Blockchain technology, which was introduced to the world by Satoshi Nakamoto in the Bitcoin whitepaper, is already disrupting various industries across the world. Its applications are already far beyond cryptocurrencies, which have disrupted financial services such as payments, remittances, and foreign exchange. It has also created a new method for startup companies to raise capital through initial coin offerings. Its ability to create more transparency and fairness has impacted diverse sectors such as healthcare, music, personal identity, voting, supply chain, and logistics.
Nigeria has not been left behind in the blockchain revolution. Although, the focus has mostly remained on cryptocurrencies or, to narrow it further, Bitcoin. Peer-to-peer bitcoin marketplace, Paxful asserts that Nigeria is the second-largest bitcoin trader after the US. Bitcoin and social media were used to fight against police corruption during the #EndSARS protest. Telokanda also partnered with the Telos blockchain to help university students and farming communities record and share weather data with the goal of improving climate research, hurricane tracking, and local weather forecasting.
How can blockchain be used in Nigeria’s Real estate?
In the Nigerian real estate scene, potential investors would have noticed some inefficiencies or inaccuracies that make investing difficult. These issues will have likely led to questions such as: Is there is a common database that can be modified by different entities (agents, landlords, government agencies, e.t.c) so as to prevent fraud? Is there an opportunity to reduce fees by removing third parties? Can some transactions be made faster through automation? Is it possible to open up the industry for every investor (poor/rich, local/foreign)? Why is it hard to convert properties into ready cash without affecting its market price? Thanks to blockchain, the possibilities that answer to these questions provide are within our reach.
What exactly is blockchain?
Blockchain is a digitized, distributed ledger that immutably records and shares information. This technology enables near real-time settlement of recorded transactions, allows any two parties to transact directly with each other without the need for a trusted third party. The transactions are publicized to everyone on the network and cannot be modified.
The blockchain brings in several utilities into the real estate ecosystem, chief among them being:
- Smart Contracts: Smart contracts are a series of instructions written using programming languages, which works using the IFTTT logic a.k.a. the IF-THIS-THEN-THAT logic. If the first set of instructions are done, then execute the next function and after that, the next one and keep on repeating until you reach the end of the contract. Plus, remember that smart contracts are created on a blockchain, which makes the contracts immutable and transparent. Many real estate transactions have conditional clauses and can be executed through smart contracts. For instance, the conclusion of a purchase-sale transaction could be dependent on loan approvals or title clearances.
- Tokenization: A token is a digital representation of a real-world asset, value, or function. These tokens could either be payment (Bitcoin, Litecoin, Ripple), utility (Ethereum, Waves), or security tokens. They are traded on an exchange to boost liquidity (which is simply the supply of buyers). One of the most exciting use-cases of blockchain technology is that it helps in the tokenization of real-world assets. Before a property is tokenized, a digital identity of that property is created and recorded on the blockchain. This identity may include its history, location, and title details. The distributed, tamper-proof, and encrypted nature of blockchain makes it unlikely for perpetrators to commit fraud.
How can blockchain be applied to real estate in Nigeria?
The cheapest houses in Lagos cost around 8 million Naira, which is out of budget for most people. With blockchain technology, a hypothetical situation can be created where the owner of such a building tokenizes it then, it is listed on an exchange. Eight people can get 1 million naira worth of these tokens each to jointly own the house. These eight will automatically enter a multi-signature contract (multiple signatures from the eight owners are needed before any transaction concerning the house can be executed). This smart contract is self-executing and enforceable, thereby creating trust and honesty among them as whatever decision is taken with respect to the house has to be agreed upon by a majority of the owners.
The scenario above will greatly reduce the barrier to entry as fractional ownership of houses is made possible, while also boosting liquidity as a seller just needs to go to an exchange(which is open to both local and foreign investors) to liquidate the tokens. This also allows for greater portfolio diversification and risk reduction. Instead of locking up all your money in one single property, you can use the same amount of cash to buy fractions in multiple properties.
Also, this hypothetical blockchain platform is already assuming functions such as purchase, sale, financing, leasing, and legal documentation (using smart contracts) that were traditionally handled by third parties such as brokers, agents, lawyers, and banks. Cutting out these third parties will result in buyers and sellers getting more out of their money as they save on commissions and fees charged by them. This also makes the process much quicker as the back-and-forth between these middlemen gets cut.
It is important to note that the scenario above is hypothetical. For any blockchain-based project to be successful, it is essential that the various stakeholders in Nigeria’s real estate space are actively involved in such a project so as to align their processes, goals, needs, wants, and pain points. Do they strive for more transparency, less risk, streamlined processes, or a unique platform for sharing? It is also important to evaluate the costs and benefits of overhauling existing systems and ensure interoperability with the various technology systems used by the different stakeholders in that space.
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