One of the greatest advances in digital technology has been the rise of cryptocurrencies, especially the well-known Bitcoin. Bitcoin is no longer just an attractive investment for many people, it’s becoming an alternative way of paying for regular services and goods. Over 100,000 merchants worldwide already accept Bitcoin
, including some popular companies like Home Depot, Expedia, and Subway, while Tesla
has just announced that it will be enabling Bitcoin payments soon. MasterCard’s recent announcement
to support select cryptocurrencies directly on Mastercard's network will help more merchants accept crypto payments.
Moreover, more and more real estate investors have started using Bitcoin to purchase property, and it’s much easier than you might have thought
. This article is all about explaining real estate transactions using Bitcoin and other cryptocurrencies.
What is Bitcoin?
Bitcoin - commonly abbreviated as BTC - is a digital currency (cryptocurrency) that was created in January 2009. Whilst the identity of the person or group of people who created this technology remains a mystery, the creation of Bitcoin is tied to Satoshi Nakamoto.
Since Bitcoin is a cryptocurrency, there are no physical coins available
; rather balances are kept on users’ electronic wallets. These digital wallets are highly secure - each wallet is encrypted so that nobody but the wallet owner can access their balances and transactions.
There are 2 types of digital wallets, cold and hot wallets
. A cold wallet
is a wallet that is stored off-line, whereas a hot wallet
is connected online and is accessible by the owner at anytime.
What’s best about Bitcoin is that it isn’t issued or backed by any government or bank. It is operated by a decentralised authority called Blockchain
, and allows all users to transfer money anonymously, quickly, and with minimal fees.
As stated in the official whitepaper, Bitcoin is a purely peer-to-peer version of electronic cash allowing online transactions from one person to another without going through a financial institution. As a result, no matter where the sender and receiver are in the world, Bitcoin transactions are finalised within minutes.
How Buying Real Estate with Cryptocurrency Works?
Soon after cryptocurrency became mainstream, investors started purchasing real estate with Bitcoin.
The very first real estate sale with Bitcoin was performed in Austin, Texas in September 2017.
Another house in Essex was bought entirely with Bitcoin in December 2017, making history as the first property purchased in cryptocurrency in the UK. The house was sold for 63 coins, which was equivalent to £350,000 at that time.
But how does the whole process work when it comes to buying real estate with Cryptocurrencies?
Essentially, one of the most important things needed to perform a money transaction in Bitcoin (or any other cryptocurrency) is the agreement between the seller and the buyer to complete a sale in this currency.Once the two parties have agreed on performing a cryptocurrency transaction, the buying process isn’t too different from conventional purchases.
In most cases the agreed price is based off the local currency
and the equivalent amount of crypto is transferred at the time of payment.
Finding an agent and a real estate lawyer that would also accept their fees in cryptocurrency could be a challenge, however as bitcoin and other cryptocurrencies are highly liquid this needn't be an obstacle and all parties involved can simply convert their crypto holdings to Fiat currency using a number of services such as CoinBase.com
.There is a 1% fee to convert and withdraw your crypto to fiat.
There are no maximum withdrawal limits on Coinbase Commerce - you can withdraw all funds at any point
. This is something the Seller can easily arrange themselves in advance if they are not interested in holding Crypto. They can eliminate risk as transactions can be completed within minutes and their money would be back in their chosen Fiat Currency. Compliance KYC and AML. KYC (Know Your Customer)
process is needed when purchasing real estate using cryptocurrency. This process is performed by the lawyer to physical verify the buyer and the documents that have been provided. The information is also used in the Title Deeds
therefore verification of the buyer is vital. AML (Anti-Money Laundering)
application in most countries is also required in order to determine the origin of the cryptocurrency.
Tax Implications for the Buyer.
The process for the seller is fairly straightforward. It is the buyer who faces more scrutiny as they must determine their tax implications.
Most countries have adopted new tax laws when it comes to cryptocurrencies, for example in the U.S the government recognises Bitcoin as property and using it to buy real estate will trigger a Capital Gains Tax. The buyer would pay roughly 20% in capital gains tax
and another 3.8% net investment tax on the amount their bitcoins had appreciated since they first bought them. The amount your cryptocurrency has appreciated in value will determine how much capital gains you will have to pay.Another option that would avoid triggering capital gains tax would be to pay for the home using a loan collateralised by cryptocurrency.
There are a number of companies that offer these types of loans including BlockFi
that lets you Borrow money at rates as low as 4.5% APR. This option is becoming more popular as holders of crypto are currently more reluctant to sell their holdings.
There is a possibility that in the future cryptocurrencies will be reclassified as currency
rather than a property asset which would eliminate capital gains tax.
Advantages of Buying a House with Bitcoin
Purchasing a house with Bitcoin comes with many advantages. The list below includes the most popular ones:
As Bitcoin doesn’t belong to any government or bank, international transactions can be made easily.
Bitcoin transactions cut out the middle-man (e.g. a bank). This makes the process of buying a property for both the buyer and seller easy and will avoid expensive transaction fees.
As of December 2020 there were over 62 million active cryptocurrency wallets worldwide, with projections reaching over 100 million by the end of 2021. This is a rapidly growing market and the use of cryptocurrencies in real estate will continue to rise.
Disadvantages of Buying a House with Bitcoin.
No official mortgages are available, however there are number of solutions for crypto-backed loans.
It’s not possible to sort out insurance or real estate agent fees with Bitcoin, so this must still be done in fiat currency; however it is likely that this will change soon as cryptocurrency becomes more main-stream.
Could 2021 be the year that Bitcoin Skyrockets?
Here are some interesting facts about Cryptocurrencies that suggest it might be.
A new study from Cornerstone Advisors revealed that 15% of American adults now own some form of Cryptocurrency
- a little more than half of whom invested in cryptocurrency for the first time during the first six months of 2020 however the actual indirect exposure to crypto is likely a lot higher. JP Morgan
became the latest Wall Street bank to underline how seriously it is taking the biggest cryptocurrency by saying that it would start trading bitcoin 'at some point'.
A $150 billion Morgan Stanley
investing arm known for its prowess in picking growth stocks is considering adding Bitcoin to its list of possible bets.
58 countries now have bitcoin ATMs
As of February 2021 Bitcoin's market value has surpassed $1 Trillion
Holprop.com is now integrating pricing in Bitcoin and Ethereum for their listings.
We will be providing a new option for sellers to checkmark their property as 'Open to Crypto Sale'
We are also looking into helping sellers with the process of facilitating a Sale in Cryptocurrency.
There are also Great New Developments in the Blockchain platform to leverage the Distributed Ledger Technology (DLT)
DLT increases trust through greater transparency. And in real-estate, trust of a website, an agent, a listing - is imperative. Blockchain also expedites contract processes, saves time and reduces costs.
It seems that blockchain technology is an ideal fit for the real estate market.