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Real Estate Registry on Blockchain: Promise Land or Wishful Thinking?

Researcher from RMIT explains why startups will fail to fulfil their promises to disrupt real estate with blockchain.

Why have blockchain pilots in real estate abated somewhat? Those projects bump up against the fundamental inconsistency of blockchain and existing state system, and it seems they cannot confessed to this.

First, there is no such thing as the use of blockchain for real estate. There are plenty of different concepts and ideas, and as you will find below, some of them are useless. And when you consider probably the most ultimate idea — i.e., a title token — you understand that none of the existing projects could offer a complex solution to address issues with inheritance, lost private keys, co-ownership, delegation of rights and a bunch of legal issues that arise from blockchain immutability. The only scenario you can find is permissioned decentralized ledger technology (DLT), which is just yet another centralized technology — or blockchain with “smart” applications on top but which are centralized in their core design. These issues remain unnoticed in blockchainization buzz. Let’s go through known projects and bust their myths.

Honduras

The first news of the use of blockchain for cadastral registry proliferated as a gospel in 2015 from Honduras with the help of Epigraph and Factom Inc. Being referred to by many enthusiasts for a long time, the project itself was never kicked off. And here we find the first fundamental constraint, though not a technological one:

Highly corrupt countries could significantly benefit from blockchain — a temper-proof, transparent, public and decentralized database; but they won’t until kleptocratic regimes run their countries.

Chromaway

Chromaway was founded in Sweden in 2014, giving hope of disrupting the old-fashioned centralized and bureaucratized real estate cadastre. In a YouTube demonstration in 2019, the team showed their centralized DLT platform, “Chromopolis” (which is not a blockchain like any other permissioned DLT platform), and revealed a lab prototype app for title deeds. The app requires government clerks and brokers to “bless” transactions between counterparties. And here is unveiled the second most significant misconception. In general, the problem of the architecture of such systems is that records have legal force only when they are stored in the closed governmental database, all peer-to-peer transactions on the blockchain between parties make no sense, as far the last word is on the side of the one who controls the central registry:

A centralized system is an antipode to uncensored distributed public technology of blockchain. Any attempts to make friends with these two, in which centralization reserves a leading role, are doomed to failure because the blockchain loses all benefits.

Without shifting from centralized to distributed architecture, any attempts of disruption turn into mimicking the existing system. In fact, nothing more happens than digitizing bureaucracy and middlemen. However, Chromaway teaches us another lesson: Over five years, the project did not succeed in introducing a working system at the state level but announces, from time to time, new phases of its development. The problem here is:

Prosperous and highly developed societies often fail to find reasons to change the existing system. What for, if it works, though imperfect?

It must make extraordinary sense for changes, especially at the scale of a whole country. And it is clear that the Swedish government has no incentive to let go of its monopoly on political power over centralized cadastral registry. To add, Chromaway, during its initial coin offering (ICO) in August 2018, wrote in its white paper that it is going to develop the DLT network and will keep centralized control over it and promised to decentralize it in the future. It was also revealing that its white paper articulated no direct plans in real estate and cadastral registry. Therefore, it leaves little hope that the real estate revolution is coming from Chromaway.

Dhana, Bitfury and others

Bitland has been in Ghana since 2014, and the project has never delivered its objectives to “register land and real property ownership and use rights” using blockchain. Propy Inc., during its ICO in 2017, stated that its far-reaching plans were to disrupt the industry by eliminating third parties with a global real estate supermarket on the blockchain driven by smart contracts. However, its supermarket, at this stage, looks like yet another real estate broker’s platform that has no relation to any land title registry. And this is very convenient, as it can always say that it had never promised disruption at this phase. The demo of the project gives some hope for the future, though it is not accessible for public online registration.

REX, founded in the United States in 2016, promised a new multiple listing system (MLS) standard for real estate brokers, ending up with the Imbrex online ad listing protocol for brokers and landlords — and, if we forget about the high-level idea to get rid of the enormous amount of middlemen in real estate, it looks like a success. 

