No one could ever accuse conveyancing of being at the forefront of innovation. After all, its last major shake-up was the introduction of registered land … in 1925. But following the first property purchase by Bitcoin at the end of last year and the recent announcement that the Land Registry is exploring how it can use blockchain technology, that may be about to change. In this blog, I look at how cryptocurrency and blockchain are set to transform the sale and purchase of property in the UK – for the better.
The first purchase of a UK property using Bitcoin took place in December last year. A four-bedroom house in Colchester was bought by a man in his 20s who is said to have "made a killing" in Bitcoin and wanted to convert his digital windfall into good old bricks and mortar. What's more, the Land Registry agreed to let the buyer have the price he paid recorded in Bitcoins rather than pounds sterling.
Technology is changing how we buy and sell property in the UK. Before explaining why I think this is a good thing, let's start by clarifying for the uninitiated what blockchain and cryptocurrencies (such as Bitcoin) are.
In broad terms, blockchain is digital encryption technology used to store data in a way that is incorruptible. Or, as Wikipedia puts it: "A blockchain is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data."
Cryptocurrencies, such as Bitcoin, are digital currencies that use blockchain technology to secure financial transactions.
What is the relevance of blockchains and cryptocurrencies to conveyancing you ask?
Blockchain is already being used in conveyancing transactions. The Law Society Gazette reported last October that a Swansea dentist became the first property buyer in the UK to exchange contracts digitally using blockchain technology. The buyer acquired a commercial property in Trowbridge through clicktopurchase.com, an online property auction website. The Gazette reported that "the purchase was completed three days after the property went on the market, in a transaction that was recorded across a blockchain-secured shared ledger in four seconds".
Ripples are already being felt in the traditional auction market. An article in Property in September claims that blockchain will lead to the demise of ballroom auctions and that they will all move online. Lambert Smith Hampton has already taken this step. Says Property Week: "To create the ultimate level of trust, one needs blockchain; and to use blockchain, one needs electronic data, such as online legal offers and contracts."
The Land Registry has not been slow to respond. Last week it announced that it is exploring "how the innovative use of technology, such as blockchain, distributed ledgers and smart contracts, could revolutionise the land registration and property buy-sell process". The Land Registry is hopeful it will lead to a faster, simpler and cheaper land registration process.
Quicker, simpler property transactions can only be a good thing and if blockchain can help this process all well and good.
How does cryptocurrency fit into the picture?
Fraud is a big issue in the property market. So much so that last year the government and the Law Society issued a joint note advising conveyancing solicitors how to spot and avoid it. I certainly wouldn't suggest blockchain and cryptocurrencies are a panacea in this respect, but they can certainly play their part.
The Land Registry's adoption (in due course, hopefully) of blockchain technology may help overcome title-related fraud. Similarly, cryptocurrencies could assist on the financial side. One of their main advantages are that due to blockchain encryption, cryptocurrencies cannot be counterfeited and transfers cannot be reversed.
Other benefits include:
- 1. Decentralisation. Each cryptocurrency is managed within its own network rather than by a central authority such as the government, which could in theory seize your money. In 2013 the Central Bank of Cyprus announced that it was going to seize uninsured deposits of more than $100,000 in order to help it recapitalise during its economic crisis. This couldn't happen with a cryptocurrency.
- 2. The fact that cryptocurrencies run through the internet and are a global currency mean they are not subject to exchange, bank or transfer fees.
Needless to say, conveyancing and the use of technology is an evolving process and one I will be watching with interest over the months and years ahead.