Blockchain technology is said to offer an easier, safer and faster way to buy, sell and let property in the future. We have examined the strength of this claim, ahead of this month’s London Blockchain Week. What is Blockchain? Blockchain is best known as the technology behind the digital currency Bitcoin. In fact, Bitcoin is only one of about seven hundred applications that use the blockchain operating system today. Essentially, the Blockchain is a database that maintains a continuously-growing list of records / transactions known as “blocks”. The database is supposedly unpenetrable to hackers, making blockchain a safe way of exchanging money and assets. Until recently, most attention has been focused on the potential for blockchain in the world of banking. Last year the Bank of England launched a project to explore how blockchain can be used in central banking and venture capital funds have poured hundreds of millions into the development of the technology. Now, support is also growing for the possibilities that blockchain holds for the property industry and the idea that “smart contracts” – a blockchain based technology – might be used for the sale and letting of property. Blockchaintechnologies.com defines smart contracts as “computer programs that act as agreements where the terms can be preprogrammed with the ability to self-execute and self-enforce...” Property transactions could in future follow these specific coded instructions, becoming more automated and streamlined. What are the benefits of Blockchain transactions?
- Speed: In theory, the Blockchain will give every property a corresponding digital address, containing all of the information (legal, financial, physical) necessary for a buyer and seller to progress quickly through to the exchange of contracts and reducing the need for middlemen.To enable the conveyance of property by smart contract, every “coin” in the Blockchain would represent a unique house or piece of land. The transfer of a property would then be just like any other transaction using digital currency.Here the buyer would agree to pay the seller a specified amount in virtual currency. On payment, the seller’s title to the property would be automatically transferred to the buyer, by coin. The transaction would happen instantaneously, eliminating cumbersome completion mechanics.
- Transparency: One of the key benefits of blockchain is that everyone involved (i.e the buyer and seller, or landlord and tenant) can trust a shared, transparent record of information and timestamped events. The record cannot be altered without the consent of all parties. Additionally, the nature of a smart contract is that there is no risk of one party refusing to perform their side of the bargain. This in turn could lead to a reduction in property fraud.
- Reducing the risk of fraud: Property fraud continues to become more widespread and sophisticated. Homeowners are at risk of having their identity stolen by fraudsters who attempt to sell or remortgage their property without the owner’s knowledge. This issue is now being tackled at government level - see for example the Land Registry’s new free Property Alert service which allows homeowners of registered property to be alerted when activity occurs on their monitored properties, so they can take action if necessary. Blockchain, with its digital ownership certificates, is said by some to represent the holy grail of a world without property fraud.
What next? Blockchain is clearly no passing fad. Countries including Sweden have begun work on projects to implement blockchain land registries; it is a technology that governments and big corporates alike are taking very seriously. However, the technology – particularly its security - will need to be rigorously tested and regulations put in place if it is ever going to become mainstream in the property world. Contract law will not disappear and there will inevitably be difficulties in the interpretation and enforcement of these new agreements. If the purpose of a smart contract is to reduce the need for human involvement, then we wonder if people will ever be willing to cede control of such important transactions to a more automated system.