Buying / Selling Property With Bitcoin

Once known as a ‘scam’ or ‘ponzi’, blockchain technology is now being used by governments, large banks, corporations, and hundreds of millions of people around the world – in applications such as healthcare, infrastructure, energy, logistics, banking, ID, finance, entertainment and many others. The Digital Dollar, Digital Euro as well as many other digital currencies currently being considered or tested by many of the world’s central banks all function on blockchain technology. Over a dozen Bitcoin (BTC) Exchange Traded Funds (ETFs) have been approved in many countries including the United States, Canada, Australia, Hong Kong, Germany and others. Blockchain technology is proven, already widely accepted, and here to stay – and BTC is increasingly being used as a store of value and, to a lesser extent, a means of exchange.

So it is no surprise that real estate clients are increasingly approaching agents with property offer payments presented partly or wholly in BTC – and this is a tricky area as the regulations around such transfer can be very fuzzy! RE/MAX We Sell Paradise has been involved in a few BTC purchases already and this article will share our learnings so far, presenting a typical process and some very important considerations.

Table of Contents

SIMPLE DEFINITIONS

We will keep this article light and not go too deeply into details, as the process can be adjusted by using decentralized exchanges, a hardware BTC Wallet, a specialised escrow service, or transactions to third party financial providers instead of a bank. The above steps can greatly increase the security of the transaction, however it is not in the scope of this article to investigate these aspects as they can get somewhat complex. Here we will explain a simple abbreviated process bypassing the more technical aspects of BTC. Let’s start with the simple definitions:

BITCOIN (BTC) – The first decentralised cryptocurrency, or a digital currency that can be exchanged directly between transacting entities without a need for a third party such as a bank. Invented in 2008 – since then, tens of thousands of cryptocurrencies have been launched however BTC remains the most trusted and the most valuable cryptocurrency with a marketcap of $1.2 trillion as of May 7 2024 and routine daily trading volume of over $100 billion.
BLOCKCHAIN – A distributed database which records all transactions in the relevant cryptocurrency in larger units called blocks. The blocks are chained together and provide an immutable record of all previous transactions. BTC is one of many cryptocurrencies utilizing a blockchain.
BTC EXCHANGE – A centralised platform / broker allowing users to trade cryptocurrencies for other cryptocurrencies or fiat money, and to deposit and withdraw cryptocurrencies or fiat money via bank transfer and other means. Examples are Binance, Coinbase, Kucoin.
BTC WALLET – A digital wallet which holds and secures encrypted information allowing a user to hold, send or receive supported cryptocurrencies.
KYC PROCESS – A process where a BTC Exchange seeks to authenticate an account holder to either comply with local government regulations or their own security standards. Usually includes a request for submission of document scans / photos such as a passport, driver’s licence, utility bill, bank statement, or others. Some BTC Exchanges require an app-derived face scan or face photos that are then matched to identity document photos. This can be a lengthy process.
PRIVATE KEY – A long string of letters and numbers that can be presented in the form of, usually, 12 or 24 words. This is the key to a BTC Wallet – anyone in possession of a Private Key can access the BTC Wallet and transact (i.e. steal) the cryptocurrency. It is critical that the Private Key be kept secure and not shared with anyone.
PUBLIC KEY – A long string of letters and numbers, or a QR code, which represents an ‘address’ of a BTC Wallet. The Public Key can be used to either view the transactions of the related BTC Wallet through a block explorer, or to send cryptocurrency to the related BTC Wallet. It is OK to share the Public Key, as it can only be used to send cryptocurrency to the related BTC Wallet, but cannot be used to access that cryptocurrency (i.e. to spend or steal it).

Bitcoin private key. — An example of a Private Key presented when setting up a new BTC Wallet. It is presented in the form of a 12 word mnemonic. Anyone in possession of the Private Key can transact in the relevant cryptocurrency, or steal it. The Private Key needs to be kept secure at all times.

CONSIDERATIONS

The topics raised below can be expanded to great detail – here they are listed only as simple summaries. Each point requires serious consideration, and many of the security related issues can be significantly mitigated by taking best-practice steps such as using a hardware BTC Wallet, installing latest anti-virus systems on a computer, keeping a clean ‘BTC only’ computer not used for any other browsing, being aware of scammers’ techniques, not clicking on suspicious links, using Two-Factor Identification (2FA), etc.

