An important role that commercial property solicitors play in the future of property sales is understanding how future technology could change how property is bought and sold, and few technologies have the potential to change property sales as much as the blockchain.
With sales of property taking place on blockchain-based property auctions such as Propy, albeit on a small scale, it is important to explore how this technology works, what its stated advantages are, and the potential legal ramifications.
The blockchain is a distributed ledger made up of a growing list of blocks linked together using cryptographic hashes, which are complex computerised calculations with the first part of a new block referencing the last part of the previous block.
These chains are shared across a network, creating a ledger with no central administrator but with automated consensus to manage and validate transactions, most commonly for cryptocurrency tokens such as Bitcoin and Ether.
Its collective validation and the immutability of transactions once they have been completed are advantages, and the potential for tokenising a piece of property to sell using traditional blockchain exchanges has led to claims it would revolutionise and streamline property.
However, when you sweep away the hype of the technology, there are legal issues to consider.
The idea of commercial property blockchain transactions relies on two specific technologies: Non Fungible Tokens (NFTs) and smart contracts.
NFTs are tokens featuring a unique identifying code that cannot be duplicated that ostensibly represent a real-world object, most commonly a piece of digital art, whilst ‘smart contracts’ are instructions coded into NFTs that perform instructions once certain criteria are met.
There have already been issues regarding a disconnect between what an NFT represents and its sale on the blockchain, and smart contracts, being immutable lines of code, risk being inflexible to the many different circumstances that could affect a property lease or sale.
As well as this, many transactions need to be in writing, which means that the liquidity argument does not exist as a property transaction is often not legal without an exchange of contracts.
Propy got around this by registering ownership of the property as its LLC that bestowed rights to own the property.