What is blockchain?
Blockchain is, in essence, a digital database (or ledger) distributed across a network of computers. The records are protected by cryptography and are, therefore, protected against human error, editing and removal (read our introduction to blockchain note for a fuller explanation). The versatility of blockchain means it is being widely considered as a way to manage financial transactions, asset transfers and regulatory obligations. In particular, blockchain is now seen by many as the future of land registration.
Why use blockchain?
Blockchain has been touted as the future of land registries due to the myriad of benefits it offers. Firstly, it has the potential to greatly reduce property fraud at a time when this has become a growing concern for HM Land Registry. Each property would be uniquely coded and linked to a smart key which would be held only by the owner.
Blockchain technology also underpins ‘smart contracts’, which are programmable contracts that self-execute when certain conditions are met, and offer the possibility that transactions could complete much more quickly when combined with a blockchain registry. For instance, title to the property could be transferred to the purchaser automatically on receipt of funds into the vendor’s account. The result would also be to speed up the registration process. With the ledger updating immediately, the registration gap would be eliminated. This, in turn, would also lead to greater efficiencies and cost savings for land registries.
Finally, the use of blockchain to record property transactions could also produce more effective property management as information could be reviewed in real time with less on-going management time required.
HM Land Registry and blockchain
The buzz around blockchain has not been lost on HM Land Registry. It plans to test a live ‘Digital Street’, which will allow property transactions to take place almost instantaneously. This is all part of the UK government’s commitment to make HM Land Registry the “world’s leading land registry for speed, simplicity and an open approach to data“. However, given the technology is relatively young, it is likely to be a matter of years, rather than months, before a blockchain-based registry is adopted in England & Wales.
HM Land Registry is certainly not the first to consider blockchain as a means of recording property transactions. A number of other jurisdictions are already in various stages of exploring blockchain-based land registries:
- Ukraine – the government has entered into a partnership with a blockchain provider, and passed a new law to allow foreign ownership of real estate, in the hope that foreign investment will drive up a market that has fallen by 70 per cent since 2008. The view is that before foreign investors are willing to invest in the Ukraine, it is vital that the state is seen to be modernising and combatting corruption. Blockchain, with its greater transparency and the potential reduction in fraud, is therefore viewed as a vital component of the Ukraine’s intended real estate revival.
- Republic of Georgia has already agreed to use blockchain to validate all government related property transactions. Since its launch in February 2017, Georgia’s blockchain provider has helped implement property registration and has registered more than 100,000 documents.
- Sweden believes blockchain could save the Swedish taxpayer over $100 million by speeding up transactions, reducing paperwork and minimising fraud. This is an example of blockchain being utilised by an already well-established and competent land registry.
- Ghana and various Indian states are also considering blockchain. Despite the examples of Sweden and England & Wales, arguably the greatest benefits are likely to be enjoyed by counties where land holdings have less certain ownership and fraud is more common. However, blockchain will not remove the issue of incorrect data and the requirement for clean inputs. It will be necessary for countries with no central registries to devise a system for agreeing what data is to be entered onto the blockchain.
Hurdles to overcome
A huge amount of information will be stored on a land registry blockchain, Accordingly, it will be vital that blockchain systems comply with relevant data protections laws. It is likely that, as the technology develops, new laws will need to be passed to ensure the proper regulation of blockchains. In particular, the execution of smart contracts and electronic title transfers.
A blockchain registry is also only as good as the data that is inputted. Land registries will also need to give careful consideration to incorrect date entry and the resulting fidelity of the blockchain. Given the complexities of blockchain, it will not be a panacea for all land registration ills.
Finally, the time and cost of adopting blockchain to record land transactions is likely to mean measured progress by land registries in their pursuit of a fully operational blockchain registry.
Blockchain is likely to be adopted by countries with no, or limited, centralised land recording looking to attract external investment by making property ownership more reliable and secure. However, even for those countries with well-established land registries, the potential cost savings and improved speed of transaction is likely to be enough to engage the relevant authorities.
According to a recent survey carried out by IBM, nine in ten governments say they plan to invest in blockchain technology to manage financial transactions, assets and contracts by next year. With the benefits on offer, it is hard to look past blockchain as the future of recording land transactions.
Nonetheless, it is still likely to be a number of years before blockchain is widely adopted by land registries given the various complexities which need to be overcome. The question, therefore, seems to be not if, but when.