I just sold a property using BitBay’s blockchain smart-contracts

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I just sold a 5-acre lot in San Bernardino County, CA, to a buyer in Norway, using cryptocurrency and BitBay's trustless smart contracts. The last year and a half has been spent putting together a land business (based on @sethwilliams model), which I am now integrating with blockchain technology. 

First, for those who are new to blockchain tech and cryptocurrency:

Smart Contract: A smart contract is a computer protocol intended to facilitate, verify, or enforce the negotiation or performance of a contract.

Cryptocurrency: is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency.

Blockchain: A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.

note: These definitions are very condensed, solely for the purpose of this post. I could write 10 pages on each of them and it would only scratch the surface.

So what is BitBay you might ask? From their website: “Bitbay is a working real-world cryptocurrency powering a fully-functional decentralized marketplace that allows you to buy and sell goods and services easily, securely, and anonymously.”

For more information, check out their website at: https://bitbay.market/

I first discovered BitBay markets while perusing some forums on cryptocurrency investing, and after reading several recommendations, decided to give it a look. After checking out their project, I decided to buy come BAY currency, thinking I would hold it long term it and nothing more. However, upon realizing that their software had a built in wallet, I went a bit further to download it in order to securely store the digital coins. In all honesty, my first impression of the BitBay software was fairly unimpressive. The general feel of the user interface seemed a little outdated, and had a strong “Windows ‘95” feel to it. However, after watching a few tutorial videos (which I highly recommend) I quickly realized that this is a very powerful tool, which can be used for almost any type of transaction in the world. David Zimbeck, the developer and his team have spent almost 100% of their focus on the function and security of the software, before making it visually appealing. Function before fashion, I absolutely love it. 

(A brand new, more visually appealing user interface is going to be launched Q1, 2018)

After a few days had passed, I was really curious to see the software in action. I wanted to see if these “trustless smart contracts” were actually a legitimate process for business, and the only way to do that was to list something on their decentralized marketplace. In order to truly test this out, I needed to sell something large, something that would normally require a sizeable amount of trust; an item that typically included middlemen, central authorities, and high fees. It so happened that there was a 5-acre vacant lot I needed to sell for my land business, which I had started a year and a half ago.

That afternoon, I sat down with a cup of tea at my desk, thinking that creating this listing would take the rest of the day. However after few clicks, I had my property listing up on the decentralized marketplace. The most time consuming part for me was deciding how to custom tailor the double deposit escrow (DDE). The way this trustless escrow system works is that both buyer and seller deposit a set amount of money into an encrypted account. If either party decides to cheat one another, the deposits are destroyed, and both lose money. This conveniently prevents fraud, as there is no financial or physical gain for dishonesty. Additionally, this also completely eliminates the need for a costly third-party escrow service. The double deposit escrow can be set up a number of different ways, depending on the seller’s risk tolerance and value of the item being sold.

After a few days of having the land listed on the marketplace, I opened my computer to find that someone had accepted my smart contract. Not only that, but it was a buyer located on the other side of the planet, in Norway! My first thought was “Is this even legal?” However, what really found surprisingly surreal was the feeling of trust that came with this contract acceptance. I had comfort knowing that the deal would be followed through to completion. (note: BitBay offers automatic price tracking, so if the currency value changes before a contract is accepted, you will still receive the equivalent amount for the deal. You can also use fiat (USD) for the purchase price and BAY for the deposit to ensure minimal price change upon contract completion. The rolling peg will also create an incentive to use BAY instead of fiat.)

Once I confirmed the legality of foreign citizens purchasing real estate in the U.S., I mailed the deed and paperwork out to the buyer. This was the slowest part of the transaction. The county that this property is located in requires a wet signature on all recorded documents, so an electronic signature was out of the picture. Once the buyer signed the documents, he then had to send them back to the U.S. for recording. Someday, when the counties update their policy, e-signatures will make the process incredibly faster. To take it one step further, imagine if the counties could integrate their records onto the blockchain… Then an accepted smart contract on BitBay could seamlessly be updated in the county records. I digress. Once the county received and recorded the deed, the buyer then sent the payment of BAY currency to my BitBay wallet address within the client. At that time we both received our deposits back, and the transaction was complete. (the next step would be to convert the payment of BAY into USD.)

