Purchasing a property with cryptocurrency may sound as strange as showing up to auction with a briefcase full of cash. However, cryptocurrency is already being used to purchase property in Australia, with savvy vendors taking the gamble in hopes of a significant pay-off down the track. The phenomenon of cryptocurrency has seen a meteoric rise over recent years and is showing no signs of slowing down. A recent survey found that as many as one in six Australians have invested in cryptocurrencies. Even conventional banking providers are getting on board the trend of digital currencies, with the Commonwealth Bank announcing in November of 2021 that customers could use the CBA app to facilitate crypto trading, a first for an Australian bank.

But what is cryptocurrency? And what are the benefits and risks to purchasing a home using only what you might find in your digital wallet?

 The Rise of Cryptocurrency

Traditional government-backed currencies (or ‘fiat currencies’) such as the Australian Dollar, are centralised, meaning the bank acts like a middleman between parties to record any movement of money that takes place and, by keeping this central ledger, prevent fraudulent transactions from occurring. Fiat currencies have, to date, been the dominant form of currency due to their durability and relative stability.

Cryptocurrency (such as Bitcoin, Ethereum, and the infamous Dogecoin) is It is a decentralised form of currency that is not backed by any government and exists only in digital form. Because it is decentralised, cryptocurrencies are not dependent on banks to record transactions or act as a middleman. Crypto moves ‘peer-to-peer’, and these transactions are  transmitted to, validated by, and recorded on not one, but thousands of identical networked databases (called blockchains) hosted on computers located all over the world. Because transactions are recorded in a multitude of places, crypto is considered a secure form of currency as in order to commit fraud, you would have to change data on not one, but virtually countless computers across the world.

Each transaction is recorded in a ‘block’. Once legitimised by the network, the block is added onto a chain of other blocks; ergo the name, blockchain. The only identifying information recorded on a block is your “crypto address”, typically just a string of digits. A person can hold an unlimited number of crypto addresses, and it is possible to create new addresses without sharing any personal identifying information, which is why cryptocurrency has the reputation of being almost completely anonymous and very difficult to trace.

Crypto has something of a sordid history, having seen both staggering gains and losses since it’s conception.  The currency that has made a lucky few into overnight millionaires with skyrocketing values has left others facing devastating loses. There’s no denying that crypto is widely considered a highly volatile investment, not to mention cryptos reputation as the currency of choice for cybercriminals, due to its globally accessible, decentralised, and largely anonymous nature.

The pros of buying or selling with cryptocurrency

Cryptocurrency is a digital asset that exists only as numbers on a database. A property is a very real physical thing that can stop you from getting wet when it rains. The obvious upside to swapping your cryptocurrency for real estate is exactly that swap from a virtual asset to an asset that is real; or in terms of investment, from a highly volatile asset, to one that is traditionally considered a safe bet. A lucky purchaser could also see a major return on their initial investment if the massive rise and fall of cryptocurrency’s value works out in their favour. Likewise, a vendor who accepts cryptocurrency could also benefit hugely if the market swings in their favour and crypto prices surge upwards.

But what’s the catch?

It goes without saying that the potential benefits to buying or selling a property for cryptocurrency most certainly work the other way too. A vendor who exchanges a property for bitcoin and then sees the price plummet could be facing loses into the millions of dollars. And purchasers may also find the return on their investment has an edge and could be staring down the barrel of a hefty bill in the form of capital gains tax.

The volatility of cryptocurrencies means that the price being offered in the beginning could have a wildly different value by the time settlement comes around. Vendors and purchasers will have to determine between them whether the amount of bitcoin being exchanged is fixed (for example, accepting 65 bitcoins for your house), or calculated based off the dollar value of the property (for example, a property that might sell for $1,000,000 AUD could equate to anywhere from 65-1000 bitcoins at any given moment, depending on the market). Understandably, either scenario could spell potential disaster for either party.

Logistically, purchasing a property with crypto presents something of a puzzle, with details such as paying a deposit, in what form, and to whom; taking out or discharging a mortgage; even calculating your stamp duty, all being something of a grey area.

The environmental impact of digital assets

For those trying to go green, purchasing with cryptocurrency could have the unintended side effect of contributing significantly to your carbon footprint. Remember that decentralised network of thousands of computers across the world? Every one of those computers take an enormous amount of energy to run, and each crypto transaction that takes place causes activity on every single one of those connected databases to validate and record the transaction. One of the major criticisms of cryptocurrency and other digital assets such as NFTs (non-fungible tokens) is the huge environmental impact. For example, a single transaction using bitcoin (presently the most common and popular type of cryptocurrency) can generate half a ton of CO2.  The second most popular cryptocurrency, Ethereum, produces over 40kg of CO2 per transaction. To counter the annual effects of CO2 production by just the two most common forms of cryptocurrency, more than 380 million trees would have to be planted. While other forms of cryptocurrency can have a lesser environmental impact, the challenge there is whether the value of these currencies makes the investment worthwhile.

Cryptocurrency is an asset that shows no signs of going anywhere, and it’s looking more and more likely that these digital currencies are going to become increasingly visible in our day to day lives and purchasers. Property is no exception, and even with some of the details still being ironed out, across the world these exchanges are only going to become more commonplace.

Nothing in this article is intended to be taken as financial advice. You should always seek financial advice from a registered financial advisor prior and with full consideration of your own personal circumstances.