In the past few years, digital currencies such as Bitcoin have entered the mainstream but remain uncharted territory for many people. Those that are familiar with cryptocurrency are still wary of using it to buy real-world products, especially with the lack of financial regulations and sharp volatility in its value.
However, this past winter, one Toronto man decided to take the risk and listed his two-bedroom condo for sale for 35 Bitcoin (around $450,000 at that time). He wanted to prove that Bitcoin could be used in the real estate market. Two weeks later, he found a buyer and sold his condo for 33 Bitcoin, marking the first property to be sold using Bitcoin in Canada.
Is this the first sign of a shift in the condo industry towards use of digital currencies?
A brief history of Bitcoin
Bitcoin was the first digital currency to operate without the regulations of a central bank. Since it was introduced almost 10 years ago, nearly 1,600 other cryptocurrencies have been created and traded, and the list of digital currencies is growing.
Every transaction that involves the buying, selling, or transfer of cryptocurrency is added to a decentralized immutable public ledger in “blocks” of encrypted data, hence the name “blockchain.” Transactions are then verified by the decentralized network in a process known as “mining.”
Since transactions on the blockchain cannot be altered, and the ledger can be examined by anyone, this creates an explicit system of trust, which in theory eliminates the need for financial regulations.
In reality, the value of Bitcoin and other cryptocurrencies fluctuates drastically, so it is unlikely that condo corporations will be accepting Bitcoin for payment of monthly maintenance fees any time soon. In the meantime, what risks and rewards could cryptocurrency and the application of the blockchain carry for condo corporations?
What do mining for cryptocurrency and growing marijuana in units have in common? Both activities consume an excessive amount of utilities and time. Whereas there are restrictions on growing marijuana in units — some of which may remain in place even after recreational cannabis becomes legal — cryptocurrency mining is not illegal.
So, what is cryptocurrency mining? Mining is the process by which digital currency transactions are verified before being added to the blockchain. Recording these transactions in the blockchain is a computationally complicated activity which requires powerful computers to support special software that runs day and night. This software completes complicated calculations on the system — which could be likened to digging through layers of digital rock — and miners are compensated for their work with cryptocurrency.
Miners who contribute more computationally earn a greater share of the digital rewards. But, it’s not as easy as it sounds. Depending on computational power, it may take weeks, months or years to mine for one unit of a cryptocurrency such as Bitcoin. The powerful computers required to mine digital currency impose a huge electrical demand and rely on powerful cooling systems so that the chips do not overheat, as well as a fast internet connection.
Condo corporations that include electricity and internet in the monthly maintenance fees may see some residents using their unit as a cryptocurrency mining farm, which consequently abuses the shared costs of managing the corporation. Corporations that don’t have separately metered suites should watch out for large spikes in electrical and internet usage as telltale signs of mining. Condo corporations that have separately metered units should also be aware that miners may try to use outlets in common elements to power and cool their machines.
Condo corporations may not be accepting cryptocurrencies as payment for maintenance fees yet, but blockchain-based applications could soon change how corporations manage contracts, monitor mechanical equipment and track their finances.
For example, maintaining a major piece of equipment such as a chiller requires regular service visits from contractors. Every service call could be logged onto the blockchain, making it possible to implement smart contracts that would release payment once property management verified that the work on the chiller was complete.
In this way, developing a private blockchain specific to a condo corporation would assist property management and boards by providing traceability and accountability in the overall maintenance of the corporation, and transparency for anyone inspecting the corporation’s ledger. Corporations would not have to worry about having to dig through records in multiple places or getting a new property manager up to speed because contracts, the maintenance history of the building, and any transaction would be easily tracked on the blockchain.
It’s debatable what the shelf-life of various cryptocurrencies will be. But, what is clear is that blockchain technology has many applications beyond cryptocurrencies, including in condos potentially.