Blockchain/Bitcoin

Alex Batlin’s Briefing of Crypto 2.0 Musings – Land Registry

by Fintechnews Switzerland April 19, 2016

Alex Batlin – Personal View

Following up his 2 previous musings on “Bitcoin and Money Creation” and “Blockchain Disruption Evaluation”, Alex Batlin is back with another interesting observation on of using blockchains for land registry. Below is Alex’s full post:

Land Registry Privatization

The Guardian’s Land Registry faces privatization article explores the concerns people have about privatization, after 150 years as a state institution, of UK’s land registry – a government agency that documents 24m land and property titles across England and Wales:

• Credibility and access to records could be compromised by profit motive and conflict of interest
• Charges could increase and the public could lose free access to some data
• Who will ensure that your private details won’t be sold on to a third party looking to sell you stone cladding or to pave your driveway
• Do we really want to rely on the private sector to guard the details of what for most people is their most valuable asset?
• Looming privatization may cast a shadow over opening up data on land and property ownership

In short, it is a question of trust in a single private institution to keep a ledger of asset ownership. Sounds remarkably like the same problem Bitcoin solves for money. Start-ups like Chromaway and Factom think so and are proposing ideas about how blockchain technology can be used for land registry.

Blockchain for Real Estate Assets – Self-Sustaining Business Model

The beauty of using blockchains for land registry is the natural existence of a self-sustaining business model. If you care about open data, data credibility or want to perform analytics on the data, well you can become a full node and a miner, earning fees for transaction validation and for gateway access to those who don’t want to run the full node. If you are an occasional user, then you will not mind paying a small fee to the gateway, and if any gateway provider puts up charges too much, market forces will drive others to become full nodes and offer competitive gateway fees.

Land Registry however is only part of the overall real estate buying and selling lifecycle, which is complex, slow and expensive especially when chained (that’s a property not block chain). Due to large sums of money involved, everyone needs to perform adequate due diligence e.g. sellers, buyers and lenders all require valuation surveys, buyers and lenders require land registry, local council, drainage and water, bankruptcy, environment, planning, coal, tin and other mining, flood risk, channel etc. searches and property surveys, and lenders need to perform borrower credit checks. All these searches and surveys require open and trusted data sources i.e. same set of requirements as land registry, and hence candidates for blockchain.

Not only do you need trusted data sources, but you also need to have trust in the performance of the life cycle events e.g. conveyancing. Before completing the legal contract to transfer ownership, both parties often deposit equal money amounts in escrow with a solicitor, to be forfeited by the party that pulls out of the deal. Once contracts have exchanged, mortgage lender may require building insurance to be taken out before completion. Solicitors also ensure that title is only transferred, and encumbered when backed by a mortgage, if money transfers from lender, deposit and buyer’s accounts have completed successfully and are now in sellers, and possibly their lenders accounts, and all third party fees and taxes like stamp duty have also been paid. In some countries, you also need to notarise with a third party all loan contracts.

This is classic smart contact territory, as they can autonomously escrow assets under their own account and only release them if certain conditions are met i.e. atomic swaps for guaranteed delivery of title versus payment. We have already seen companies like Circle gaining e-money licenses, so it is possible to escrow fiat money on blockchain, and if titles are blockchained, then such schemes become feasible. In other words, they can be trusted to perform the orchestration of the entire life cycle. I don’t believe any single proprietary system would be trusted by all the parties for all the reasons cited against privatization of the Land Registry. An open, mutual, neutral and open access solution like blockchain on the other hand mitigates in my opinion such concerns.

Blockchain App Make a New Real Estate Shopping Style

There is also a possibility to improve the entire user experience. Imagine if the prospective purchaser installs an app on the phone and defines the area and type of property they are interested in.

• As they walk, the app notifies them of two nearby matching properties, both look similar but one has all of the recent searches and surveys notarised on the blockchain, so the prospect chooses that one as there is greater purchase assurance.
• They touch a button and through a distributed marketplace the acting estate agents are displayed along with their reputation, the prospect selects their preferred agent, checks if immediate viewing is possible, and if so, especially if property is equipped with a smart lock, takes a look.
• The prospect may have a pre-arranged mortgage and no-property-chain attestations on the blockchain, affording them instantly verified superior bargaining power as they place a bid, and when appropriate the blockchain may even manage a sealed bid process.
• Once the bid is accepted, an AI-assisted solicitor (or as I like thinking of them bionic solicitors), chosen based on their reputation from a distributed marketplace, performs final due diligence on the search and survey results, and if all ok, the blockchain smart contract performs commodity conveyancing steps as well as fee and tax disbursements, and re-programs the smart lock to work only for the new owner!

Entire process now takes days not months, and fees are fractionalized. Smart contracts could also be programmed to have property-chained buy/sell conditions as well. Wow, I wish I had this the last time I bought my house.

Bitcoin of Blockchain is On The Way to Become a Payment Means

Note, many folks are using Bitcoin blockchain and overlay protocols like Colored Coins and Open Assets to manage fiat and title assets. This is very sensible as Bitcoin is at this point the most secure network. There are however a couple of issues. First of all Bitcoin only supports simple smart contracts. Companies like Counterparty and Rootstock are trying to addresses such concerns by integrating EVM (Ethereum) execution on top of Bitcoin blockchain.

The bigger issue is that Bitcoin miners do not need access to the transaction data to mine – all they need to do is guess a number linked to the hash of the block. This means you can have many more mining ASICs (according to some estimates as many as 100,000), which are comparatively cheap to run, versus full nodes (as of today, there are approximately 6970), which are expensive to run – this encourages data centralization, the opposite of what is wanted. Protocols like Ethereum require that the processing unit doing proof of work has  access to the blockchain data to guess the number, hence attempts to avoid data centralization issues.

Source: Images and content from Alex Batlin’s post at https://www.linkedin.com/pulse/crypto-20-musings-land-registry-alex-batlin