If you’ve been wondering, “What on earth is this Bitcoin thing I keep hearing about?” rest assured, you’re not alone! Bitcoin is a purely digital, encrypted form of currency. This new-ish (2009) currency operates peer-to-peer, independent of any one centralized bank. Unlike traditional currency (such as printed dollars), computers produce bitcoins. Encryption techniques regulate the generation of units of bitcoin and verify the transfer of funds. The technology uses a source code of complex algorithms to prevent unauthorized duplication or creation of any bitcoins.
Some mainstream companies (Overstock.com, Subway, and Expedia.com) are now accepting Bitcoin payments. Surely, more companies will be soon to follow. With the recent launch of Bitcoin futures by major exchanges, the fervor is likely to continue.
So what’s the fuss? What are the advantages of using this new form of money? Allow us to break it down for you.
The Pros and Cons of Bitcoin
Perhaps most significantly, Bitcoin makes it possible to send and receive money anywhere in the world at any given time. With Bitcoin, there’s no longer a need to schlepp to the bank – as long as you have Internet access, you’re ready to pay!
In this age of identity theft, Bitcoin’s anonymous nature helps protect your personal information. While Bitcoin protocols check your previous transactions to confirm that you have sufficient bitcoins (and the authority to send them), the system does not need to know your identity. While Bitcoin transactions are public in that your Bitcoin address is shared, your identity is NOT attached to it.
Lastly, Bitcoin is very economical to use! Sales tax cannot be added to Bitcoin transactions and there are little to no fees involved.
Perhaps the most significant drawback is that Bitcoin transactions are not reversible. Also, your bitcoins could be lost if your hard drive crashes.
Bitcoin’s Impact on Real Estate
The short answer is, we’re not entirely sure — yet. We do know that Bitcoin usage is becoming more commonplace in the real estate world. Certain lenders and landlords have started accepting Bitcoin payments. Websites devoted to bitcoin real estate transactions, like this one, have emerged and more are sure to follow.
Mainstream real estate sites are catching on as well. For example, in May 2018, 140 Zillow listings mentioned Bitcoin in their copy.
Buying and selling homes with bitcoin is well on its way to becoming commonplace internationally. It is now gaining popularity in the U.S. as well. It avoids the volatility associated with international currencies so it is very attractive to global real estate investors.
In terms of real estate transactions, using Bitcoin speeds up the process considerably, removing lenders and banks form the process. Clients can even pay realtors’ commissions with the cryptocurrency. The database which records Bitcoin transactions, Blockchain, is being bandied about as a possible replacement for title transfers (read our related post on what actually happens at a real estate settlement). It goes without saying that all parties in any Bitcoin real estate transaction must be well-versed in and comfortable with the technology in order for it to work.
It’s important to note here that in the U.S., bitcoins are considered property and every transaction must be calculated as a capital gain and taxed accordingly. Selling, spending and even exchanging bitcoin all have capital gains implications.
The Bottom Line
It appears that Bitcoin is here to stay! We suspect its role in real estate is in its infancy. We will keep a close on this trend and continue to educate ourselves and our clients so that we can be ready to incorporate Bitcoin into our offerings – if and when it makes sense for our clients.
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