Many people have heard of bitcoin but don't know much about it or even what it's used for. Did you know bitcoin has been used for real estate transactions? Yes, people are now buying homes with bitcoin. If you feel a little behind the curve about bitcoin, you're not alone. Here's a quick guide to this digital currency and if you will need it to buy a home in the future.
What is Bitcoin?
Bitcoin is a global digital currency that was created around ten years ago in response to the worldwide financial crisis. Bitcoin is an entirely separate and independent monetary system that is not tied to traditional banks or any government. It belongs to a form of currency called cryptocurrency, intended to keep the identity of the buyer of goods or services anonymous. Bitcoin's value has had major swings, sometimes in only a matter of hours or days. Because bitcoin has no known backing, such as gold, its value is dependent on what users or investors determine it's worth at a given time.
How Does Bitcoin Work for Real Estate?
Bitcoin works similarly in real estate to the way a foreign currency would, in many cases. While there are some buyers and sellers who will deal exclusively in bitcoin for the entire transaction, those cases are still the exception. Generally, bitcoin would need to be converted into cash for a real estate transaction. However, there were a notable number of sellers who recently listed their homes in bitcoin instead of U.S. currency. With the major swings in the value of bitcoin, these sellers took a big gamble with the value of their homes and the potential loss of money in the case bitcoin's worth took a sudden nosedive.
If you happened to be on the forefront of the bitcoin wave and want to use your profit toward your new home's down payment, it can be difficult to secure a traditional lender for the rest of the purchase. Banks are understandably weary of currency that has no apparent oversight, high risk in terms of value gains or losses and is intended to keep the buyer anonymous.
So, what does this mean for you and your future home buying options? Right now, not much. Bitcoin could be the future of currency or it could be a bubble about to burst. Industry analysts predict it might take several years or even a few decades before bitcoin's value stabilizes enough to gain ground against traditional currency and banking when it comes to everyday real estate transactions.