Land registries should shift to blockchain technology | Opinion

There are a lot of ideas about the use of blockchain technology in real estate. However, a frequently overlooked aspect is the land registry. The bold claim that real estate tokenization will disrupt the industry essentially boils down to securitization via security tokens. Although such ideas hold merit, I found them to be lacking in perspective and not as disruptive as proclaimed. 

My PhD research was devoted to developing a next-generation land registry system. I introduced the concept of the “title token,” a new class of asset that, unlike security tokens, serves as an actual record of ownership. Blockchain technology, at its core, functions as a type of database. Therefore, instead of maintaining title records in a traditional land registry—whether on paper or electronically—blockchain can manage this more effectively, as I will explain further in this article.

Why not “permissioned”?

To address why the next-generation property registry system should utilize blockchain technology, it is essential to clarify some misconceptions about this technology and then highlight its transformative features.

Firstly, the category of distributed ledger technologies, broadly labeled as “permissioned” and “private” ledgers, does not align with the original definition of blockchains as per rigorous academic standards. More importantly, beyond this terminological distinction, permissioned ledgers cannot guarantee data immutability. And immutability is a critical game-changing feature of the blockchain.

Not every chain of blocks is the blockchain

The method of creating timestamped blocks of data interconnected by hashes was introduced by Haber and Stornetta in 1991. This method does not aim to protect the data but to verify its authenticity, and there is no evidence it was ever referred to as “blockchain.” This term appears to have first emerged among the developers of Bitcoin and its mastermind, Satoshi Nakamoto. Nakamoto’s paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” proposed using Haber and Stornetta’s method as one of the components of his technology. By combining this with a decentralized consensus mechanism, he devised a method to operate it within a distributed network. This is what gained the term “blockchain.”

Today, with a variety of consensus mechanisms and approaches to distributed ledger creation, blockchain can be defined as a digital ledger with a native unit of account (cryptocurrency) and data storage capabilities. It operates in a distributed network with an open, competitive, decentralized consensus mechanism.

Permissioned cartel DLTs are not immutable

Permissioned distributed ledgers, including private ones as a subset, lack the feature of free open competition. In fact, they represent the opposite; these ledgers operate under the centralized authority of a controlling node or nodes. In collective governance scenarios (involving more than one node), they may employ a decentralized consensus mechanism to some extent, but this only applies within the closed group of member nodes. Effectively, they act as a centralized system for the outside world and resemble a cartel. Therefore, not every chain of blocks constitutes a blockchain, although every blockchain and distributed ledger utilizes the method of block chaining.

These terminological distinctions might seem pedantic and relevant only for theoretical discussions; however, they are crucial for understanding the broader implications. As permissioned ledgers lack the crucial feature of immutability, they cannot guarantee that data will not be altered. The controlling node or nodes, acting as a cartel, have all the privileges of a network administrator, controlling access and potentially altering data by rewriting or even deleting the chain if necessary. From this perspective, it does not fundamentally differ from any other centralized technology. The term “blockchain” is often misapplied to various ledger technologies, creating a false perception of exceptional data security.

The fundamental advantage of blockchain is its ability to ensure data immutability. Immutability means that no one, including those responsible for the registry, can alter past transactions and stored data for any reason. No other feature of the blockchain is decisive for upgrading land registry systems, as no other technology in the history of humankind could ensure this. For instance, Bitcoin has operated without compromises for over 15 years, a claim that no other public system can make. The frequent news of data breaches involving major companies underscores (Google, Facebook, Twitter, Amazon, Visa, Mastercard, you name it) the superior security of blockchain technology.

What does the land registry do?

So, why is it crucial to secure data in publicly accessible digital storage? Let’s first consider the primary function of a land authority. If Alice and Bob execute a title deed and one of them loses or tampers with her document, they might dispute the authenticity of their contract. They need a third party to independently store their document as the source of truth, which is the minimum role of the registry authority in any country. 

Before blockchain, to secure this function, the registry body had to physically maintain the relevant infrastructure, such as an archive building with racks and folders for the paper registry of the past or a data center operating a database with the respective software. Either technology was vulnerable, and data corruption or loss could be irreversible. Thus, it required highly limited access by those who could administer the system and make records. 

Registration meant restricting this function to authorized individuals like registrars or notaries. In contrast, blockchain allows registries to be maintained electronically without such vulnerabilities, enabling practically an unlimited number of users to make direct entries themselves on a blockchain-enabled registry without the threat of crashing the database. This applies only to blockchain, not to permissioned DLTs. The latter, being publicly exposed, would not be able to withstand severe denial-of-service attacks (DDoS) and the like; the loss of data is as much a threat as with other older technologies.

How will blockchain transform real estate transactions and registration?

The old system requires the separation of two acts: committing to a deal and then registering it. In the first act, the parties involved sign their agreement (the title deed). Then, in the second act, they bring it to the registrar to make an official record of their deed in the registry, which serves as the source of truth about who owns what.

In many countries, statute laws establish that the moment of title conveyance is considered to occur when the deed is registered by an official body. The parties are not allowed to make the record in the registry themselves, as explained above, because the centralized technology is simply fragile enough to let that happen. Blockchain represents a game changer because, for the first time in history, it can serve as an impartial source of truth without the oversight of the registry authority. This means that the two separate acts—agreement and registration—can merge into a single blockchain transaction. A transaction executed within the algorithms of a smart contract, once published on the blockchain, serves as a definitive registry record.

Maintaining infrastructure is not the only function of the land authority. Registration in many countries involves more than just recording whatever the parties bring to the land office. It requires verification of the deal, and in some countries, the deal must be examined by a notary. To achieve independence from third parties would mean automating all these functions. Only then can we fully unlock the advantages of programmable relations through smart contracts that enable DAOs, defi, and other facets of the Digital Economy.

The bad news for those who believe in total disintermediation is that we will still need the registrar. It appears there are plenty of situations where a third authoritative party is necessary, such as to resolve disputes (hence, the registrar might need to execute a court ruling), in cases of inheritance, or loss of private keys (crypto wallet), when the owner or successor cannot gain access. The land registry application, which I refer to as Blockchain Estate Registry, needs to be designed in a way that provides administrative access to ensure the rule of law. Yet, I estimate that nine out of ten real estate transactions will not require any direct participation from the land authority, as registration will become a seamless and automatic procedure.

Summary

In summary, traditional land systems cannot fully embrace the innovative potential of the emerging digital economy, with its DAOs, dApps, defi, and so forth, as they are vulnerable and dependent on the supervision of land authorities and other intermediaries, which become bottlenecks for progress. Blockchain technology addresses this by securing data in a decentralized, open public infrastructure, mitigating the risk of irreversible loss in property registries, and paving the way for automating intermediary functions.

The concept of the Blockchain Estate Registry illustrates this shift, proposing a system where most transactions can be automatically verified and registered without human intervention. It is important to note, however, that blockchain does not inherently guarantee immutability; this is contingent upon the network’s scale. Smaller networks may be susceptible to certain types of attacks, whereas larger, more established networks are typically more resilient. Therefore, for public registries, the choice of blockchain should favor those with a longstanding history and substantial community. 

Nevertheless, I advocate for the adoption of a multi-chain system through a cross-blockchain protocol. This approach addresses common concerns related to blockchain technology, such as bandwidth, scalability, transaction speed, and cost, making it a viable solution for public property registries. This topic merits further discussion.