Today, society is immersed in one of the greatest technological changes in history, in which digitalization is imposing itself and growing at a constant pace in all aspects and processes of daily life. Therefore, it is not enough to say that we are in a digital era, but the immediate future brings with it important changes that will break all known schemes and paradigms.
One example of these changes is the emergence of cryptocurrencies. These have experienced exponential growth and have attracted the attention of banks, agencies and states due to their unique value proposition characteristics, which fiat money cannot match.
This explosion of digital assets has reached the real estate market, where several transactions have been made through different cryptocurrencies, such as Bitcoin. However, how is it possible to buy a property using Bitcoin?
In this article, we present some general guidelines as a checklist to be considered whenever you want to carry out a real estate sale and purchase using Bitcoin, as well as different use cases at national and international level.
Check List
As previously mentioned, when initiating the acquisition of any type of real estate through the use of cryptocurrencies, it is essential to consider a series of aspects that establish the necessary guidelines for the correct development of the activity.
Legal nature-jurisdiction
One of the most critical aspects to consider when carrying out a real estate transaction using Bitcoin as a means of payment is the legal nature of Bitcoin in the corresponding jurisdiction. It is necessary to verify whether the use of this cryptocurrency is accepted in the region where the transaction will be carried out, as well as whether it is considered a means of payment, bill of exchange or unit of account.
It is important to mention that in some countries, such as Japan and Switzerland, Bitcoin is considered a legal form of payment and has been regulated in fiscal and financial terms, while in other countries such as Bolivia and Nepal, cryptocurrency transactions have been banned.
In this sense, it is essential to conduct a thorough research of the laws and regulations in the relevant jurisdiction in order to avoid any legal problems in the process of the real estate transaction in Bitcoin. In addition, it is important to have specialized legal advice to ensure that the transaction is carried out safely and in accordance with the law.
Agreement between buyer and seller
In any real estate transaction, it is essential to establish a prior agreement between the buyer and seller defining the conditions and terms of the transaction. In the case of a real estate purchase using Bitcoin, it is even more important to agree in advance on the exact date and time when the exchange of Bitcoin to euros will take place, as the cryptocurrency is known for its volatility and its value can fluctuate significantly in a short period of time.
This agreement should also include a detailed description of the real estate property being acquired, its location and any other relevant features, as well as the price in Euros agreed upon by both parties. It is also important to ensure that all legal and tax requirements have been met before proceeding with the transaction.
Money sourcing and prevention of money laundering
In the process of buying a property with cryptocurrencies, it is essential to check the origin of the money used, in order to avoid the use of funds of illicit origin in the transaction. In this sense, the prevention of money laundering is a priority for financial authorities worldwide, so it is important to verify compliance with the corresponding rules and regulations in the jurisdiction in which the transaction is carried out.
In the European Union, the Anti-Money Laundering (AML) regulation establishes measures for the prevention and control of money laundering and terrorist financing, and obliges cryptocurrency service providers to comply with the guidelines of this regulation. Likewise, Know Your Customer (KYC) is a complementary mechanism that allows the identification of users and their financial activities in order to prevent money laundering.
In this context, it is essential for the parties involved in the real estate transaction with cryptocurrencies to comply with the established regulations and norms, and to carry out an adequate management of the risk associated with the operation.
Operational certification
In the field of real estate transactions involving the use of cryptocurrencies, the presence of the notary is an essential legal requirement. This professional acts as a guarantor of the veracity and legality of the sale and purchase process and, therefore, is responsible for providing public faith and certifying the fundamental aspects of the transaction. In particular, the notary has the obligation to verify the existence and ownership of the digital wallets of the buyer and seller, as well as to ensure that the bitcoin transaction is carried out securely and with full knowledge of the parties involved.
In this sense, the notary is also responsible for determining the market value of the cryptocurrency in euros at the exact moment when the transaction is carried out, in order to establish the total amount of the operation and avoid any misunderstanding between the parties. In addition, it is of utmost importance that the notary reflects in the notarial deed the alphanumeric code or hash of the wallets involved and of the transaction carried out, as a means of guaranteeing the transparency and legal security of the process.
In conclusion, the intervention of the notary in real estate transactions involving cryptocurrencies is fundamental to guarantee the legality and security of the process, as well as to prevent any type of fraud or illicit activity. Therefore, it is necessary to make sure to have a qualified and experienced professional in this field, in order to carry out a real estate transaction with cryptocurrencies effectively and reliably.
Taxes
It is vitally important to note that the use of cryptocurrencies in the context of the sale and purchase of real estate does not release those involved from the obligation to comply with the tax and fiscal regulations applicable in the relevant jurisdiction.
In the particular case of Spain, transactions of second homes are subject to Transfer Tax (ITP), while sales of new homes are subject to Value Added Tax (VAT). It is important to note that the fact of making the payment through cryptocurrencies does not imply an exemption from such tax obligations.
Therefore, it is essential to know in detail the fiscal and tax aspects corresponding to the jurisdiction in which the real estate transaction will be carried out, in order to ensure compliance with all legal obligations and avoid penalties or fines from the relevant fiscal and tax authorities.
Use Cases
- CASE OF ASTON PLAZA & RESIDENCES IN DUBAI
One of the best known use cases regarding real estate transactions with cryptocurrencies is the construction project of a luxury real estate complex in Dubai called Aston Plaza & Residences. The project consisted of the construction of two residential and commercial towers, whose apartments and commercial premises could be acquired through bitcoins.
The project was launched in 2017, at the height of the popularity of bitcoin and other cryptocurrencies, and became a very attractive investment opportunity for investors interested in cryptocurrencies. The price of apartments and commercial premises was set in bitcoins, and was updated every 10 minutes based on the market value of the cryptocurrency.