Velox.re demonstrated in Cook County, Chicago how hashing on a blockchain could imitate a real cadastral entry but ceased its activities in this direction. Bitfury launched its centralized DLT based on the Exomun DLT framework in the Republic of Georgia and Ukraine. The project purposed to hash records of the real estate database on Exomun. Some professionals suppose that its impact at the security level of the government-owned land registry is inconspicuous. Notwithstanding, we need to give credit to Bitfury because it has never aimed to de-bureaucratize the domain and reduce middlemen.

Related: Wine, Mountains, and Mining Rigs: Georgia as a Crypto Powerhouse

How did the revolution come tumbling down?

To explain why the mentioned projects failed to revolutionize real estate (some did not even promise that, but many believed in it because they used the magic word “blockchain”), we should clarify the most important conceptual inconsistency of the blockchain and traditional legal system.

The problem is the immutability of blockchain records. One may say this is an advantage, but the current paradigm stands on the centralized hierarchical model.

The last 2,000 years since Roman law appeared, people developed lots of legal doctrines to protect property rights. All of them have been based on an imperfect nature of people’s relationships and the need to fix problems when they arise. Blockchain appeared ill-prepared to deal with the theory of law and state — and actually, nobody designed the technology with these prerequisites. Or perhaps we should change the theory to fit the blockchain? Tough question, isn’t it?

High-level ideas recently discussed in the industry and academia do not answer the main question: How exactly can blockchain technology be applied? When these scenarios are analyzed, it becomes clear that there is no single use of blockchain for real estate but an array of bold ideas.

Anyway, in general, blockchain beyond cryptocurrency can be used to: 

  • Insert arbitrary user’s data (for example, hashes).
  • Create tokens.
  • Manage tokens with smart contract.
  • Develop so-called decentralized applications (DApps).

Related: Blockchain-for-Land: What We Are Getting Wrong and How to Fix It

Hashing cadastral records

First of all, this is not about disrupting bureaucracy but about information technology security. And the use of studied pilots in Georgia and Ukraine with Bitfury is questionable. The real estate registries in both countries remained centralized and closed. If the cadastral database with title records is not open — and whatever hash value thereof is inserted in the blockchain/DLT — then it does not secure the record itself. The reason why is that the record can still be tampered with while it stays in someone’s hands. When the record is tampered with, the hash from such a fake record can also be published on the blockchain as well — and then revealed as legitimate. Moreover, in these pilots, so-called “blockchains” appeared not to be a blockchain but a centralized and closed DLT, known as Exonum.

Even if we consider here the use of a real public blockchain, we will have another problem: How do we know which record is authorized? Transactions on the blockchain are pseudonymous and uncensored — so, anyone can make any records, including fake ones. We need a layer of authentication. Someone centrally will identify and authorize state-owned blockchain addresses, from which records are published. And then, another centralized, off-chain system will track the blockchain to filter and collect a white list of correct hashes, which are considered to be made by authorized clerks. Having such a level of centralization, this approach can barely compete in terms of security with existing governmental databases.

Hashing records of deeds

Let’s say a buyer and seller came to an agreement expressed in an electronic file, its hash was published on the blockchain, and we consider it as a deed.

The first issue is the authentication of the parties: How do we know that it was Alice and Bob who hashed this record in the blockchain? We can use here something that we know as Public Key Infrastructure (PKI) with trust ID services. This means they will deal with a trusted third party that creates and manages digital identities: Certificate Authorities (CA) or Trust Service Providers (TSP) in the U.S. and European Union respectively (other counties replicate these models). For example, in the EU, this system is well-developed (see, for example, Estonian e-Residency) and allows remote authentication of users; however, this is very regulated and bureaucratized.

One may ask: What if Alice and Bob identify themselves without trusted third parties? Yes, they can deal remotely if they trust their remote identities. The problem is that the government does not trust them. No government will allow anonymous and fake IDs because of two main reasons: money laundering and terrorism financing.

