prevalent in real estate transactions. And regulated accordingly.

{Before diving a bit into the substance of that presentation, there are a number of supporting resource websites referenced in the slides, which will not be repeated here. Because they are already there… And, further, this analysis is based upon the legal uses only of cryptocurrencies and the blockchain.4}

Bitcoin and its peers, together with the supporting blockchain, have a strong libertarian ‘backbone’. They are largely anonymous in nature (due, in part, to the post-‘mining’ public key/private key nature of owner access to ‘wallets’ which are the rough analogy of accounts), operate on a peer-to-peer exchange basis, and are constantly revalued as the market will bear. The superstructure underlying those transactions is the ledger-like blockchain, which is maintained on an ongoing basis by the users on a continuous basis as they engage in transactions.

While there are service and secondary market vendors, they are not necessary to the operation of the ecospace within which cryptocurrencies and the blockchain operate. There are not, then, third-parties necessarily taking ‘cuts’ from transactions as occur with credit cards, debit cards, other financial institution-based, banking, and even many cash transactions. If a user wants to employ a vendor to assist their cryptocurrency activities (or even investments), that is a voluntary, not a third-party imposed, choice.

Now to the intersection of Bitcoin, cryptocurrencies, and the blockchain. Real estate purchases, sales, investments, development, and finance transactions are all based on timing and valuation certainty. Meaning the medium of exchange must be fixed in amount and fixed in location (such as with an attorney’s trust account, a real estate company’s escrow account, or a bank). The parties need to be able to determine and specify the precise amount of consideration from a buyer (or its lender) to its seller (or its related payoff affiliates). Governmental agencies such as public records departments and tax collectors, and private vendors such as surveyors, appraisers, and owners associations, need to be paid with a currency they recognize. Title and closing attorneys and agencies need to know exactly when the payment (including by mortgage loan proceeds) and ownership rights and responsibilities have irrevocably ‘passed hands’ and been recorded.

As mentioned above, cryptocurrencies by their nature have a constantly floating valuation. One full unit of Bitcoin (or another type of cryptocurrency) may be worth $5,600 at 10:00 a.m. and may be work $5,400 or $5,800 at 10:30 a.m. While certainty is theoretically available, it is the step-by-step closing practicalities which can be challenging. This shifting sands effect means that the consideration to be transmitted by a buyer to the seller can be difficult to fix on a closing/settlement statement.

In a related matter, in a real estate purchase and sale agreement it is necessary to ‘tell the story’ of the otherwise typical closing procedures, such as party-identification/confirmation, valuation, deed timing, clearance-to-cash, depositary, and title timing. Without certainty there cannot be mutual assent or enforceability.

Let ‘us’ not, however, be negative about the prospects of cryptocurrencies in real estate transactions. A limited number of these deals have occurred to-date, and increasingly more will close as time progresses, as contractual language is developed and refined (by the parties themselves and sometimes by the courts and legislatures/regulators) to address the specific nature of cryptocurrencies.

There was a day when there were no debit cards or revolving balance credit cards. There was a day when there were no ATMs or online banking accounts. There was a day when there was no mobile banking or photographic check deposits. But these are now widely used and accepted because the underlying processes have become routinized to meet the needs of the banks, the end-users, and the regulators.

While there are service and secondary market vendors, they are not necessary to the operation of the ecospace within which cryptocurrencies and the blockchain operate.

Normalization will also increasingly occur with peer-to-peer transactions like those involving Bitcoin, both in the real estate domain and in other (all?) sorts of transactions. It is this writer’s thought at the current time that day-to-day implementation will occur through the further development of the blockchain and its public ledgering system. As the marketplace determines that transactional risk been stabilized through the blockchain (or perhaps other systems yet-to-emerge), crypto-closings5 will become second nature. This will not occur overnight, and there will be a need for wide-scale implementation beyond the ‘early adopters’ into a mass acceptance of reliability.

Being a transactional real estate, business, and banking lawyer (as well as a business and law professor), these all topics of close interest to this writer, which will be followed over time. ‘Stay tuned’ here, then, for continuing developments over time. Because more will develop.

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1 https://www.facebook.com/GainesvilleWCR/. Scroll down to the April 1st posting, and you can see this writer ‘in-action’. (A hint: Look for the necktie.)
2 See, for example, https://www.boginmunns.com/news-you-can-use-updates-dec-2018/, https://www.boginmunns.com/legal-threefer-this-week/
3 The URL links in the slide-set are active so they can be followed to the destination website or document.
4 It was not a conversation about the investment value or methods involving cryptocurrencies.
5 Apparently a new term is being introduced here. Will it become viral? Will this writer’s name (like that of Satoshi Nakamoto [see https://bitcoin.org/bitcoin.pdf], the identified inventor of Bitcoin) be affiliated with the term? In the chance that happens, all worldwide copyright and trademark rights are reserved here… (This writer is, after all, a lawyer.)

NOTICE: The article above is not intended to serve as legal advice, and you should not rely on it as such. It is offered only as general information. You should consult with a duly licensed attorney regarding your Florida legal matter, as every situation is unique. Please know that merely reading this article, subscribing to this blog, or otherwise contacting Bogin, Munns & Munns does not establish an attorney-client relationship with our firm. Should you seek legal representation from Bogin, Munns & Munns, any such representation must first be agreed to by the firm and confirmed in a written agreement.

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