Investors interested in buying a property in Aston Plaza & Residences could do so through an online platform that handled the transaction. Once the buyer made the transaction in bitcoins, the platform's team would verify the transaction and send the money to the seller's bank account in euros. The process was simple and fast, and allowed investors from all over the world to purchase property in Dubai without having to worry about currency exchange issues.
However, despite the initial success of the project, the price of bitcoin fell in 2018 and the construction of the towers stopped. Investors who had purchased properties with bitcoins found themselves unable to recover their investment, as the project was not completed and not all properties were sold.
This case demonstrates the importance of being careful when investing in cryptocurrencies, as their value is very volatile and can change in a matter of minutes. In addition, it is also important to thoroughly research the projects you are going to invest in to make sure they are legitimate and backed by a serious and solvent company.
- CASE OF SPAIN
In the field of real estate transactions involving digital currencies, specifically in Spain, it is required to follow a well-defined sequence of steps to carry out the complete process of buying and selling a real estate property.
First of all, a prior agreement must be reached between the parties involved in terms of price and exact moment in which the exchange of bitcoins for euros will take place. Subsequently, one must go to a notary with all the documentation required by Spanish law to proceed with the transfer of ownership from one individual to another.
It is also necessary to establish an agreement with an OTC trading platform that, in exchange for a percentage of the amount of the transaction, will act as a guarantor of the money.
The figure of the notary becomes important in this process, since he must first define the legal nature of the digital currency for the purposes of the corresponding tax, in the case of Spain, a bitcoin is considered an intangible asset. Subsequently, it must publicly attest that the electronic wallets of origin and destination actually correspond to the buyer and the OTC intermediary, who, in the first instance, will be the one to receive the bitcoins in its role as guarantor.
Then, in the presence of the notary, the buyer must execute the transfer of the agreed amount in bitcoins from his virtual wallet to the wallet of the OTC broker. The notary must certify that the transaction has been carried out for the agreed price and in the corresponding wallets, providing as proof and certification of the fact, the Hash of the transaction.
The notarial deed will be notarized as an exchange, which will include the necessary warnings for the buyer about the possible fluctuation of the price in cryptocurrency and how this circumstance may affect the subsequent valuation of the property before the local administration, as well as before the tax authorities due to the decrease or increase in assets.
In this process also appears the figure of the OTC intermediary, who acts as guarantor and receives the bitcoins directly from the buyer and blocks them until the signing of the purchase contract, the certification and the corresponding hash by the notary are completed. It will be at the moment of signing the contract that the OTC intermediary will release the payment in euros to the seller.
The sale and purchase will not be perfected until the seller receives the amount of the transaction that was in deposit (guaranteed by the OTC intermediary) and the notary includes the hash of the transaction again, certifying the amount in euros from the OTC intermediary's wallet to the seller's wallet. From this point on, the sale and purchase of real estate through bitcoins will be perfected.
To conclude, the notary will send the deeds to the registry with the settlement proposal, and once the taxes have been settled, the registrar will make the change of ownership of the property from Cadastral Reference to the name of the new buyer and register the operation in the land registry.
- Case of a real estate sale and purchase in Tarragona
In Spain, the sale and purchase of real estate with bitcoins is still not very common, although some successful transactions have already been carried out. One of the best known cases is that of a sale and purchase carried out in Tarragona in 2018, in which a buyer paid the amount of the property in bitcoins.
The process of the sale and purchase was similar to any other real estate transaction, with the only difference being that the buyer made the payment in bitcoins. The buyer and seller agreed on the price of the property in euros, and the buyer made the transaction in bitcoins through an exchange.
The exchange was responsible for converting the bitcoins into euros and transferring the amount to the seller's bank account. The process was quick and easy, and the sale was completed successfully. However, it is important to note that the sale and purchase of real estate with bitcoins in Spain is subject to tax and money laundering prevention regulations.
Vision for the future
An optimal way to conceive the relationship between the real estate sector and the world of cryptocurrencies is to implement a land registry on blockchain technology, similar to existing models in countries such as Sweden and Georgia. In this context, notaries and registrars could act as oracles, offering a guarantee of the correct development of all transactions to be carried out.
The implementation of a property registry in blockchain would not only facilitate the registration of the different tokenizations that are being carried out in various countries, but would also provide greater liquidity through secondary markets by means of the guarantee of a collateral asset such as real estate.
Faqs about it:
What is Bitcoin trading?
It is the commercial transaction where Bitcoin is used as a means of payment.
Is it legal to buy and sell with Bitcoin?
Yes, in many countries Bitcoin trading is legal, although it is important to check the regulations in each country.
Is it safe to use Bitcoin for trading?
Yes, as long as the necessary security measures are taken, such as protection of private keys and verification of the identity of the buyer and seller.
How do I buy and sell with Bitcoin?
The process can vary, but generally involves sending Bitcoin from the buyer's wallet to the seller's wallet in exchange for the agreed goods or services.
What is the advantage of using Bitcoin in trading?
The main advantage is the speed and low transaction fee compared to other traditional means of payment such as credit cards or bank transfers.
Is it possible to buy real estate with Bitcoin?
Yes, it is possible to buy real estate with Bitcoin.
How is a Bitcoin transaction carried out?
Bitcoin trading transactions are carried out through the blockchain network by sending bitcoins from one digital wallet to another.
Is any kind of authorization required to buy with Bitcoin?
No, no special authorization is required to buy with Bitcoin.
What security measures should be taken when buying with Bitcoin?
It is advisable to use a secure and reliable digital wallet, as well as to verify the seller's reputation before making the transaction.
How is the value of an asset established in a Bitcoin transaction?
The value of the good is agreed between the parties involved in the transaction and is expressed in terms of the amount of bitcoins to be used as a form of payment.