But if conventional PKI is used, then why do we need blockchain at all? The parties will remotely sign the e-deed with their digital signatures, issued by CA/TSP. If you trust the cryptography of blockchain, then there is no reason not to trust PKI, which is based on the same.

Besides technological discussion, here appears a legal issue: How is it possible to acknowledge an e-deed? A town clerk (a notary, a registrar, a title company or whoever is responsible for that in a certain state) must also apply its digital signature. For many countries, such a deed would be so innovative that it would require new regulations. Therefore, when startups promise to disrupt real estate and forget to mention that they need to change the legislation, they are cheating or are just premature. 

Even though we legitimized electronic contracts, there is still the system of a state-owned database. So, you end up with the registration of this deed that is made by a town clerk (notary, title company, etc.). So where is the advantage of the blockchain? Therefore, not shallow but significant changes are required in the whole paradigm. 

Smart contracts with title tokens

While the idea is very broad, let’s shrink it to a typical, possible scenario. One party has a token that represents a land title, and another party has some cryptocurrency. 

The smart contract is designed to perform an atomic transaction — i.e., to exchange the token for an agreed amount of cryptocurrency. In this scenario, a notary is excluded (or who is meant to acknowledge the deed in any particular jurisdiction) and the deed, therefore, is not legitimate. 

The second, while titles/deeds live in the central state database this transaction has no legal meaning. This token, as per law, represents nothing, even if the parties want it to be a title. It is clear that new regulations are required to legitimize these relations.

If we assume the government recognized title tokens and such transactions, then what must happen when the landlord dies and does not leave the private key to anyone? Or, if the owner simply loses the key? What if the transaction is disputed by someone whose rights were violated? What if the private key was taken as a result of a crime? How will custody represent rights of a disabled person? Or, how can a judge split the land between divorced spouses? And this is just a small list of possible legal issues that will bump up against the immutability of records and strong cryptography, which won’t allow anyone but the owner of the private key to have access.

Should we consider all transactions always valid, no matter what happens? Then, the landlord and the successors lose their property when the key is lost, and the court ruling to reinstate someone’s title will be useless, as it cannot be enforced.

Reissue a new token? Then, what if the lost key is found or the defeated party in a lawsuit still uses its private key, actuating a transaction with the old token? We will have two tokens that represent one title. Collision with double spending of the same real estate is inevitable. Then what?

Okay, let’s allow anything to happen on the blockchain but treat all these transactions only as evidence, as a source of facts whether they are lawful or not. We will then develop a separate title/deed registry in which we will write a consummation and strike out thereof when something goes wrong.

But don’t we already have such a registry in each country, with regulations and instructions on any possible situation — what we call bureaucracy? Didn’t we want to get rid of that?

It’s clear that people do not like tedious legal procedures, as they cause high transactional costs. We see that disrupting projects should entail legislative changes and true reforms, but for that to happen, a mature concept is required. We will talk about a possible scenario in upcoming publications.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.

Oleksii Konashevych is a Ph.D. fellow in an international program funded by the EU government, Erasmus Mundus Joint International Doctoral Fellow in Law, Science and Technology. Currently, Oleksii is visiting RMIT and collaborates with the Blockchain Innovation Hub, doing his research in the field of the use of blockchain technologies for e-governance and e-democracy. Oleksii works on tokenization of real estate titles, digital IDs, public registries and e-voting on blockchain. Oleksii earned a master degree in law in 2005 and a master degree in economics in 2010. Before academic work, he practiced law in Ukraine for 10 years, holding senior positions. He participated in an initiative that worked on e-democracy reforms and became a co-author of the law on e-petitions, collaborating with the Presidential Administration of Ukraine as a manager of the e-Democracy Group.

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UN Looks to Blockchain to Aid Sustainable Urban Development in Afghanistan

The UN is developing blockchain solutions for development in Afghanistan.

