Regulatory readiness a key blockchain obstacle
The majority of property investors are concerned that regulatory authorities are not prepared for the introduction of blockchain. This is one of the biggest takeaways from a recent study conducted by real estate investment platform, BrickVest.
According to the report, seven in 10 (70%) property investors believe regulators are unprepared for blockchain's introduction. This is despite a recent study from Juniper Research, finding the total value of venture capital investment into blockchain technologies and bitcoin companies totalled $290 million in the first six months of the year.
Fellow analyst firm Frost & Sullivan says 2016 saw a dramatic decrease in the hype surrounding bitcoin and blockchain technologies. It notes venture capital investment in blockchain start-ups fell by 17% from 2015.
Frost & Sullivan believes a similar trend will occur in 2017. However, this does not mean there will not be activity in the blockchain market, it points out.
Lorien Gamaroff, CEO and founder of Bankymoon, a software company providing blockchain solutions to the financial services industry, explains blockchain works similarly to the Internet.
"The Internet consists of millions of computers around the world, which host Web sites. Instead of Web sites, the blockchain hosts a database. This database stores records of ownership, and if somebody wants to transfer an asset to somebody else, they update the database. Nobody controls the blockchain and it is publicly available for anyone to use."
According to Gamaroff, there are many kinds of assets the blockchain can manage, but the first and most famous is bitcoin. "Bitcoin is a currency that is not controlled by a central bank or government and can be sent anywhere in the world without requiring a bank or remittance company."
BrickVest notes integrating blockchain with existing regulatory and legal frameworks was identified by property investors as the biggest challenge preventing its widespread adoption by the real estate sector.
The second largest perceived obstacle is the reluctance by banks, insurance companies and private equity firms to invest in blockchain technology, followed by a lack of knowledge and education among industry participants.
Less than half (44%) of property investors claimed to be "familiar" with blockchain, of which just 2% are "very familiar".
Despite the challenges, the real estate investment firm says more than half (56%) of real estate investors believe the sector will eventually adopt blockchain technology for transactions.
It believes blockchain technology can improve the inefficient structures of financial markets. Blockchain technology diminishes the privileged position of the financial 'gatekeepers' and ensures greater transparency, efficiency and higher returns in financial and real estate investments alike, it says.
A third (31%) of investors felt blockchain's adoption would be opposed by financial gatekeepers, such as notaries and trustees whose existence is threatened by the new technology.
"While the majority of property investors view blockchain as a core part of the future industry landscape, investors have correctly highlighted many of the challenges ahead, most notably at a legal and regulatory level," says Emmanuel Lumineau, CEO of BrickVest. "It will be a far from straightforward journey to overcome the status quo.
"The main advantage of blockchain is that transactions have the potential to be significantly cheaper, faster and more transparent. Decentralised ledgers are able to keep secure transaction records between two parties, completely independent of any authorities, making tampering with this record difficult. There is no one entity which controls blockchain, meaning that participants can verify the transactions and they are not forced to rely on one entity to keep track of balances," Lumineau notes.
Meanwhile, George Etheredge, Frost & Sullivan's research analyst for ICT Africa, expects that, in 2017, firms will focus on core blockchain and blockchain-like technologies, rather than on their applications to crypto-currencies.
He says it must be noted blockchain-like technologies essentially provide a mechanism by which the authenticity of a digital asset can be verified.
"Naturally, crypto-currencies would be a non-starter, if not for this fact. Bitcoins could simply be duplicated, rendering them immediately valueless."
According to Etheredge, in 2017, firms will explore other applications where the verification of digital assets is required.
"An example here is in anti-piracy, where the authenticity of media files could be verified using blockchain-like technologies. Similarly, blockchain is expected to be used to develop 'smart' contracts, automatically verified by virtue of the blockchain."
He points out that although all banks in SA claim to be investigating blockchain technology, it is unlikely that anything will come of this in the near future.
"Banks have very little motivation to change their operating models unless incentivised to do so by external factors. I believe it may be possible that banks will guard their blockchain innovations to use as a weapon against disruption in the near future."