The deal was worth an unsuspecting total of $10, but what it represents could disrupt the entire real estate industry.
The deal was part of a pilot program between a county in Vermont and San Francisco-based startup Propy, which is developing a blockchain-powered registry for real estate transactions.
Blockchain technology allows for nearly instantaneous peer-to-peer transfers between networks anywhere in the world and tracks all transactions through an encrypted electronic ledger. It is best known for facilitating transactions with cryptocurrencies, like Bitcoin, however Propy’s engineers are developing a registry for all aspects of real estate transactions (powered by the smart contracts feature of Ethereum’s blockchain platform) that is in line with local laws. Propy’s direct clients are governments and the real estate industry in a given location, and the parties of a transaction do not have to be paying in cryptocurrency.
The historic deal, which marks the first complete blockchain deal in the U.S., took place on February 20 when Katherine Purcell transferred her property in Burlington, VT to her LLC. It was a demonstration of how property records registered via the public Ethereum blockchain would be recorded and what the resulting documentation would look like — down to the QR code and the numerical address of the smart contract.
Yes, it was $10. Yes, Prucell still owns the same piece of land. But what makes this deal pivotal is the fact that a county in Vermont brokered and sanctioned the transaction.
“It’s a historical moment for the real estate industry in the U.S. and for the blockchain community,” said Propy founder and CEO Natalia Karayaneva. “It’s the first step.”
The main innovation Karayaneva is trying to solve with Propy is “how to make sure that your title deed, your property rights, will be there forever.” In the case of a natural disaster or hack, records are vulnerable whereas an electronic encrypted ledger is the closest system — at least for now — that can promise a semblance of “immutable” records, she explained.
As a result, for Karayaneva, government buy-in is necessary for Propy to advance its business and for the systemic changes she images to come to fruition.
“The next step is actually to get rid of the old databases and to rely entirely on blockchain registry,” she said.
But that will take some time. The efforts to get the demo deal done began last May, following a five-hour meeting between FinTech and blockchain companies with Vermont state officials, regulators and lawyers, according to Gravel & Shea attorney David Thelander, who attended the meeting. He approached Propy following the meeting about running a pilot program in Vermont to introduce officials to the idea of a blockchain registry.
It isn’t the first time Propy has been part of such arrangements. In September, Propy worked with the Ukranian government to register the purchase of TechCrunch founder Michael Arrington’s Kiev apartment using Ethereum blockchain and facilitated his remote payment of $60,000, which was made in cryptocurrency.
“That was the first ever [deal] end to end” said Karayaneva. “There are several other countries saying they are introducing blockchain to their land registries, but, as far as we know, no transactions have happened.”
The countries Karayaneva noted include Sweden, Georgia and Dubai in the UAE. She said Propy has been shortlisted alongside two other companies to be the Dubai government’s provider of blockchain.
So how did the first U.S. deal via blockchain happen in Vermont of all places? Lawyer David Thelander, who used to live in the state and was a council member, credits the state’s “innovation framework.”
“It’s not that well known, but Vermont has taken very innovative steps,” he said, pointing to “enabling legislation” from a few years ago that was geared toward encouraging blockchain businesses to set up in the state. As of now, a new bill promoting the adoption of “blockchain, cryptocurrency, and financial technology,” is making its way through Vermont General Assembly.
To Karayaneva, the combination of blockchain technology and real estate is an innovation that’s been a long-time coming, which she likens to the effect Amazon’s had on retail.
“I believe that the future of the real estate industry is in the automation of the purchase process and I think blockchain and cryptocurrency payments will play a significant role,” she said.
Propy raised $16 million in its Initial Coin Offering (ICO) last year, as the The Real Deal reported, and she disclosed raising a further $500,000 from an angel investor.