The United Nations is working on blockchain solutions for sustainable urban development in Afghanistan, according to a report from tech news site The Sociable, published on July 2.

Stephane Dujarric, Spokesperson for the UN Secretary-General reportedly told The Sociable that the United Nations Office of Communication and Information Technologies (UN-OICT) is developing blockchain solutions for land records and services transparency as part of the UN’s “City for All” initiative. 

The UN’s “City for All” program began in 2016 with a charter set to continue through 2020 and aims to advance 12 of Afghanistan’s cities, including the capital, Kabul. The initiative anticipates Afghanistan’s population becoming majority urban within the next 15 years. Its three stated priorities are effective land management, strategic urban planning, and improved municipal finance.

The new move to experiment with blockchain technology to solve Afghanistan’s infrastructural challenges is the product of a recent memorandum of understanding between the UN-OICT and UN-Habitat, the latter of which is responsible for technical support on “City for All.”

Per the memorandum, the two offices of the UN are looking to expand collaboration across South Asia and to work on “the development of emerging technology tools and digital platforms for urban design and planning.”

The UN has previously used blockchain in development in such areas as health services in East Africa, as Cointelegraph reported in December 2018, and to establish a blockchain-based credit bureau in Sierra Leone at the UN’s General Assembly in September 2018.

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Blockchain Reality Does Not Match Advertisement, Says World Bank Official

The World Bank has joined the increasing list of entities skeptical over the technology’s potential impact.

The World Bank has become the latest source of criticism over blockchain technology, this time urging caution over its role in land rights, Reuters reported on March 27.

Speaking at the ongoing 20th Annual Conference on Land and Poverty in Washington, D.C. this week, Aanchal Anand, a Land Administration Specialist in the bank’s Global Land and Geospatial Unit, cautioned against the phenomenon informally known as “blockchain hype.”

“Tech can look big and flashy, and like it can solve all our problems … but the Big Mac burger never matches up to the one in the ad,” Reuters quoted her as saying, continuing:

“Sometimes we get lost in the fancy things, but basic tech can deliver the results.”

“There’s a general notion that blockchain is a magic bullet, can save the rainforest or solve world hunger – that’s not true,” Tim Robustelli, a program assistant for New America, a United States thinktank, told the D.C. conference:

“It cannot, for example, make up for sloppy or incomplete data collection.”

Real estate has formed one of the multiple areas blockchain advocates claim are ripe for disruption using some form of the technology.

As Cointelegraph reported, some real-world use cases have emerged, such as the state of Wyoming’s land records trial announced late last year.

For many, however, blockchain still remains a pipedream and its applications in its current state are comparatively limited and unwieldy to implement.

The skepticism came the same week as Bank of America, the financial institution with more blockchain patents than any other, highlighted its off-the-record concerns.

“All of the big tech companies will come and say blockchain, blockchain, blockchain. I say, ‘Show me the use case. You bring me the use case and I’ll try it,’” Catherine Bessant, the bank’s CTO, told CNBC was her private position.

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Sweden's Land Registry Demos Live Transaction on a Blockchain

Sweden’s land registry authority and a group of participating banks, businesses and startups have completed the third phase of an ongoing blockchain pilot.

It was announced Friday that the Lantmäteriet has passed the testing checkpoint with the aid of a number of partners. These include financial firms SBAB Bank and Landshypotek, blockchain startup ChromaWay, tech consultancy Kairos Future, real estate search portal Svensk Fastighetsförmedling, telecom Telai Sverige and IT firm Evry.

The group of companies, in sum, provided different elements that, combined, formed the components of the blockchain pilot. For example, Telia and Evry helped verify a live transaction between a buyer and a seller, according to statements. A live demonstration conducted this week included client-side verification of government-approved digital signatures and the final exporting of necessary legal contracts.

Those involved with the initiative said that the smart contract which facilitated the transaction is compliant with European Union laws and regulations, including the GDPR privacy rules.

