Bitcoin & Real Estate
What is Bitcoin and will it affect real estate transactions in Australia?
Recently we listed a property for sale in The Basin and advertised that the vendor would accept partial payment in Bitcoin. You may have heard about it on the radio or television - it got a lot of publicity.
What is Bitcoin? Bitcoin is a type of digital currency (or cryptocurrency) exchanged directly between two parties online, with no middle man. Unlike traditional currency, Bitcoin is not controlled or backed by any bank or central government authority, like the Reserve Bank.
The core innovation that makes Bitcoin special is that it solves the issue of double spending. Since a digital coin is essentially just a bit of code that could be copied and sent to multiple people, the hard part is making sure that nobody spends the same money more than once. Traditionally, this is done by having a trusted central authority (like a bank, or PayPal) that verifies all of the transactions.
Bitcoin does this using ‘the blockchain’, a communally maintained public ledger of all the transactions ever made with the currency and a record of which user owns what coins. When a transaction is made, the other computers on the network verify that that coin has changed to a new owner. All this is done without a central authority or bank.
This results in a system where payments are non-reversible, accounts cannot be frozen or hacked, and transactions are faster with lower fees. A single bitcoin can be divided as far down as eight decimal places (0.00000001BTC). Bitcoin prices have grown exponentially, but are still highly volatile.
As digital currencies become more mainstream they start raising questions about logistics and legalities in the real estate industry. Third parties involved in Australian real estate transactions such as banks, conveyancers and real estate agents are not yet equipped to handle cryptocurrencies directly, and there are few government regulations or guidelines for it yet.
An immediate problem comes in the form of the deposit. Agents or conveyancers usually hold a deposit from the buyer from when contracts are signed until settlement. The deposit goes into what’s called a ‘trust account’, which is governed by very strict rules and regulations regarding when the money can be accessed and by whom. Interest on agents’ trust accounts is paid to the Victorian Property Fund, which administers grants and provides compensation to buyers and sellers when trust money has been misused or misappropriated. There are currently no provisions for a trust account to hold Bitcoin or other cryptocurrency. Perhaps the very nature of cryptocurrency will render trust accounts obsolete in the future though?
The other issue is one of timing. If a price is agreed upon in Bitcoin or another cryptocurrency, and contracts are signed with a price listed in Bitcoin, how and when will taxes such as stamp duty be calculated? At the same value in Australian Dollars on the day of sale? The day of settlement? And what about the time? The value of cryptocurrencies against the Australian Dollar changes by the second.
These are all problems that could be overcome in time, but for the moment, if you’re looking to buy a property with cryptocurrency you’d be better off selling back into Australian Dollars first, the same as you’d do with any other type of currency, shares or commodities.
Experts are predicting that blockchain technology could revolutionise the property industry in the future, however I think we have a long way to go still. I’d love to hear your thought on the matter! If you wish to discuss this topic further, or you have any questions, please get in touch.