You may have heard the term as it is now floating around in the ether. Bitcoin. What is it? I looked the term up on the Internet and CNN provided the following definition:
“Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy webhosting services, pizza or even manicures.”
Sounds intriguing. But is it money? It is defined as “cryptocurrency”, a kind of digital money. All the transactions ever made with this digital currency are recorded in a public ledger called a “Blockchain.” No coins, no paper, just a record of numbers called “keys” which are “linked through a mathematical encryption algorithm.” People and firms using bitcoins have “wallets” in which they store these “keys” that they buy from online exchanges. I’m giving you the direct quotes here because this is all news to me, and probably to you as well.
Let’s go back to CNN for more information. Why bitcoin?
“Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value. “
Aha. Anonymity. Secrecy. Bitcoin transactions are recorded, but without identities of buyers and sellers. No names, just wallet IDs.
This may be pertinent to transactions involving illegal drugs, arms or other illicit trades, but why would it be utilized in real estate transactions, and has it even been used?
In doing research for this article, I read about a real estate transaction in Texas utilizing bitcoin. The real estate traded was a new custom built home and the full value was traded to the seller utilizing bitcoin, which was then converted within 10 minutes into U.S. dollars.
The time period is relevant because bitcoin does not have a fixed value. The supply of bitcoin is fixed with a maximum cap of 21 million bitcoin in the world. With fixed supply, the value fluctuates. This makes trading bitcoin similar to trading stocks.
As bitcoin becomes more widely known and acceptable, questions arise as to its legitimacy. Though it is currently being used in the sale and purchase of many kinds of goods, bitcoin is not an officially accepted form of currency yet in the United States. There are no returns permitted with this currency and surely the government will soon check in with further regulations as bitcoin goes mainstream.
When used in real estate, bitcoin will be converted to dollars. Since the value fluctuates, an intermediary like a title company is encouraged so the seller walks away with the funds he expected. Bitcoin and other types of digital currency may play a larger part in future real estate transactions. For the moment, it is a head-scratching phenomenon. Stay tuned for news as the world of technology and human innovation continues to amaze us.
