“it’s money 2.0, a huge, huge, huge deal” – Chamath Palihapitiya. Venture Capitalist.
Hardly does a week go by, that there is no news about cryptocurrency or Bitcoin. It’s either the urgency to invest in it or its volatile nature. Infact, Nigeria through its Central Bank activated on Monday, 25th October, 2021 it’s digital currency (Central Bank Digital Currency – CBDC) called ‘e-Naira’
Advocate of digital currency see it not just as the future of money but it’s present.
“Bitcoin will do to banks what email did to the postal industry” – Rick Falkvinge (Swedish Pirate Party Leader).
“as the value goes up, heads start to swivel and skeptics begin to soften. Starting a new currency is easy, anyone can do it. The trick is getting people to accept it because it is their use that give the money value” – Adam B. Levine.
There are those who do not see any value in Digital Currency (cryptocurrency). They don’t understand it nor care to, they consider it a fraud/scam.
“What value does cryptocurrency add? No one has been able to answer that question to me” – Stevie Eisman.
“It is a mirage basically, it’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money just because they can transmit money?… The idea that it has some huge intrinsic value is just a joke in my view – Warren Buffett
Digital currency is any means of payment for goods and services that exists in a purely electronic form, it is not physically tangible like a money note or coin. It is a medium for daily transactions but it is not cash. It is important to state that the money in your online bank account is not digital currency because it takes on a physical form when you withdraw it from an ATM (Automated Teller Machine). In 2020, Warren Buffett had this to say ” cryptocurrency basically has no value and they don’t produce anything. They don’t reproduce, they can’t mail you a check, they can’t do anything and what you hope is that somebody else comes along and pays you more for them later on, but then that person’s got the problem. In terms of value: zero”
Like it or not, there are people who belong to the same school of thought as Warren Buffett.
Before answering the question, If it is possible to buy a property with digital money? Let’s understand what digital money (currency) is and how it works?
The fact that it doesn’t exist in physical form does not mean it isn’t worth anything. The basis for the creation of digital currency was to fix the flaws with the way money is transmitted from one person to another.
There are different types of digital currency:
- Central Bank Digital Currencies (CBDC):- are currencies issued by the Central Bank of a country. It is a virtual form of a country’s fiat currency. It aims to ease monetary policy implementation by removing intermediaries (banks and financial institutions) and establishing a direct connection between the government and the average citizen. It can also be used for financial inclusion. Examples; e-Naira (Nigeria), Sand Dollar (Bahamas), DCash (Antigua and Barbuda). According to Alanticcouncil.org CBDC tracker, 87 countries are now exploring a CBDC. 7 countries have now fully launch a CBDC, Nigeria being the latest country to launch its CBDC.
- Cryptocurrencies:- are digital currencies designed using cryptography (Blockchain technology). Examples; Bitcoin, Ethereum, Binance coin, Cardano, Tether, Solana, Polkadot, Doge coin etc.
- Virtual Currencies: are digital representations of value, its transactions occur solely on online networks or the internet. They are largely unregulated, issued and controlled by its developers. They are used and accepted electronically among members of a specific virtual community i.e. private organizations or groups of developers.
Examples are tokens and cryptocurrencies. They are not used as a payment method in mainstream society, but mostly in gaming communities.
Digital currencies, Virtual currencies, cryptocurrencies all sound and work in a similar way, however they are different. All Virtual currencies and Cryptocurrencies are digital currencies but not all digital currencies are virtual Currencies, for example; CBDCs are not virtual currencies or cryptocurrencies.
Digital currencies can be regulated or unregulated. CBDC is an example of a regulated digital currency and Bitcoin is an example of an unregulated digital currency. Cryptocurrencies uses cryptography to secure their networks while Virtual currencies may or may not use cryptography.
Digital Currency is built through the Blockchain technology, which is a digital ledger where all transactions involving a digital currency are stored. All digital currencies are created, stored and exchanged on their own separate Blockchain networks. A digital currency’s blockchain network is a digital ledger of all transactions on that currency. New transactions are grouped into blocks, each block is confirmed and validated by multiple users through out the network, before being added at the end of the chain. Every user has their copy of the ledger and it is constantly updated.
How do people use digital currency? How can fraud and manipulation be eliminated from a transaction between users? This leads us to a process called ‘ Mining’. Miners confirm all the transactions inside a new block so it can be recorded and sealed on the Blockchain ledger. To regulate the supply of the currency and control inflation, the blockchain software protocol makes it increasingly difficult for miners to generate hashes and confirm new blocks as the network grows in size. This guarantees accountability, transparency and stability for networks and their currencies.
Remember that digital currency does not exist in physical form, then how do I store it?
When digital currency are mined on their blockchain and transferred between users, they must be stored in a digital currency wallet. The wallets are pieces of software which can be used to store digital currencies securely for an indefinite period of time. All digital currency wallets have a public key and at least one private key.
When you send and/or receive digital currency
,the transaction is recorded on the ledger, everyone can see but it documents only your wallet location and none of your personal identifiable information this ensures anonymity. The private key can only be seen by the owner of the wallet. It contains the cryptographic information needed to authorize transfers out of the wallet, this key should never be shared.
