Can you buy a property with cryptocurrency? More and more people are asking that. Indeed in 2020 a house in Reservoir was sold using Bitcoin. However, real estate transactions are more complex and the current structures for legal tender do not include cryptocurrencies.
What are Cryptocurrencies?
Cryptocurrencies are digital tokens. They are a type of digital currency that allows people to make payments directly to each other through an online system. There are a number of cryptocurrencies – the most well-known of these are Bitcoin and Ether.
Cryptocurrencies have no legislated or intrinsic value. That is the world does not have a universal value for crypto. We understand what a dollar is worth against say a pound. An example of that understanding is that when we travel, we know what our Aussie dollar will buy. Crypto is simply worth what people are willing to pay for them.
While cryptocurrencies can be used to buy and sell things, they are not widely accepted as a means of payment. The Reserve Bank of Australia definitions is used to clarify the distinctions between ‘standard’ and cryptocurrencies.
Means of payment is a recognised way to pay for goods and services. Store of value is whether the purchasing power of cryptocurrencies (their ability to purchase a similar basket of goods and services) be maintained over time. As a unit of account crypto is not standard. In Australia, the prices of goods and services are measured in Australian dollars. Some businesses may accept cryptocurrencies as payment but they are not commonly used to measure and compare prices.
Features of Money: Cryptocurrency
|Means of payment
|Accepted by a small number of retailers and sellers
|Store of value
|Tend to be volatile, depending on the market price
|Unit of account
|Own unit of account
|Typically decentralised, relies on consensus between a large number of entities
|Typically, a large number of competing entities
How to transact
Cryptocurrency does not exist physically as coins or notes, but as digital tokens stored in a digital “wallet”. These digital tokens rely on cryptography and technology such as blockchain for security and other features. Crypto may or may not have an actual asset behind it. The Reserve Bank of Australia’s website explains how cryptocurrency and blockchain technology (including mining) works.
Moneysmart Australia outlines how crypto is transacted. Crypto is kept in a unique digital or software wallet (hot) or hardware (cold) wallet. Each wallet has private keys (unique codes) that authorise transactions on the blockchain network. A hardware wallet stores these private keys on a secure device not connected to the internet. This can protect the wallet from hackers.
A software wallet is held by an individual or by a crypto trading platform on your behalf. This can simplify buying, selling and storing crypto, but is not a regulated service. So, you may not be able to recover the crypto if the trading platform fails.
Using crypto to buy property
As stated, the seller and buyer would have to agree to use the cryptocurrency. Therefore, if you want to use crypto you must:
- Narrow your search to crypto sellers;
- Negotiate and agree to a specified quantity of cryptocurrency or an agreed AUD price paid in cryptocurrency;
- Find a solicitor or conveyancer that works with cryptocurrency;
- Track the trade;
- Consult your accountant about the tax implications of using cryptocurrency to purchase property.
- Transfer an agreed quantity of cryptocurrency, or agree to a current AUD to cryptocurrency exchange price, and transfer the cryptocurrency to the vendor’s designated wallet.
Stamp duty, taxes cryptocurrency volatility and bigger upfront costs have been also cited as issues that need to be addressed. As there are other entities involved in buying and selling property all must be considered when transacting. Also as crypto is nonstandard that generally attracts higher upfront costs from the services associated – solicitors, conveyancers, tax accountants, etc.
Crypto is a relatively new currency and unlike the dollar, crypto is more volatile. As property prices and the entities associated with the property are measured in Australian dollars buying and selling is just a bit more complex.