Over all, this transaction was about as smooth as I could have ever hoped. With the custom smart contract templates, the possibilities are litteraly endless. One could easily set up tennant/landlord agreements, contractor agreements, owner financing, etc. The only frustration I experienced was where the ultra-efficiency of BitBay met the clumsiness of the county’s recording system. I can also see how there would be other roadblocks with various real estate industry middlemen (i.e. title companies) that have not adapted to this advancement in technology. I look forward to seeing all components of real estate transactions placed onto the blockchain in the future. One other aspect that I could see posing an issue is government regulation. The US federal government currently classifies cryptocurrency as property, requiring citizens to pay capital gains taxes on both cryptocurrency and real estate. In my case, if I were to convert the profits from my land sale to US Dollars, I could be potentially taxed (15-20%) for both the sale of the land and the “conversion of currencies”. If this changes, transactions like this will be much simpler and more cost effective to complete. Until then, I will continue to long term hold my Bay currency and use this amazing platform called BitBay.

In a nutshell, here are several of the many features that make BitBay smart it so unique:

Double Deposit Escrow – both parties have to put money in the deal, and if anyone backs out, both parties lose. This creates a synergistic relationship between both sides, and automates enforceability of the contract.

Dynamic Rolling Peg - The automated control of supply and demand. This keeps the currency stable, so users don’t have to worry about extreme volatility during transactions. For a better understanding check this out. (This will be implemented in Q2, 2018)

Built-in wallet to the client – This is a very secure wallet, which interacts perfectly with the marketplace. There is the option for staking as well. (Web wallet is soon to be released)

Custom Smart Contract Templates – This is huge, because it allows you to easily create set your own transaction. You can use literally any currency, or none at all. You can barter…you can trade…all safely and securely knowing that the other party will fulfill their end of the bargain. The possibilities are endless.

Wow this is fascinated! Amazing to see the new technology of blockchain incorporated into the business of real estate.

Originally posted by @Rob Beardsley :

Wow this is fascinated! Amazing to see the new technology of blockchain incorporated into the business of real estate.

@Rob Beardsley I couldn't agree more! It will be really interesting to see the RE industry evolve as people recognize the value of this technology.

@Matt Snow What "disruptions" do you see coming in the near future in RE based on blockchain, autonomous vehicles, and other technologies?

Awesome!  I have a feeling this is going to be much more common place in years to come.

Originally posted by @Rob Beardsley :

@Matt Snow What "disruptions" do you see coming in the near future in RE based on blockchain, autonomous vehicles, and other technologies?

Good question. There are so many factors that will decide the direction of this industry, and a lot of it is speculation at this point.  That being said, in the near future, I could see property titles being integrated onto the blockchain, which would provide much needed speed, efficiency, and accuracy to RE transactions. Not sure how autonomous vehicles would effect RE specifically... although I'm sure it will make "driving for dollars" will much easier : ) All kidding aside, I see smart contracts as being the next thing to change the RE industry....it's actually already changing it as we speak.

@Matt Snow   private cash sale why would the buyer have to notarize anything . there is nothing the buyer signs that needs to be notarized unless state of CA has some new doc I am unaware of ????

cool job though.. Love the land game grew up in it..  !!!

@Matt Snow   when I was a kid I would go with my Dad to his land sales.

he would buy tax sale props in rural CA  Like you did

then we would put 100 or so together.. then big add in the SF chronicle with a one day sale at a hotel by the SF airport.

CASH only  and he had all the deeds pre signed and notarized ( we was seller...)  type writer there.. ( a typewriter is this machine that you can actually stick a document in and it prints out letters and numbers) if you make a boo boo there is this thing called white out.

anyway.. buyers would show up and he would sell out all 100 properties in a day.. 

now he would buy the tax sale stuff for 100 to 200 a lot... sell them for 900 to 1900 per parcel..  buyers had him cash he hands them notarized deed with little typed instructions on how they could record it... 

that was fun times  he did this twice a year in this method.

@Rob Beardsley   60s and early 70s...   the stuff the land guys are buying today are parcels may dad sold 50 60 years ago.. but probably have been through a few hands in between.. one needs to remember there are literally MILLIONS of undeveloped parcels in CA.... and the western deserts.. its a cottage industry for sure..

Originally posted by @Jay Hinrichs :

@Matt Snow  private cash sale why would the buyer have to notarize anything . there is nothing the buyer signs that needs to be notarized unless state of CA has some new doc I am unaware of ????

cool job though.. Love the land game grew up in it..  !!!

 Buyer didn't notarize, just signed the Preliminary Change of Ownership (although I had the deed notarized on my end). 

Right so u can scan and e mail the prelim change record deed and your done correct.  Plus get paid. 