ChromaWay chief executive Henrik Hjelte said in a statement that “in a distributed environment such as a blockchain, you cannot have a central server for verifying identities, it all has to be based on signatures and verified by the user.”

Project lead Jörgen Modin added:

“Although the project uses centralized ID services, that is those approved by the government, in a blockchain environment these signatures must be put under the same scrutiny as everything else, and hence we do verify in each and every client all the way up to the root certificate.”

The project began early last year, when the Lantmäteriet authorized the partnership with ChromaWay and other firms to explore how private blockchains can carry out property transactions, as previously reported by CoinDesk.

Photo of demonstration courtesy of ChromaWay

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Swedish Government Land Registry Soon To Conduct First Blockchain Property Transaction

Sweden’s land-ownership authority, the Lantmäteriet, is soon expected to conduct their first Blockchain technology property transaction after two years of testing, the Wall Street Journal (WSJ) reported Wendesday, Mar. 7.

Lantmäteriet is currently shortlisting volunteers to participate in buying and selling property on its own Blockchain-based platform. Mats Snäll, Lantmäteriet’s chief digital officer, told the WSJ that “from the technology point of view, we are quite ready.”

Lantmäteriet first started testing Blockchain technology in 2016, completing their second stage of trials in March 2017. By July 2017, the Swedish land registry was using Blockchain to register land and properties on the Swedish Blockchain startup ChromaWay’s private Blockchain network, albeit on a “small scale,” according to Snäll.

Besides ChromaWay, the Lantmäteriet has partnered with with telecom company Telia Co. AB and consulting firm Kairos Future for the Blockchain real estate development project, the WSJ reports.

Even though according to the WSJ the Lantmäteriet already functions in a “highly digitized and paperless” system, the time from signing a contract to registering a sale can take between three to six months.

With the Blockchain system, “it could be hours,” Jörgen Modin, chief solutions architect at ChromaWay, tells the WSJ. Modin added that the buyer and seller don’t even have to be located in the country for the deal to go through.

The WSJ reports that there are still obstacles to overcome in Sweden before Blockchain can be adopted on a wide scale for real estate dealings, namely that digital signatures for registering or purchasing properties are currently illegal under Swedish law.

In September of last year, the US Nasdaq and Swedish bank SEB began testing a Blockchain-based trading platform for mutual funds.

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Bermuda Could Launch a Blockchain Land Registry

Bermuda plans to migrate its property deeds system to the blockchain, its premier said today.

As quoted by The Royal Gazette, premier David Burt remarked during an appearance at the World Economic Forum in Davos that the country was aiming to shift away from its “old school” system of recording deed information.

The Royal Gazette quoted Burt as saying:

“Bermuda has an old school deeds-based property system. What we are going to do is transfer our registry to the blockchain. Clearly it needs to be transparent so people know what’s there and be secure, and that way we know who owns what at any point in time”

Burt reportedly remarked that some segments of Bermuda’s business ecosystem – namely the legal profession – may not be fully supportive of the move. That said, according to the premier, “the thing is to make more efficiencies inside of our economy.”

The development reflects Bermuda’s continued engagement with the blockchain and cryptocurrencies.

In November, the British overseas territory set up a task force seeking to both create an appropriate regulatory environment and to support commerce utilizing these technologies in the hopes of attracting new industry and jobs. The government is also working with organizations such as Ambika Group and the Bermuda Business Development Agency on possible uses of the tech.

Bermuda flag image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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Vermont City Pilots Land Registry Record With Blockchain Startup

The city of South Burlington, Vermont, is trialing a land registration system which uses blockchain as part of a system for recording ownership.

The City Clerk’s Office announced Monday that it was partnering with blockchain startup Propy to store land record management data, according to a press release. The pilot’s aim is to develop a more efficient and secure ledger for real estate transactions with an additional goal of evaluating how well using a blockchain-based platform will reduce the costs of storing land management data when compared to traditional systems.

