In April, 2021, California real estate billionaire Rick Caruso announced his company would begin accepting Bitcoin for rent payments. In March, Morgan Stanley announced it would provide access to Bitcoin funds for wealth management clients, making it the first U.S. bank to do so.
What once seemed like a shady currency meant for the darker parts of the web is now going mainstream. In fact, 16 percent of Americans have invested in cryptocurrencies such as Bitcoin, according to a Pew Research study, and even entire nations are giving it legitimacy.
With Bitcoin and other cryptocurrencies growing in popularity, more real estate investors and property management companies may follow Caruso’s lead, allowing tenants to pay their rent in crypto. In fact, there are already rent apps that make it possible.
It’s easy to feel the pressure to jump on the bandwagon and accept it as an option for rent payments. If your owners or investors are interested in cryptocurrency, or if you’re thinking about getting in on Bitcoin yourself, there are some questions to ask first.
Let’s explore exactly what cryptocurrency is, how it’s used, and what property managers should consider before investing.
What is Cryptocurrency?
Bitcoin is just one many different kinds of cryptocurrency (crypto) out there. Crypto refers to any digital currency that is secured by cryptography using blockchain.
Basically, it’s virtual money held in a network of shared databases that are encrypted not only for security, but also to keep a record of each transaction in a digital timeline.
What Is Blockchain?
Blockchain encryption records data in “blocks” that you can imagine as buckets. When the bucket fills to the top, information flows into the next bucket, and the two buckets are linked in chronological order.
For that reason, blockchain is mainly used to store financial information, such as ledgers and crypto transactions.
It’s also used to execute smart contracts, where an action, such as the release of a security deposit, doesn’t take place until a condition is met, such as an apartment inspection.
When someone invests in crypto, their shares, so to speak, are held in a crypto wallet until the owner converts them into currency such as the U.S. dollar.
Wallets are secure digital storage devices that use both a public key, or address, to which people can send crypto to you, and a private key, or digital code held only by the wallet’s owner.
How Do Crypto Payments Work?
Although it’s referred to as a currency, crypto doesn’t work like dollars or euros at the moment. The only exception to that rule is El Salvador, which has adopted Bitcoin as legal tender.
Crypto currencies such as Bitcoin are actually purchased through exchanges, much like stock. The value of crypto moves up and down like stock, as well.
So how does that work for rent payments?
If a tenant pays rent in crypto, they’re simply transferring some of their shares to you, usually via an app. Through the app, owners or property managers can then convert crypto to dollars.