For critics of central banking and international currency manipulation, cryptocurrency can appear to be a godsend, a democratization of global finance. Although it has its own set of problems -- and has not become widespread as quickly as advocates had hoped -- cryptocurrency, exemplified by Bitcoin and others, is nevertheless making inroads into world and U.S. commerce. It is even closing in on mortgage finance and property conveyance. Whether this anomaly becomes the norm remains to be seen. At any rate, the fact that cryptocurrency is considered a viable medium of exchange for collateral-based transactions signifies that the times are indeed changing.
What Exactly Is Cryptocurrency?
Cryptocurrency is a digitally generated resource used to buy and sell goods and services. Unlike national currencies, e.g. dollars and euros, it is neither printed nor coined. Another difference is that the value of cryptocurrency is not determined by central banks or international monetary councils. Bitcoin, as an example, derives its worth by means of blockchain technology -- basically databases that store information in bunches and tether these blocks one to another. This information consists of recorded transactions where the cryptocurrency is exchanged. New data will be recorded in new blocks which are then "chained" to existing blocks. No single user or group of users can alter this data, keeping it decentralized, transparent and -- for good or for ill -- public.
Although public, cryptocurrencies have safeguards against hacking. Blocks of data are created and then chained in historical, sequential order, i.e. chronologically. Because the blocks are time-stamped and coded, attempts to manipulate them are immediately visible. Blockchain currencies are accessible day and night, every day, all year long. Value is based on how many people exchange with cryptocurrency so it can be more volatile than nation-based currencies. In addition, scarcity can force value higher. Cryptocurrencies can be purchased with cash, traded on exchanges or "mined." Miners are tech-savvy people who examine cryptocurrency transactions to determine that there are no duplications, that is using the currency twice -- something akin to counterfeiting. For this service, miners generate cryptocurrency income. While there are thousands of cryptocurrencies, the largest are Bitcoin, Ethereum and Tether.
How Are Cryptocurrencies Used in Real Estate?
Property conveyance with cryptocurrency requires the mutual agreement of buyer and seller. By accepting it, after all, the seller essentially invests in the cryptocurrency's worth. Yet, even if the seller balks, the buyers can easily avail themselves of any number of service providers that will readily convert the cryptocurrency into fiat money. At the same time, no small number of sellers may accept Bitcoin or other currency straightaway. A difficulty might arise with the closing agent or escrow company that have neither the capacity nor comfort level for handling cryptocurrencies. Again, down payments against home value can be converted if necessary, as can closing cost payments.
What about the home loan? Other than private lenders, precious few banks or mortgage companies are disbursing in cryptocurrency. Furthermore, Fannie Mae and Freddie Mac parameters make accepting cryptocurrency as an asset for underwriting purposes very unlikely unless it gets converted into dollars. Otherwise, home loan applicants would have to document the history of the cryptocurrency investment back to other assets. Many lenders look forward to the introduction of blockchain technology into their transactions because it lowers costs; assures accurate recording; and makes it easier to confirm chain of title -- perhaps making costly title insurance optional. Conveyances happen faster, too. One question outstanding is that of home value. Can appraisers confidently assert the worth of a property in terms of something as volatile as cryptocurrency?
Looking at international trends, it appears as though cryptocurrencies like Bitcoin and Ether are slowly gaining ground in the world economy, and now valued in total at 1.6 trillion dollars. The notoriously conservative real estate and home lending industries may ultimately follow this movement, albeit at a slower pace.