You’ve undoubtedly heard of Bitcoin, the global cryptocurrency that is bought and sold through virtual trading exchanges. Although more individuals and companies are venturing into selling goods and services with Bitcoin, buying real estate with cryptocurrency is not yet one of them.
However, at least one U.S. Bitcoin real estate transaction was completed in Texas last year, and one real estate company is offering to handle transactions using Ethereum, probably the most popular cryptocurrency after Bitcoin. But its popularity could change in an instant, just like a favorite stock.
With so many questions swirling about Bitcoin, its potential upsides and downsides, we turned to David Skarman, Executive Vice President and General Manager at our affiliate California Title Co., based in Laguna Niguel. David deals with questions about the fast-evolving technology daily and is involved in creating a future in which buying and selling real estate with cryptocurrency is (almost) as easy as ordering pizza online.
We asked David some of our burning questions about Bitcoin, cryptocurrency, and real estate.
What are the advantages of using Bitcoin and other cryptocurrencies?
Cryptocurrencies are a decentralized payment system so the same dollar will be able to be used all over the world. In a Bitcoin-to-Bitcoin transaction, you’re eliminating the middleman almost altogether.
Where and how do you buy cryptocurrency?
Through online exchanges like Coinbase, Binance, and Bitrex, which are the main players. They act like a digital wallet. You go to their website, open an account, and then transfer U.S. dollars into them via wire transfer from your bank, or via credit card. Because of the incredible demand, in most cases you’re limited on how much you can spend on coins per week. You can set up recurring transfers if you prefer. So you start to build pieces of a coin and check the exchanges to see what they are worth.
How do you find out your crypto coins’ value right now?
You can visit sites like www.coinmarketcap.com, which is like a trading floor. You can’t buy and sell here, but you can see a few hundred coins ranked by trading volume. But to know exactly what a coin is worth at a given moment is one of the things we’re all trying to get our heads around right now.
What was Bitcoin trading at recently?
It was in the $6,000 to $8,000 range per coin. A few years ago, Bitcoin was trading for just a few dollars. Before that, it was just cents. We were trading at almost $20,000 at the end of last year. So there’s incredible volatility. It’s like the stock market. It fluctuates based on buying and selling. Ethereum, on the other hand, was trading in the $600 range recently.
We heard foreign investors are embracing cryptocurrencies. Why is that?
It’s a global market, not just U.S.-based. Today, one of the issues we deal with in foreign currencies is that foreign investors have to go through all kinds of processes with a bank. There are fees in regard to transferring funds; the seasoning of funds, which means foreign money has to sit for X amount of time; and the exchange rate, which will affect the U.S. dollar value of that currency once it hits us. With Bitcoin, which is only one of about 1,400 currencies currently being traded on the crypto coin exchanges, it will be a seamless, decentralized transfer of funds with none of the aforementioned issues.
Are crypto transactions fast?
Each transaction is a mathematical equation, where the transfer of digital currency goes to an individual who’s called a miner. The problem with Bitcoin is the transfer itself. Because that mining process is very complex and handled by computers, it takes time. With Bitcoin being a peer-to-peer currency, one of the issues is the time that transaction takes to transfer from person to person. It can be up to three days for that to happen.
But because of the slow processing of Bitcoin, others have emerged, such as Ethereum, Litecoin, Dash, and Ripple, which are some of the top currencies where the speed can be immediate. That’s one of the sexy things about cryptocurrency. If you’re using the right coin, the transfer can happen instantaneously.
How is cryptocurrency used to buy a home?
There are two basic options for processing a Bitcoin real estate transaction. The first is for the buyer to convert cryptocurrency to cash and then go through the transfer of the property. This is treated as a regular cash transaction in the eyes of title and escrow. Then the seller can take the proceeds and convert them back into cryptocurrency if desired. The second option is to use a crypto-to-crypto transaction. In this case, escrow has to be set up with a crypto payment processor, which will convert your cryptocurrency into a U.S. wire transfer. It’s a very complicated system.
Does the crypto transaction have to be at the home’s full price?
Yes. Cryptocurrency’s value fluctuates every day, so the risk is on the buyer’s side since the seller agrees to a fixed dollar amount.
Are there any mortgage payments? What about capital gains and taxes?
No mortgage is involved. It’s like a cash transaction. But a current question is: How are you going to pay capital gains? You’re bypassing that. You’re also bypassing taxes. But the government wants their piece. They have to figure out how to get you to pay taxes on a home sale when you use cryptocurrency. Right now there’s no government oversight, and with concerns about cryptocurrency being used to fund terrorism and cartels, regulation is sure to come.
We read that cryptocurrency transactions are irreversible?
If the transaction falls apart, both parties might have to agree to go back and do it all over again. The seller would have to offer a refund and the buyer would have to purchase again. It’s all tricky because it would have to be agreed to in advance and be legally binding.
Who else will deal in cryptocurrency now?
Companies like Overstock are accepting cryptocurrency and Amazon is positioning itself to accept it. Some car dealerships also have mentioned getting ready for it. It’s a new world, and it’s not going to go away. There’s too much momentum and technology behind it.