Cryptocurrency is essentially a digital currency. It can be used to make financial transactions. According to Equity Trust, there are numerous types of cryptocurrency. Six of the most common types currently are:
Bitcoin
Bitcoin uses open-source software. It also uses blockchain technology to help make online transactions safer from malicious attacks. There’s no third-party like a bank to monitor the transactions. Instead, bitcoin users can trace the currency’s transactions through a database the online community shares. If there’ a computer attack, the overall network can adapt. Only the bitcoin owner has the “private key” that can be used to make the exchange. A plus and minus of bitcoin transactions are that the users (buyers and sellers) control the transaction – which means the transactions can be made anonymously.
Other digital currencies
- Litecoin. This currency is similar but not identical to bitcoin. Proponents claim it’s faster than bitcoin.
- Ethereum. This currency is also open-source blockchain technology. It operates on an Ethereum network.
- Ripple. This currency “allows for any type of currency to be exchanged, from USD and Bitcoin to gold and EUR and connects to banks, unlike other currencies.” It’s used for large scale transaction.
- Bitcoin cash. A newer version of bitcoin for faster transactions.
- Ethereum classic. A version of Etherium, it’s used to minimize the risk of “downtime, censorship, fraud or third-party interface.”
How to buy cryptocurrency
Cryptocurrency requires two people to agree to the transaction. The value of bitcoin and other digital currencies does fluctuate. It’s important to understand the valuations on the day of the transaction.
The advantages of using cryptocurrency in a real estate sale
One big advantage is time. Since the buyers and sellers don’t have to deal with banks or other third parties, the purchase and sale can take place quickly – as little as 10 minutes. Everyone – the seller, realtor, and other vendors can be paid and have access to their currency almost instantaneously.
The downsides to digital currency for home sales
The currency transaction isn’t reversible unless both sides agree. There is thus something to decide for waiting for the checks to clear.
Cryptocurrency works for real estate purchases that don’t rely on a mortgage. Ethereum is working on the ability to obtain a mortgage and buy a home together.
A major problem using bitcoins to buy a mortgage-backed property is that mortgages can take weeks to close. During that time the value of the bitcoin (or other digital currency) can then increase or decrease dramatically.
Practical suggestions to buying a home with cryptocurrency
Home purchases with cryptocurrency are fairly new. It’s best to speak with an experienced Florida real estate lawyer when buying Florida property, who understands how cryptocurrency home purchases work. Because the use of cryptocurrency for home use is new, buyers and their lawyers need to make sure the title company that provides title insurance also understands how to conduct a cryptocurrency real estate purchase.
Forbes Magazine suggests that buyers and sellers consider the following suggestion: Buyers and sellers should practice by using verified exchanges that sell Bitcoin and Ethereum. Coinbase and Binance are two such exchanges. These exchanges are akin to trading stock and linking the transactions to bank accounts.
Escrow and additional concerns
Forbes states that handling escrow with cryptocurrency is very hard. The digital currency must either:
- Be converted to cash. This way the amount in escrow counts as a standard cash transaction.
- Use a crypto-to-crypto transaction. The title company needs to understand how to integrate the digital currency with the taxes and title.
In addition to the need for title companies to come up to speed with this new digital technology, local governments need to be consulted to see if they are up to speed. For example, most real estate purchases involve property taxes and transfer taxes.
While buyers may like the ease and claimed security of using digital currency, many sellers just aren’t comfortable with cryptocurrency transactions. Buyers and sellers need to understand that compatible sellers and buyers may be hard to find.
Additional legal help
When buyers and sellers want to use digital currency, and title companies and others agree, the sales agreement still needs a careful review. While everyone hopes the purchases go through, often there are problems. The home may not meet local building codes. A home inspection may reveal many defects that will take time and money to repair. If the value of the cryptocurrency goes down before the sale, then the buyer will have to make up the difference with other digital currency or with cash.
Digital currency real estate lawyers understand what clauses and conditions the sales agreement and related documents should include.
Additional considerations
While advocates claim cryptocurrency is secure, there are concerns that digital currency can be hacked. There are concerns that digital currency is a means to launder money – meaning the seller's funds may be illegal.
Forbes Magazine also recommends that buyers be extra cautious about digital currency real estate sales. While governments worldwide are working to regulate digital currency transactions, there’s still a great amount of catchup to be done. And digital technology, as with most technologies, is constantly expanding making it hard to ever really be ahead of the cryptocurrency curve.