As blockchain technology continues its rapid rise, the mortgage industry needs to be prepared to embrace it, writes Shawn Allen
The world of technology is changing, and no industry stands to benefit more from these changes than the banking and financial sector. The future of global banking will be shaped by the implementation of blockchain technology.
The biggest thing since the internet, the pegged blockchain is a decentralized distributed ledger consisting of records called blocks, which are stored across a network of independent computers. The data contained in these blocks provides a record of consensus, which is validated and maintained by multiple individual users using a cryptographic audit trail. Once written, the data cannot be changed or altered without retroactively altering subsequent blocks. This makes each transaction secure and immutable, as each block is stamped with a unique digital signature called a hash.
Though still in its infancy, blockchain technology has many use cases. The banking sector would benefit from its adoption by eliminating the reliance on intermediaries in the mortgage transaction process. A consortium of financial institutions, solicitors, insurers and mortgage professionals would be able to collaborate via a standardized peer network, providing an end-to-end ecosystem beneficial to all stakeholders.
Using the blockchain for KYC would enable financial institutions to emancipate several processes in the sales life cycle – such as ID, title income and credit verification – making it accessible by parties privy to this information. This would offer better data security by ensuring data can only be accessed after permission is granted, eliminating the chance of unauthorized access.
Automation is another use case of blockchain technology – and smart contracts are the driving force behind this initiative. These are programmable, self-executing parameters that are executed when all conditions are met and run on blockchain. A smart contract permits agreements to be carried out among anonymous parties without the need for a central authority. While the blockchain is the ledger in which the data is stored, the smart contract is the agreement between the parties transacting on the blockchain.
As an example, let’s imagine a buyer, Mark. He wants to buy a home from Mike, the seller. In a very simplistic form, an agreement is formed between Mark and Mike using a smart contract that says, “Mark to pay X amount to Mike, then Mark will receive ownership of Mike’s house.”
Once this smart contract is in place, Mark can feel confident in paying Mike for the house. Mike would have put his deed on the blockchain, and Mark would have been able to verify that the deed was present prior to sending his payment. This transaction eliminated the use of a lawyer, as the parties were able to transact directly.
Cryptocurrency is the medium of exchange that parties use to barter on the blockchain. Bitcoin, the most popular type of cryptocurrency, is a decentralized digital currency whose transactions are stored on the blockchain. It’s used as a medium of exchange to purchase real-world items such as vehicles (it’s accepted by Tesla), event tickets (the Dallas Mavericks), art and, in this example, a home.
Some may wonder whether adoption of the currency for payments requires a sizeable upheaval of a company’s payment systems; others might feel apprehension due to the volatility of the digital asset and queries over the legality of its use. These are all valid concerns, but the reality is that transacting with cryptocurrency is no different than accepting Visa or MasterCard.
There are similar concerns about transacting in dollars. With extensive currency printing as a result of COVID-19, the purchasing power of the dollar in our monetary system is being diminished. Bitcoin, by contrast, has increased in value by over 700% in the past year, while the cost of lumber has increased by over 300%. This illustrates huge volatility in the purchasing power of dollar-denominated transactions, which isn’t being taken into consideration when comparing those transactions to Bitcoin ones.
The CRA has characterized cryptocurrency as a commodity, and accordingly, the use of cryptocurrency to pay for goods or services is treated as a barter transaction, with Canadian tax laws and rules applying to its use.
We must embrace blockchain technology. The majority benefit of the blockchain is providing untrusting parties a medium to exchange without the use of an intermediary. The future is that of a safe, secure environment where people can transact on their own. Whether you’re directly involved in the digital space or not, it’s essential that you develop an understanding of how the blockchain will transform our lives.