WHY IS DIGITAL CURRENCY (CRYPTOCURRENCY) SO POPULAR?
- It is seen by some as the currency of the future therefore there is the urgency to buy them now before they become more valuable.
- There are no intermediaries, no third party financial institution is required to oversee the transactions.
- It is decentralized. There is no single data center where all transactions data is stored. Data from this digital ledger is stored on hard drives and serves all over the world.
- Because there are no intermediaries, transmission of money is faster and cuts back on costs.
- There is no need for a physical storage and safekeeping unlike cash.
- Digital Currency transactions can become censorship resistant and impervious to tracking by government and other authority.
- It ensures the inclusion of groups of people previously excluded from the economy. For instance; the unbanked can still participate in the economy using digital currency in their online wallets or mobile phones.
- It simplifies accounting and recording keeping for transactions through technology.
As with all things, there are upsides and downsides. The disadvantages of digital currency are:
- It is an uncharted and unfamiliar territory for most policy makers thus presenting challenges on the policy framework.
- It is a target for hackers who can steal from digital wallet
- It has its own cost. You need digital wallet to store your digital currencies, system that uses Blockchain also have to pay transaction fees.
The use of digital currency is growing everyday and may take center stage in financial transactions. Buying a property, be it for home ownership or investment purposes is a huge and important decision and security is a critical element in real estate investment. Presently, you can pay for a property using cash, bank transfers and credit card payments. The question is can I buy or sell a property using digital currency?
Nigerians are heavy cryptocurrency users, second to the United States of America. According to paxful platform, in 2020, 1.1 million cryptocurrency trades were recorded per month in Nigeria.
Why is cryptocurrency popular in Nigeria?
Some use it to protect their savings against the Naira depreciation, others as an alternative source of income, as a way to get around foreign currency restrictions etc. Despite, it being a high risk investment, its usage and trading in Nigeria continue to increase.
Back to the question, if one can buy or sell a property using digital currency? Yes, it is possible in some markets though it is a novel concept. For instance, the first property to be sold for Bitcoin was in Austin, Texas in 2017. It is important that you understand cryptocurrencies, digital Currencies, how it works, before using them for real estate assets.
In certain markets and jurisdiction, the Crypto- property market is gradually opening up. There are property sellers and buyers willing to accept cryptocurrencies. There are also Property Lawyers in crypto real estate transactions. In October, 2017, the first Ethereum real estate transaction was conducted, Michael Arrington (Founder of TechCrunch) bought an apartment in the Ukrainian market using an Ethereum smart contract.
Before you buy a property using cryptocurrencies, you must:
- Understand and educate your about digital Currencies and Cryptocurrencies. How it works, the market and the risks involved.
2 .Find a seller willing to accept it as payment. In some markets, there are sellers and agents who list their properties stating their willingness to accept cryptocurrencies, though some use this as a strategy to generate buzz for their properties. Some request for payment split between cryptocurrencies and traditional currency.
- Set the standard. Cryptocurrency is highly volatile therefore when using it to purchase a property, it is best to set the purchase price of the property in fiat currency (government issued currency. Modern paper money e.g. US Dollars, British Pounds, Naira etc). The contract must expressly state how the cryptocurrency will be settled. For instance: if the purchase price for the property is 20 Million Naira and the price/value of the cryptocurrency drops at the close of the purchase transaction, the buyer must make up the difference or where the price/value of the cryptocurrency increases in value and the transfer has been done, the surplus should be returned to the buyer.
- Verify: Always conduct your due diligence because the use of cryptocurrencies in real estate transactions is a novel concept, cryptocurrencies are volatile, susceptible to hacking and can be used for money laundering.
- Find the right people to work with. Because many people still do not understand how it works, others see cryptocurrencies as ‘fake internet money.
CONCLUSION
Despite the advantages in using cryptocurrencies in real estate transactions, it must be understood that it has a high price volatility risk. The value can change in seconds during the course of a sale transaction which may lead to the seller opting out. Further it is a new concept, many are not familiar with it and thus it would be difficult to find a seller willing to accept it over the traditional currency particularly in the Nigerian property market. Where one even finds a willing seller, he/she may be nervous about closing a transaction because of its price volatility.
In the real estate market, cryptocurrencies are considered as very risky or an unknown, therefore there are very few players willing to work with it
REFERENCES
- Investopedia
- com/how digital currency works.
- com Forbes.com Bloomberg.com Thisday.com Rockethq.com Chainalysis
- org/CBDC Tracker Wikipedia
- ng
Ololade O. Soda-Pereira is a Legal practitioner, Writer and Researcher with 15 years experience in legal practice and specialization in the following practice areas; Property Law, Estate Planning and Succession, Commercial Law, Legal Audit for SMEs and financial institutions. She is known for her Law and Me Series currently on her social media handles where she answers questions on the problems and challenges faced in the acquisition and investment in real estate and offers legal tips for SMEs to scale up their businesses and improve their service delivery.