A Home In Ukraine: The First Real Estate Purchase on blockchain
Propy has announced the completion of the first real estate transaction on a blockchain. The home is an apartment in Kiev, Ukraine, and was purchased by Michael Arrington, an American, and the founder of TechCrunch. You can read about it in a Wall Street Journal, New Scientist and Newsweek articles.
This comes just two weeks after our team completed the PRO token sale. That sale has now closed, although PRO tokens can be purchased from the secondary market.
The goal of Propy is to automate the purchase process of real estate transactions, which is needlessly complicated and different in every jurisdiction. Blockchain is the perfect technology for such a value transfer as property rights.
This first transaction was a remote purchase. Earlier this year the team developed a Transaction Platform with smart contracts to execute purchases online, here is the video demo.
Having developed the product further and having quickly customized it for the Ukrainian market after a MOU with their Ministry of Justice was signed on August 10th the team was able to assist the buyer and seller in completing this first transaction on the platform. You can also read about it in a Cointelegraph article. The payment for the property was made in Ether to a Smart Contract — nor to Propy or Notary or Escrow account or the seller. This is verifiable on EtherScan.io. Once certain conditions were met — the ownership rights were transferred on blockchain and then recorded at the Ukranian Land Registry — the funds were distributed to the seller.
Below are the detailed steps taken by the buyer and seller to complete the transaction (the buyer was in the United States at all times, the seller lives in Ukraine but was traveling during the transaction):
- The buyer searched for and reserved a property via the Propy Listing Platform’s mobile app.
2. The buyer signed a power of attorney (POW) to a Ukrainian lawyer to represent him in the deal (this was only necessary because the buyer never entered Ukraine; in the future Ukraine says they hope to eliminate the need for a buyer’s physical presence in Ukraine).
3. Buyer and seller then log in to Propy Transaction Platform (website application) and the digital wallet of the smart contract with their private keys*. The keys are needed to sign off on the transactions of each step that are being sent to the Smart Contract. The Smart Contract verifies the keys to understand from whom the transaction came through its identity service. If the the key is not authorized at the Transaction Platform then the transactions will not be recorded (the transactions are: signed agreement, payment, notary approval as stated below).
4. Buyer and Seller signed a purchase agreement, which stated details of the property and the price in ETH. Transaction recorded at the Smart Contract with a hash of the PDF of the signed purchase agreement.
5. Buyer received an address of the smart contract where to send 212.5 ETH ($60k at the moment of the sale) and 100 PROs and sent them.
6. The POW person in Ukraine goes to the notary together with the Smart Contract Address and signed the final document there. This step Propy and the Ukrainian governments is looking to simplify or eliminate.
7. The notary logs in the system (the Transaction Platform that includes the digital wallet of the smart contract) with his Transacting private key and marks the deal executed. The deal details together with the Smart Contract Address https://etherscan.io/address/0x7cdce8f97aff2f38a9c6a6c9f139998f7a79fa43 are being sent immediately to the National Property Registry. The deal is done.
Step 5 is a very important conceptional stage of the process, because it allowed The Smart Contract to play a role of the Escrow Agent (instead of Title Company or Notary or Broker or Propy Inc.). Once the conditions of the deal were executed the funds were transferred to the seller. The escrow function of smart contracts is the fundamental characteristic of blockchain that is able to solve the ‘double spending’ problem: it’s not possible at the same time the property to be bought by two persons (which is possible but arguable in the real world).
The seller is a crypto enthusiast Mark Ginsburg, who is a well known real estate developer in Ukraine. It was quite challenging to find a developer willing to accept crypto payment and process the purchase via Propy’s smart contracts.
Smart contracts is the code that executes certain actions if the conditions are met (as a normal programming language). In addition the metadata received from each step at the Transaction Platform is distributed on the blockchain network.
All the details now are stored on immutable Blockchain and Propy’s server and if any claims happen these records that link to actual hashed documents will be recognized as legal evidences. The Title Deed and how to extract data of the deal from the blockchain is described here: https://blog.propy.com/technical-overview-the-first-real-estate-deal-on-the-blockchain-18a34979403
One of the goals of the first transactions within the current legislation in Ukraine and other countries is to identify recommendations for the government to improve the process from legislative and technical perspectives. This brings innovation to the countries as well as allows Propy to attract more foreign property investment to each country. A whole new class of property investors is emerging out of crypto millionaires. Propy’s Transaction Platform will be a very convenient platform to sell properties both in national currencies as dollars and crypto payment — BTC and ETH. Sellers, brokers and developers can list their properties right now at the mobile app or on web here for free. Soon a fee in PRO will be required to list a property and record the listing’s data to the registry.
Proof of funds are required by Propy as per the current legislation of each country (money anti-laundry policy), where the property is located. Taxes are being paid as per the property valuation/appraisal (a step to be included in smart contracts in the future).
This transaction is a part of the product testing withing the short-term goals of the development (see the image below). We succeeded to facilitate the payment in crypto ETH sooner than expected. Next payments are planned both on fiat and crypto in several jurisdictions in North America and Europe. We are intensively looking for cash/crypto buyers and sellers who are closing or willing to close a deal soon.
The first milestone of Propy Roadmap was achieved. The Beta testing was executed over the real purchase process ahead of time (scheduled for October 15th) and will follow with the more test and real transactions in Ukraine and the US. The partly decentralized Propy Transaction Platform is very valuable for consumers, brokers and governments at its current stage. It is accountable for all the parties, saves time and money to consumers, timestamps transactions for governments. The smart contract played a role of a temporary holder of funds with no need a Notary or Escrow company to do that, which saves money to the buyer.
While the current solution is scalable and has enough value proposition, we, being a team of blockchain advocates and engineers, believe in the evolving economy of decentralized governance and P2P financial system. This is why we see our current solution as the first step towards the P2P transactions for physical assets. The properties will be exchanged P2P via smart contracts without approvals of governments (after they approve the framework with the set of customised smart contracts and accept the standards of Propy’s decentralized Title Registry). Governments will no longer need to trust Notaries or licensed Escrow companies and Title companies to hold and distribute the funds for property deals. And governments will no longer have to trust to vulnerable traditional databases of title records. Governments will be able to receive and can keep data about the transactions and will be able to collect property taxes automatically from smart contracts instead of from Notaries or Escrow Companies. Several developing and brand new countries are already discussing this approach with Propy.
*Buyer and Seller need two Private Keys (wallets) to work with Propy Transaction Platform:
1) Transacting Key (wallet), which is used for transating with Deed Smart Contract, this Private key is registered in the Propy Identity Service in advance. This key is imported in Propy Transaction Platform during login operation and considered as NOT secure to operate with large amount of Ether.
2) Asset Transfer Key (wallet). This key is registered in Deed Smart Contract with Transacting Key. Deed Smart Contract accepts Ether from Buyer’s Asset wallet only and release Ether to Seller’s Asset wallet only. The Private Key of asset wallets remain private and not known by Propy in any way.