What is a Blockchain Mortgage?
It would be safe to assume that all crypto coins like Bitcoin, Ether, Ethereum, and Dogecoin work using a blockchain. Crypto that doesn't have an underlying blockchain and uses established ones are called alt tokens. This is a term that you might have heard before but many people are still unsure how it actually works and why people are so excited about the potential for a Bitcoin mortgage. This article will tell you everything you need to know about how blockchains work and what a blockchain mortgage might look like.
What Is A Blockchain?
Simply put, a blockchain is just an immutable record of transactions. Whenever someone uses cryptocurrency to buy or sell something, the transaction information (like who paid what, and when, basically all data, 0’s and 1’s) is transmitted and recorded into a "block" using cryptography (which makes it extremely hard to forge). Example is binary options is something that people can use the blockchain for.
Anyone can be part of the block creation process by running a node on the blockchain network and because it is decentralized, all information entered into a block has to match up with other blocks on the same chain. This makes sure that every one of these records can be trusted as correct and verified by anyone else using the system.
When you become part of the process, you get to keep a copy of all the information that has been entered into a block, this is also why blockchain is known as mutual distributed ledgers. This means that every single node on the blockchain has an identical copy of each transaction made, and they have to agree with each other when to add new blocks to make sure nothing can be changed or deleted (in technical terms, this helps prevent double spending).
What Is A Smart Contract?
Any kind of financial transaction that is done with the help of a computer can be made with a smart contract using blockchain technology.
A smart contract is basically an agreement between two or more parties that is automatically enforced by the network, and it allows things like a Bitcoin mortgage to be approved without any human interaction at all. It runs on its own, obeying any rules it was programmed with, and only making changes if certain conditions are met.
For example, a mortgage loan agreement could run as a series of smart contracts that would check for things like the borrower's income, their debt to income ratio, and their credit score but would have to be set up as a loan origination system for it to make sense instead of bespoke. Or it could be run as a mortgage note, that has certain functions built into it that are specific for that note.
After these factors are checked, a smart contract is created between the lender and the borrower that cannot be changed or broken unless a specified amount of time passes without payments being made, or if there is some kind of specific breach.
What Are The Benefits Of Blockchains?
Blockchain has the potential to change how banks manage loans, track payments and interest rates, and even automate the closing process.
Currently, most international mortgages are processed manually by multiple people at different banks. This can be a long and expensive process for both parties involved which is why blockchain is being considered as a way to streamline the mortgage process.
How Does A Blockchain Mortgage Work?
A blockchain mortgage is much like any other mortgage, except instead of using a centralized database to keep track of all the information about your loan, you use a decentralized network.
Instead of storing all that data in one place (like with traditional banks), it is broken down and spread across multiple nodes (i.e. computers in the network) on a blockchain. These nodes then act as "miners" of the network, copying all the information that has been entered into one block and storing it in another.
An example would be unlike banks, which commingles your money with other clients, and you may have to trust them with your savings as they lend it out to others, while you get minimum interest in return, you have to trust that the bank doesn’t fail or you could lose money if it is above the insured amount. With a blockchain, it could allow you to take ownership of your own money without trusting the bank won't go under, such as having a low Texas ratio. You instead could hold the key to improved liquidity and more control of your money. Since the information is stored on several nodes, it can't be lost or changed without permission from the nodes who hold the digital record of transactions.
This could also make mortgages much more flexible. Instead of having the only option to pay your mortgage twice per month at most for any loan payments, you might have the ability to pay weekly or even daily. Why is this important? Mortgage interest is generated by per diem, meaning interest accrues everyday. With the ability to pay your mortgage payment sooner, this allows for less interest paid over the lifetime of your loan and could potentially cut years off your mortgage.
You might also be able to request any proof of mortgage payments, payoffs or documents from your lender that are outside of business hours. Blockchain technology enables you to instantly document when you pay your bills or make your mortgage payments wherever you are by using a mobile device. All of this adds up to more convenience and more efficiency, and more security.
The future of the blockchain and cryptocurrency is difficult to predict right now, but it seems likely that it will have an important role to play. Mortgage providers are already allowing customers to pay their mortgage using crypto, and the blockchain is used in a number of industries to increase the security and efficiency of payments amongst other documented transactions. It is likely that the blockchain mortgage is the future of real estate, as it could connect to the tax collector, the property appraiser, any potential recorded appraisals if recorded and the county to help pull title faster.