You can buy plane tickets with it and even kebabs with it, and one day you could also be taking rental payments in it. Cryptocurrency bitcoin is being used more in the UK property market. Last year, a developer in Essex became the first in the UK to sell two homes using bitcoin currency. Now, the private rented sector is getting in on the act, with one development in London even offering tenants the option of paying their tenancy deposits in this way. Could you soon be doing the same? In this article originally published in Residential Property Investor magazine, Victoria Barker investigates the appeal and potential pitfalls of the controversial cryptocurrency.
WITH its shiny floor to ceiling windows and towering white exterior, The Collective’s Old Oak apartment block near Wembley looks typical of the kind of modern, luxury accommodation you’d expect to find in the Capital.
But these apartments are far from typical. Not only are Old Oak apartments one of largest co-living developments in the world, these apartments are thought to be one of the first in the country where tenants are able to pay their rental deposits using the using the cryptocurrency, bitcoin.
“We currently accept bitcoin against our £500 tenancy deposits” explains Jon Taylor, The Collective’s Head of Technology.
“Our members can pay this at the point of booking, using an integrated service called BitPay. This ‘spot converts’ the incoming bitcoin into pounds sterling. Then, as normal the money is transferred and held in a Government approved assured tenancy deposits protection scheme. When a resident moves out, the funds are then converted back into bitcoin, and the deposit is returned to them, at the current market rate”, he said.
So, what inspired the team at The Collective to introduce bitcoin as another method of payment last year?
“Real life applications for cryptocurrency are currently pretty limited, especially when it comes to lifestyle fundamentals such as paying your rent”, explains Jon.
“We felt that Bitcoin payments would be an interesting experiment. The Collective has an in-house technology team, who all share a passion for blockchain technology and how it can applied within the real estate sector. As we continue to expand globally, enabling Bitcoin may allow us to provide members with a truly global payment method, should they choose to live and work transiently across our international locations”.
Launched in 2009, bitcoin is an entirely virtual currency, and it allows users to send money over the internet. Each bitcoin is effectively a computer file, which is stored in a ‘digital wallet’ application, either on a computer or on a smartphone.
“Bitcoin is different to standard currencies, in that it is a peer-to-peer currency”, explains Dr Naseem Naqvi, co-founder of the British Blockchain Association, an organisation set up last year to educate people about cryptocurrency.
“Bitcoin is a decentralized currency, which means that it is not controlled by a Government. Each bitcoin transaction is recorded on a public list, called the blockchain, using anonymised strings of numbers to identify it. There are several different bitcoin wallet and exchange providers, with the most popular being Coinbase”.
So how could landlords and letting agents benefit from using bitcoin?
“Landlords could find bitcoin beneficial if they rent to international students, because sometimes international bank transactions can be quite slow” says Dr Naqvi.
“In practice, it would work by me as the landlord giving my tenant my wallet address for them to then may me their deposit or rent. Bitcoin is an instant payment method, it gives people yet another payment option. Cryptocurrencies are a faster and cheaper way to pay for things, as the only thing that is paid is transaction fee”.
As well as accepting deposits in bitcoin, The Collective is planning to accept rental payments from tenants in the cryptocurrency later on this year.
So, is there a catch to all this? In short, yes, and quite a big one.
At the time of going to print, no one has actually paid their deposit using bitcoin at The Collective, though there have been many enquires. Jon remains hopeful. He said: “The most telling time will be this summer when, as is true of the wider London property rental market, we typically see a spike in the number of new members signing up, so hopefully it’ll be a chance to witness the first Bitcoin payment at The Collective”.
What is demand like for bitcoin?
While exact figures are difficult to establish, it is estimated that there are approximately over 28 million bitcoin wallets in the world.
The value of the virtual currency rocketed last year, but crashed at the start of 2018. It is this unstable market that makes Danielle Cullen, Managing Director at Student Tenant.com, is cautious about using the cryptocurrency.
She says that last year she was excited about the potential of bitcoin. However, recent changes in the market have now made her hesitant. She said: “Bitcoin has the potential to be used for taking rents and deposits, but for us to use it in our business we’d have to be sure of three things. Ease of use, demand and stability of the market”.
“A lot of regulation around bitcoin has come in since Christmas, and while that’s not necessarily a bad thing it has meant that the value of bitcoin has fluctuated significantly, and the market isn’t looking very stable right now. So for the moment we have parked plans to introduce it as a means of payment for now, but we will for sure be keeping an eye on it and on the market in the future”.
Danielle has reason to be wary. Five years ago, Umega Lettings, based in Edinburgh announced they were accepting payment in bitcoin for holding deposits. They introduced this option in order to offer international students another way to pay, because they found international bank transfers tended to be slow.
RPI contacted Umega Lettings to find out about how popular the option of paying in bitcoin had been, and they informed us that they no longer offer the option of paying in bitcoin any more, due to the poor response they had from landlords.
Bitcoin may be a convenient way to pay for some, but it has also faced controversy in recent years. Statistics from Action Fraud make for shocking reading. Crimes linked to bitcoin increased from 320 in in 2016 to 999 in 2017. That’s a 212% increase.
“One risk with using bitcoin is that because it is a peer to peer electronic cash system that does not involve a bank or a central authority, transactions can not be reversed” explains Dr Naqvi. “Bitcoin is a technology, and just like any other technology and even traditional cash, it can be used to do good and bad things”.
The UK Government has taken steps to address these startling statistics, launching a ‘Cryptoassets Task Force’ was formed earlier this year, a collaboration between the Government, the Bank of England and the Financial Conduct Authority.
What is the future of bitcoin in the private rented sector?
Opinion as to whether bitcoin has a future in the industry is divided. Over the next few years, could we be seeing more tenants paying their rent in bitcoin-or is it all ‘a bit’ of a fad?
Dr Naqvi’s message is simple: “I can see more landlords using bitcoin in the future” says Dr Naqvi. “It all comes down to education, so if a landlord doesn’t really know what bitcoin is, then they would probably be reluctant to use it. But as a landlord if you already use it or perhaps have friends that use it, then you’ll be much more likely to use it yourself. If landlords or letting agents are considering using cryptocurrency, I would first urge them to do as much homework as they can on it”.
The technical ‘bit’-how does it all work?
In simple terms, you can send Bitcoins to other people, and people can also send Bitcoins to you, direct to something called your ‘digital wallet’. A digital wallet is a software programme, which stores the balance of bitcoins and the user’s bitcoin address. Like other currencies, the price of bitcoin is determined by the amount that people are willing to pay for it, meaning that it can fluctuate.
Cryptocurrency: A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Bitcoin: A type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Blockchain: According to the website Investopedia, A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping.
Digital wallet A digital wallet is an electronic device or online service that allows an individual to make electronic transactions. This can include purchasing items on-line with a computer or using a smartphone to purchase something at a store. An individual’s bank account can also be linked to the digital wallet.
‘Mining’: According to the website Investopedia, Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released. Anyone with access to the internet and suitable hardware can participate in mining.