The Future’s So Bright, I Gotta Wear Shades - What is Blockchain?
by Heather James
With all fondness for our industry, we admit real estate is notorious for moving slowly. While everyone else was going digital, we were happily chugging along in the analog world. Now that all those early adopters are up in the cloud, most real estate closing platforms are just now becoming server based and still limited in their ability to transition and grow.
Some people in the industry are content with the status quo, but at Cook & James, we enthusiastically embrace new technology because we know this bright future can benefit us and our clients. In this first post in a new mini-series on this blog about tech, I’m going to offer brief overviews and tutorials on emerging technologies. These will include eclosings, enotes, evaults and e-notaries; we’ll begin with blockchain.
What is Blockchain
As revolutionary as the internet was in the 1990s, blockchain is today and, in my humble opinion, it will do just as much to change our world. Blockchain runs on a distributed ledger technology. Remember this because I’ll circle back. To understand it, you have to change the way you think about how transactions get validated.
With blockchain transactions, or data, are stored and encrypted on thousands of computers (called nodes) around the world. In order for something to be validated, all these computers must agree, not only on which transactions have occurred, but also on the order in which they have occurred.
Anyone can download the blockchain and become part of the network. It is the power of these collective nodes that are used to validate and add transactions to the record. This allows blockchain to be a distributed system with no central authority. The act of validating the transactions is called "mining" and the reward for successfully validating a transaction and adding it to the block is bitcoin. People get paid in this bitcoin cryptocurrency to participate in blockchain. And now we’ve come full circle back to blockchain’s distributed ledger technology.
Here’s a basic example. (1) Someone requests a transaction. (2) The requested transaction gets broadcast to a P2P (Peer to Peer) network of nodes. (3) Using known algorithms, the nodes verify the transaction and the user’s status. (A verified transaction can be anything from cryptocurrency to contracts and records.) (4) The transaction is now complete and a new “block” is added to the existing blockchain. It is now permanent and unalterable. The blockchain only grows, nothing is ever deleted.
What are the Pros and Cons of Blockchain?
There are a few significant benefits from adopting blockchain. Since the blocks of information are stored identically across the network the blockchain cannot be controlled by any one entity and it has no single point of failure. It is completely transparent since, by definition, it is public. While in theory the system could be corrupted, in practice it is very unlikely to happen. Because the computing power needed to override the entire network is staggering, it becomes very secure. Since the data is stored across the network, it removes centralized points of vulnerability and makes it far more difficult for hackers to exploit.
The negatives of blockchain are harder to quantify. Could we ever have predicted the way the internet would change our lives? Similarly, and like any other tech innovation, until we have more time to test drive it, we don’t fully understand the ramifications of blockchain’s widespread use. How it will affect us personally gives me the most pause. At a minimum, I believe it will remove a lot of the “middle men” in the equation which should lower cost for consumers but likely at the sacrifice of traditional jobs.
Can Blockchain be compromised?
In today’s world it’s hard to imagine the blockchain system being corrupted. But who ever suspected Facebook would be a compromised system? So, in the future you could imagine a big conglomerate with the means to control supercomputers able to override the system. At that point, there would be little to no faith in the system, which would essentially cause its downfall. We’ve seen big system collapses in the past (yes, even the not-so-distant past!) and we are familiar with the ensuing confusion and even devastation. So the space definitely bears a close eye.
What’s Next for Blockchain?
When you’re examining new technologies, reviewing every angle is critical. The pros and potential cons I described with blockchain are certainly important considerations as we seek to understand the future of data validation.
What is the likelihood of blockchain changing the way we keep property records in the United States any time soon? Probably unlikely, not only because of the whole thing about real estate moving slowly, but because the technology has just not reached critical mass yet for widespread adoption.
However, there are some companies emerging in this space, and we at Cook & James are keeping tabs on them. At best, we think those employing blockchain technologies are providing a parallel system to what we currently have in place. That being said, Vermont and Cook County in Illinois so far have tested at least one pilot program. While widespread adoption is likely many years away, it’s also doubtful that the blockchain is going away any time soon.
So, the smartest way forward is to learn all you can, thoughtfully examine the consequences, mitigate them in the best way possible, and embrace the future intellectually. Like they say, if you can’t beat it, join it. Because if you don’t, your competition surely will.