Last week, we published an article touching on three psychological factors that could drive Bitcoin’s price higher. This week, we’re highlighting a technical development that could mature Bitcoin and its underlying blockchain into the “killer app” of our time, and drive the price sky high.
Let’s start with one of Bitcoin’s recent improvements, SegWit, and then explore a big idea that SegWit could enable; How SegWit’s improvement of the blockchain could potentially transform the super-mega real estate industry.
Segwit, short for Segregated Witness, was a plan first proposed in December 2015, by Dr. Pieter Wuille at the Scaling Bitcoin conference in Hong Kong. We won’t get too much into the details of Segregated Witness here (the Bitcoin Cash article in our Blockchain 101 section does a great job of explaining it), but at its core, Segregated Witness was a proposal to reduce the amount of non-transaction data inside each transaction. By removing from each block a chunk of data that verifies transactions – or segregating the “witness” – more space is freed up for transactions.
These two images show the relative sizes of transactions before and after Segwit. The purple blocks in each transaction show the size of the “verification data” or “witness.” By removing this data, a transaction becomes a lot shorter. You can visually see that 5 transactions fit into the amount of space (data) that two transactions previously occupied.
By having more transactions in each block, wait times for transactions are decreased. (Remember that Bitcoin blocks are mined every ten minutes, so verifying a large transaction with 3-5 blocks could take 30-50 minutes – fast by wire transfer standards, but not instantaneous.) With wait times being decreased, transaction fees should decrease, as there isn’t a backlog of transactions for miners to pick the most profitable ones from.
In theory, that’s how Segwit should work. And that’s pretty much exactly how it’s panned out. Now in place, almost half the transactions on the bitcoin blockchain are through the Segwit protocol (it was a soft fork, so participation is optional) and transaction fees are down; At their peak in December of 2017, any transaction would cost about $37 USD. Now, sending a transaction through the blockchain costs about 6 cents.
How Segwit Helps Bitcoin Take Off:
SegWit is not the sexiest technology, but for Bitcoin to have any material impact, reducing transaction fees was absolutely necessary. As Bitcoin is first and foremost a financial product (sending and receiving money), it would have trouble competing with the incumbents, or even wire transfers, with prices that high. Reducing data sizes and transaction fees, while speeding up transfers, allows Bitcoin to take on old industries and all the friction inherent inside them.
How SegWit Could Affect the Real Estate Industry.
Blockchain, at its core, is nothing more than a system for eliminating the need for trusted third parties. A mathematically secured system such as blockchain has the potential to undo a myriad of industries and services:
SWIFT transactions – the banking payment orders that most banks and financial institutions send to each other to facilitate the settling of balances – would be one example. This massive network has become the standard for sending financial information and sets the syntax – the order and formatting – of messages between banks. But what if it was rewritten into smart contracts? And banks didn’t need to pay large fees to join the network? And you didn’t need to be a bank to transfer money in a standardized fashion? This is the type of change that blockchain technology could bring to a massive industry.
Now, let’s take a look at the real estate industry:
Buying a house is hard. It shouldn’t be that hard. There’s a buyer that wants a thing. There’s a seller that wants to get rid of a thing. They have a price they’ve agreed on…. And then there’s the paperwork.
To transfer a mortgage, or even investigate the history of a property, there are a ton of procedures involved around searching for the property’s title and insurance issues. Because mortgages and property sales are predicated largely on the trust of dated land/title/insurance records, a significant amount of time (and fees) go into the verification and inspection of these records.
But what if we migrated these records – mortgages, land titles, property records, insurance – to the blockchain?
What if every piece of property had its own ledger on the blockchain? Transferring or closing a mortgage could be simple. The ledger could show a record of payments, a transfer of property, payment, or debt.
What if homebuyers could perform a simple search for a home they were interested in, see an entire history of its ownership, pricing, and property taxes? This would be a little unnerving to the real estate industry, for sure, but when real estate agents make 6% of the value of homes being bought, and there’s a huge margin to be cut into by making information more accessible.
With a market cap around $200 trillion sitting just in residential property in North America, any way you slice it, there are huge opportunities to be realized by slicing into the fees associated with real estate.
You’ve probably heard that “information wants to be free.” If we’ve learned anything from the growth of the internet to date, or from the burgeoning blockchain industry, it’s that anything labelled as friction or excess fees will be a target.
What could be a greater target than a $200 trillion industry with 6% service fees, and an industry that sits on other fees for “searches” and data custodianship?
Why would this not move into a permanent, immutable record? Into a system where there is no issue of trust, and no opportunity for manipulation – by owners, agents, municipalities, anyone?
During 2008’s financial crisis, bank’s were caught trying to foreclose homes that they didn’t have the deeds to. Mortgages, titles, and derivatives had changed hands so many times that some records seemed to have just disappeared. Homeowners didn’t know WHO had financial rights to their homes, and backs certainly didn’t have the paperwork to evict homeowners.
After places like the Philippines and Haiti experienced natural disasters, land titles simply disappeared. One day, a title is in a filing cabinet on the second floor of the office. The next day, that office doesn’t exist.
The problem with paper land titles (or even electronic, but not distributed), is that they can simply disappear. Or be stolen. Or forged. Or counterfeited. There are many reasons that a distributed, trusted blockchain network would have an enormous effect on the real estate industry.
The opportunity is waiting, and one would have to think that monetizing it will make some people extremely wealthy.
But what would this do for the blockchain industry and for Bitcoin?
That gets VERY hard to quantify. Even if the payment processing never touched the blockchain, the amount of transactions being entered in, and the transaction fees associated with them, would have a substantial impact on the network’s activity and Bitcoin’s price. (If you want to get the latest price of Bitcoin, just check out our digital currencies pages. Expect major price changes as new technology opens new opportunities like real estate for all cryptocurrencies and blockchain. You can also check the current price of Ethereum or any cryptocurrency affected by these developments.)
5 million homes are sold in the US every year, with an average value around $190,000. When an industry is this large, reducing any bits of friction or inefficiency produces a ton of value. The North American residential real estate industry is sitting around $200 trillion. 6% of every sale that occurs within that industry is going to agents that compile paperwork and legal documents that could be replaced, standardized, or simplified with smart contracts.
When a technology is in its infancy, it’s very difficult to predict what industries it may eventually disrupt. As cryptocurrency and blockchain continue to evolve, you’re going to want to learn how to buy Bitcoin in Canada, something we make easy and affordable at Bitbuy.
The release of SegWit opened up space on the Bitcoin blockchain for more data to be stored. Whether that is transaction data, or immutable information in a public ledger, these developments in blockchain technology bring us closer to seeing massive industries jump headlong into a new future. This new future, with secure, decentralized, records may look very different for some industries. And for Bitcoin and other blockchain currencies, the migration of these industries will be a boon – ushering in increased volume, stability, security, and prices.
For more updates on SegWit and the evolution of Bitcoin, follow the Bitbuy blog for more news and in-depth analysis like this. Bitbuy offers some of the most affordable transaction fees in Canada. If you want to save money trading Bitcoin and other cryptocurrencies, learn more about us and our Bitcoin trading platform. These are exciting times for blockchain technology and cryptocurrency.
Like this article? Get the latest blockchain news, technology guides, and trading ideas in our weekly newsletter.