Originally posted by @Jay Hinrichs :

@Matt Snow  when I was a kid I would go with my Dad to his land sales.

he would buy tax sale props in rural CA  Like you did

then we would put 100 or so together.. then big add in the SF chronicle with a one day sale at a hotel by the SF airport.

CASH only  and he had all the deeds pre signed and notarized ( we was seller...)  type writer there.. ( a typewriter is this machine that you can actually stick a document in and it prints out letters and numbers) if you make a boo boo there is this thing called white out.

anyway.. buyers would show up and he would sell out all 100 properties in a day.. 

now he would buy the tax sale stuff for 100 to 200 a lot... sell them for 900 to 1900 per parcel..  buyers had him cash he hands them notarized deed with little typed instructions on how they could record it... 

that was fun times  he did this twice a year in this method.

100 lots a day that's amazing! What sort of acquisition model was he running? Having deeds pre-signed/notarized and doing in-person sales actually seems A LOT simpler and easier than this current smart contract model : ) and at least the typewiter encouraged people to think before writing things... I think there is definitely something to be said for having physical, face-to-face communication too.

@Matt Snow   If the system works well for you, great.  To me it seems like you are over complicating things.  There are huge tax reporting requirements when you decide to bring in a crypto "currency".  You have decided to triple or quadruple the number of assets involved in every transaction.

Assets in transactions mean gains and losses that all need to be reported to the IRS.

Before anyone did this I would really suggest they talk to a CPA and a lawyer.

@Michael Biggs  

I completely agree, parts of it are very complicated.

Most of that complication lies in adhering to current legislation and county requirements. A transaction like this carries A TON of risk, and I wouldn't recommend it for most people today. For me, it was mainly to test the integrity of a smart contract system, and determine the potential for a streamlined process in the future. 

All of the CPA's/attorneys that I have spoken with have given me different answers regarding taxation on something like this...as it's still not very well known or accepted. In the case of this sale, I chose to simply keep the payment in crypto, and report the "equivalent amount" in USD to the IRS for capital gains.

So, clearing away some of the hoodoo of "fancy new technology" :

Basically a blockchain is just a public ledger of transactions, basically very similar in concept to the current "chain of title" we already use in the US...  Of course, it would be very useful to have counties standardize on common specifications for blockchain-recorded real property transactions, which would make title searching so much easier.. But unless the county is involved, I wouldn't see any need to get involved with it..

Bitcoins (and other "anonymous coins") are very neat, but absolutely fraught with fraud and theft. There's a lot of incredibly fascinating stories about the dark-net drug markets that were the initial heavy users of bitcoins either getting stolen from, hacked, or pulling "exit scams" where they just shut down and ran off with the "escrow" accounts.   I did actually invest in some bitcoins, but they were "lost" in the Mt Gox debacle.  All I have to show for that investment is occasional emails in Japanese from a Tokyo bankrupcty court.

I'd also like to warn anyone running around with money burning holes in their pocket to be very skeptical of "initial coin offerings"..  It can be fun to play with, but watch out. Its about as solid a market as penny stocks. 

Selling property via anonymous transactions is kind of odd, because in order to take title you have to give up your identity anyway. And as stated, bitcoins are considered property so you get double taxed if you try to convert them to cash after making profit on a real estate transaction. Plus, imagine you are a law enforcement person.. What is more suspicious to you, some guy selling his property on ebay for cash, or some guy cashing in a bunch of bitcoins after having sold his property to some mysterious foreign entity... 

@Nicky Reader Thanks for your well-thought out response, those are some great points. 

I'm sorry to hear that you were negatively effected by the Mt. Gox exchange robbery.  It really has been an "roller coaster" journey for cryptocurrency since it's creation a decade ago. With all that fraud and theft, so many people have been burned (and are still being burned with these Initial Coin Offering's/cash grab-ponzi schemes) 

It's imperative that anyone interested in this should complete deep and thorough research to FULLY understand every aspect of the basic technology, project, purpose, team, and track record before investing any capital. Even with that there will always be risk, as you know first-hand. (although there is also some risk in keeping money in banks too) 

Additionally, there have also been a select few projects that are purely focused on creating an honest and secure functioning digital economy. This is what originally led me to try out this BitBay marketplace. 