Creating a BTC Exchange account can be a lengthy process due to KYC (Know Your Customer) requirements. Often scans of driver licence or passports & bank statements or utility bills are requested to confirm the applicant’s identity and country of residence. Some BTC Exchanges utilize an app which scans the applicant’s face for further identification purposes. This process can take anywhere from a few days to a few weeks to conclude – so BTC Exchange registration steps should be started, by the seller, as early as possible so they are ready to receive the BTC payment upon the closing of the sale.
BTC Exchanges charge a transaction fee. For example, tier 1 exchange Binance charges a 0.1% fee. On a $1 million transaction, this would equal a $1,000 fee. Fees vary by BTC Exchange, transaction size, and order type. For larger sums an Over The Counter (OTC) transaction may be arranged.
BTC Exchanges may not have sufficient liquidity to perform a large transaction without significant slippage loss. This means that there may not be enough buyers to accept a large sale of BTC, thus a portion of the sale will need to be made at a lower price, or be made in smaller sections or via a ‘limit’ order type (leading to volatility risks). Like above, this can be mitigated by using an OTC process.
Moving money from a BTC Wallet to a BTC Exchange can take time – while BTC transactions between BTC Wallets take seconds to a few minutes, transactions to BTC Exchanges can take longer due to occasional sluggishness on the part of BTC Exchanges in accepting and recording the BTC deposit. So there is risk of BTC price volatility impacts while the asset is being transferred from a seller’s BTC Wallet to the BTC Exchange.
Some banks are not friendly towards BTC and may show resistance in accepting a transfer from a BTC Exchange, for a number of reasons. Hopefully, with the US Securities and Exchange Commission approving BTC ETFs, this will soon start to change.
There is a risk that hackers can steal BTC while it is in a seller’s or buyer’s BTC Wallet, in the wallet of a 3rd party facilitating the exchange, or in the seller’s BTC Exchange account – this is usually due to computer malware such as key loggers that steal the private key, steal a user’s email access or steal a user’s BTC Exchange login information, phishing site attacks, insecure storage of the private key, and many others. Blockchain security is a complicated and lengthy topic.
BTC exchanges are not very secure. A number of respected tier-1 exchanges have experienced hacking attacks, fraud, bankruptcies, and other serious issues leading to partial or total loss of customer funds. Exchanges are vulnerable and a BTC payment deposit should be exchanged into USD and transferred to a traditional bank as soon as possible. This is a material counterparty risk.
BTC price is volatile – daily variations in price average 4% and, a dozen or more times a year, up or down movements of 10-20% per day can be expected. As recently as 2020 BTC experienced a 40% loss in one day. The volatility is easing as the market cap rises and the asset matures, but it remains highly elevated. For reference, these are some of the recent BTC prices:

Select BTC prices (left) and daily BTC volatility (right) which presents all instances in 2024 when BTC price moved more than 5% in a single day.

TYPICAL REAL ESTATE BTC TRANSACTION PROCESS – NOT FACILITATED BY A THIRD PARTY

Below is an abbreviated flow of events that a real estate BTC transaction could follow. As there is no standardised process yet, each separate transaction may differ in details depending on the agreement that was reached between buyer and seller.

At the time of closing the sale, the price of BTC is recorded using the current trading price on one of the tier 1 exchanges such as Binance or Coinbase. An average price across multiple exchanges can also be used.
The agreed purchase price of the property is then converted into BTC equivalent. E.g. if the purchase price of the property is $800,000 USD and the recorded price of BTC is $65,000 per BTC, the agreed amount of BTC equivalent is 12.308 BTC.
The buyer transfers 12.308 BTC from the buyer’s BTC Wallet to the seller’s BTC Wallet.
The seller transfers 12.308 BTC from the seller’s BTC Wallet to a BTC Exchange.
The seller exchanges 12.308 BTC into $ USD equivalent at the current exchange rate, which may have changed since the agreed BTC purchase price. 12.308 BTC may now be worth more that $800,000 or less than $800,000.
The seller withdraws $ USD equivalent from the BTC Exchange into a traditional bank account. The seller may also convert the BTC into many other supported currencies – for example CAD, AUD, NZD, EUR, GBP and many others. The money can then be withdrawn from the BTC Exchange into any of these foreign currency bank accounts.

REAL ESTATE BTC TRANSACTION PROCESS FACILITATED BY A THIRD PARTY

Third parties can add an element of security, comfort, confidence, expert advice, and help the process proceed in an expedited fashion. The process followed would be similar to the process presented above however, depending on procedures, a third party make take possession of the BTC to keep it in escrow.

There is always the risk that a third party may not be versed in the blockchain technology (for example an institution dealing with traditional finance extending into blockchain due to foreseen demand) and thus may offer faulty advice or advice that puts user BTC funds at risk.
Any third party that takes possession of the BTC also introduces counterparty risk same as that seen with BTC Exchanges – hacking, mismanagement, insolvency, theft.

Any third party that is to facilitate a BTC property purchase should be carefully vetted – things like user reviews, experience, length of time providing BTC related services, insurance, staff etc should be carefully investigated.

WHAT WILL THE FUTURE HOLD?

Most likely the near and mid-time future should bring us standardized BTC payment protocols as they relate to real estate transactions, as well as an inflow of private companies that specialize in administering these real estate related BTC transactions. Right now, BTC payments are something very new to not only real estate agents but also the buyers and, especially, the sellers. This standardization is greatly needed and may be led by the government of Costa Rica or, perhaps, one of the local professional real estate associations.

This article has been written as a general introduction to Bitcoin terminology and typical real estate related transaction processes. It is not a guide or an authority on the topics presented. It is recommended that, in the least, an expert advisor and informed legal aid be secured when arranging a real estate related Bitcoin transaction.

RE/MAX WE SELL PARADISE has been serving clients for over 13 years – our extensive knowledge and experience, together with a diverse staff and all the benefits of a global corporation, make us a trusted partner for all of your real estate related needs. Recently, we have facilitated Bitcoin real estate transitions – and this process will get much more common as days go by.