South Burlington’s City Clerk, Donna Kinville, said the city “is always interested in taking advantage of technology that enhances its delivery of services to residents. We are ready to learn from this Propy pilot.”

The law firm Gravel & Shea, which focuses on the legal aspects of blockchain technology use cases, will also work with South Burlington and Propy on the pilot.

South Burlington is the latest government to look into using a blockchain for land registration. Previously, the Indian state of Andhra Pradesh and the country of Sweden have both announced pilot projects with blockchain startups to trial their own land registration efforts.

The state of Vermont has launched several blockchain initiatives in the past, most recently with a bill proposing the regulation of companies operating or trading in cryptocurrencies. If passed, the bill would have these companies pay a tax of one cent per dollar on every transaction executed by the company.

Last year, the state created a working group to analyze the impact blockchain could have on government operations, with an initial report due last November.

Representatives from South Burlington and Vermont’s Agency for Commerce and Community Development did not immediately respond to requests for comment.

South Burlington map image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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Patrick Byrne Mulls Overstock Sale to Fund New Blockchain Venture

Overstock CEO Patrick Byrne has partnered with a well-known economist on a new blockchain land registry venture – and he may wind up selling the e-commerce giant in order to fund it.

The joint venture between Overstock subsidiary Medici Ventures and Hernando de Soto, named De Soto, Inc., will focus on creating a system for local property records, which will leverage the tech as a way to transfer rights while also incorporating mobile tech and social media elements.

Byrne told the Financial Times that the plan is to launch a pilot system in early 2018, adding that he feels he has “a great moral obligation to refocus my life around this.”

To that end, Byrne indicated that one funding option would be to sell Overstock, either in segments or in its entirety, and use the money as capital for the new venture.

“One of the possibilities is I sell the business and we have all the capital we need,” he said.

According to the FT, advisory firm Guggenheim Partners has been hired to help explore potential options for the sale.

One of the first major online retailers to start accepting bitcoin payments for products, Overstock has since been a notable mover in the blockchain space. The firm began moving several years ago to build its blockchain-powered securities exchange, which it used last year in part to raise $30 million in new funding.

In statements, de Soto positioned the technology behind the new venture as a means to help alleviate poverty. As reported last year, De Soto is also involved in a land registry project involving BitFury and the Georgian government.

“Billions of people have resources that cannot easily be transformed into productive capital. Blockchain is a powerful tool to solve these structural issues, which are some of the principal causes of poverty and conflict,” de Soto said of the new venture.

Patrick Byrne image via CoinDesk archives

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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Russia's Government to Test Blockchain Land Registry System

The Russian government is to begin testing a blockchain-based land registry system early next year.

According to a draft resolution published by the Ministry of Economic Development, the Federal Service for State Registration, Cadastre and Cartography (Rosreetr), the Federal Tax Service and the Government of Moscow will assess the trial through July 1, 2018. The ministry will submit and release a final report on the trial by Sept. 1.

According to the translated document:

“The use of blockchain will be aimed at increasing the availability of information on the property registry, guarantees of protection of property rights, as well as the level of citizens’ trust in the sphere of turnover of real estate.”

The pilot project comes seven months after Prime Minister Dmitry Medvedev asked two government ministries to begin looking into possible public-sector applications of blockchain technology.

He said at the time: “We need to analyze in general, as far as it is applicable in our governance system – and public administration, and in the economy … I instructed the relevant ministries – the Ministry of Communications and the Ministry of Economic Development – to consider the possibility of using these technologies in preparing the program ‘Digital Economy’.”

In a press release, Economic Development Minister Maxim Oreshkin said the high cost of operating Rosreetr made it a top choice for applying new technologies like blockchain.

Russia’s announcement follows a plethora of other national and regional governments announcing their own land-registration projects. Sweden, Ukraine, and the United Kingdom have all launched trials, along with two Brazilian municipalities and the Indian state of Andhra Pradesh.

Russian coat of arms image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.