The anonymity is certainly a sticky subject for cryptocurrency as a whole. I personally believe it offers little value for real estate transactions, (and for most other transactions for that matter) In theory, this is no different than using cash for an in-person deal. I have even heard of people selling land for jewelry (@Jack Butata maybe?) which also holds anonymous qualities. Fortunately, BitBay is doing everything it can to avoid being the next black market or "silk road"... while still maintaining a decentralized structure. This is no easy task. It currently uses a moderator set-up where illegal listings are removed when they are flagged. (similar to craigslist).

In the end, the true value that I see with this technology isn't anonymity. It is with trustless smart contract capabilities through double deposit escrow, along with the ability to use any currency in the world (both digital or fiat, including US Dollars) to complete a transaction. With a trustless system like this, two humans can conduct civil business 1 on 1 (publicly or not), without the need of a 3rd party middle man. It's a very new concept that took me along time to wrap my head around...as there has never been a system or idea like this implemented until now.

Im excited to see how blockchain tech works in RE as well. Thank you for your detailed post as it helped me see a real world example. Im invested in Ethereum and Bitcoin. Ethereum has smart contracts as well. This is definitely the future but just like the internet in the early 90’s until we get mass adoption it will be so in implementation. I’d like to figure how to get tentants, owners, and prop mgmnt on a blockchain to speed up repairs and cut out steps to get stuff done. I see more pressure on realtors and title companies with this in the future. If you have a title company you better start learning now or you will be left behind.

awesome to see blockchain being used in real estate. I am very optimistic about blockchain and crypto currencies in the future. Currently invested in different crypto currencies which are now giving me the capital to invest in real estate. 

Congratulations @Matt Snow . Sounds like an interesting experience. 

I'm in the tech space (day job) and have been looking at Blockchain in Real Estate and there are already a good number of players who are trying to establish themselves. ATLANTREXMLS (Property Listing), Propy, BrickBlock  are some of the new players I see, who are trying to set foot in the space. I wasn't aware of BITBAY. 

With the proliferation of all these platforms, each using their own crypto I wonder how much confusion this is going to cause, once they are all operating full time. Most of them are currently in trial phases. 

I wonder if the Biggerpocket Market place shouldn't be moved onto a Blockchain platform ... :-) 

@Mike Krieg I'm right there with you... The pressure on realtors, title companies, and other RE industry middlemen to adapt will grow exponentially here in the next decade (or two). Using smart contracts for tenant agreements, prop mgmt., and contractors etc. is pretty much here. It's possible today through BitBay, and there are other projects working towards this too. We really need a few years for people to get used to these ideas though. I think the big issue that needs to be solved prior to mass adoption is the integration of county records with blockchain. Which, knowing counties, could take a while ; )... although there's already been some testing with this in Chicago. Until that happens, transactions will be too complicated and inefficient for current businesses to adopt, as they would have to combine both old and new systems. Similar to the complication of sending emails in the early 90's, vs. how practical and user-friendly they are for businesses today. We are definitely living in an exciting time : )

Overstock.com is working on this through a JV with Hernando de Soto to document land titles in underdeveloped countries.

https://www.crowdfundinsider.com/2017/12/125858-blockchain-jv-overstock-founder-patrick-byrne-economist-hernando-de-soto-partner-global-property-registry/

@Ken Jernigan Thank you for sharing the link. Very interesting stuff... as this technology becomes mobile friendly, so many more people in the world will have access to it. Perhaps we will see a larger global RE market down the line?

@Henri Meli Thats brings up a solid point...

As time goes on, these RE blockchain projects will have plenty of giant hurdles to overcome, which should ultimately weed out the best few. I think scaling will be a very difficult hurdle, and could only succeed with sustained growth and adaptation of security over a long period of time. A lot of these RE projects are built on Ethereum, which relative Bitcoin and other traditional real estate systems, is only beginning to get tested by the masses. 

I do know that BitBay has been around for several years, quietly building security and raw functionality. They still have a long road ahead of them as well though. 

It would be great to see success through collaboration in this space, as there are so many good ideas out there! It would be monumental for BiggerPockets and one of these RE projects to partner up. Think of BP marketplace with something like BitBay running under the hood. 

Would be synergy at its finest : )

@Matt Snow   To me... when people mention "blockchain" as a benefit of cryptocurrencies or anything else for that matter it makes me think of "retsyn".  Just like most people do not know copper gluconate is bluish green most people do not know using "blockchain" techniques are even in the top 100 best methods of spoofing prevention.

If I drank coffee... would I want a "Wifi enabled smart coffee maker with blockchain technology?"  I would hate it if a hacker messed up my automatic delivery of coffee when I run low.

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