Blockchains are best known for keeping track of who owns purely digital currencies like bitcoin, but government agencies and for-profit companies are increasingly exploring how the digital ledgers can be used to track ownership of something very tangible: real estate.
Currently in the United States, land records like deeds, oil-and-gas rights filings, and mortgage documents are housed in more than 3,000 county courthouses and city halls across the country. While some jurisdictions have made certain data searchable online, those digital files are often created through labor-intensive processes, like clerks scanning paper documents submitted by buyers, sellers, and their lawyers.
As a May report from the office of the Cook County Recorder of Deeds in Illinois wrote, “If a record is received over the counter, it is immediately scanned and converted to a digital computer file, and the original is immediately returned to the customer with a physical label placed on it indicating the time and date of receipt and its unique document number.”
Many offices still rely primarily on paper documents, particularly for older records. That can make figuring out who has rights to a particular piece of land cumbersome and even vulnerable to errors or out-and-out fraud. There’s a reason that the U.S. title insurance industry, which insures property owners against defects in ownership records, sees about $17 billion in revenue every year, according to research from analyst firm IBISWorld.
Advocates say blockchains could help cut transaction and record-keeping costs, boost accuracy, and trim the risk of fraud. Blockchain software bundles records of transactions into structures called blocks, where each block contains a cryptographically secure fingerprint of the blocks that have come before it in a growing ledger. The blocks are generally distributed to people across the internet, and the digital fingerprints mean that anyone can catch attempts to tamper with data in previous records. And having the data stored across multiple computers reduces the risk of losing information to disaster or sabotage.
“It can greatly reduce fraud, reduce transaction friction, and cut down on closing costs,” Ragnar Lifthrasir, founder and CEO of the Orange County, California, real estate blockchain startup velox.RE, tells Fast Company via email.
Earlier this year, velox.RE and the Cook County Recorder of Deeds took part in a pilot project exploring how blockchain technology could be used to store property records in the 5.2-million-resident county, which includes Chicago. It’s only one of a number of such tests taking place around the world, exploring how the new technology can be applied to improve the age-old problem of tracking real estate ownership.
“It’s totally critical that a land registry is based on the best technology,” says Henrik Hjelte, CEO of ChromaWay, a Stockholm blockchain startup that completed a pilot earlier this year with the Swedish land registry and a number of banks.
Blockchain is far from the first technology to track land records. The Cook County report points to biblical references to land records protected in earthenware jars, and mathematical historians say much of basic geometry was developed to keep track of land boundaries in the ancient world. The famed medieval Domesday Book was compiled to document land rights in the time of William the Conqueror. More recently, land recording offices in the United States have been early adopters of technology, from photographic copying to microfilm and digital databases.
But while property owners in modern Western democracies more or less take for granted that the ownership of land can be figured out, that’s not necessarily true in other parts of the world. Blockchain proponents frequently point to the work of Peruvian economist Hernando de Soto, who argues that people in many countries suffer when unclear ownership makes it hard to sell or borrow against real estate. And poor documentation can make it easier for corrupt officials to redistribute land to their allies.
“The majority of countries in our world have the following issue: people just losing properties because of someone changing records in a database,” says Valery Vavilov, CEO of blockchain startup BitFury.
BitFury is part of a project in the Republic of Georgia to record new land ownership documents to its Exonum blockchain system, with periodic digital snapshots duplicated to the bitcoin blockchain for added redundancy. Right now, documents are doubly registered on the blockchain and in traditional records systems, but if all goes well, people will be able to actually buy and sell property solely through the blockchain. And while Vavilov says Georgia is currently known for its accurate land records, having data stored on a distributed ledger ideally would make fraudulent land transfers by any corrupt future governments harder.
Even in countries where ownership transfers look different from what we see in the Western world, blockchains may still be useful for tracking records. A startup called Bitland is working on a blockchain pilot program in Kumasi, Ghana, in an area where land transfers generally need to be approved by a local chief and officials from the central government. But recording the final transaction to a blockchain makes it harder for any of those parties to tamper with those records later on, says chief operating officer Elliot Hedman.
“Now the government can’t change it any time they want to. The chief can’t. The person who uploaded the document can’t,” he says. “In this part of the world, double spending, double selling happens all the time.”
The benefits from blockchain technology may not be limited to records traditionally kept by governments: In the United States, sloppy and sometimes dishonest record keeping around mortgages leading up to the 2008 financial crisis led to years of lawsuits between homeowners, banks, and investors who had bought stakes in home loans.
“The investors who bought the loans on the secondary market ended up with products they didn’t expect,” says Peter Kirby, CEO of the Austin-based blockchain startup Factom. “The mortgage industry was a record-keeping nightmare. I think that’s fair to say.”
In March, Factom launched a blockchain-powered data tracking tool called Harmony for the mortgage industry, creating a tamper-proof audit trail for loan-related documents. The system is currently in pilot stage, and the company plans to deploy it with a few clients over the next couple of months, Kirby says.
Putting blockchain solutions for U.S. land ownership into production is likely to take more time, experts say. One challenge is that simply loading new records into the database as they’re created isn’t enough. Before blockchains can fully replace an existing system, someone will have to digitize all the historic records currently gathering dust in the county courthouse basement. Otherwise, anyone verifying the chain of title for a particular property will have to consult both the blockchain and the historic paper records. Another issue is that land records are currently distributed across thousands of jurisdictions and 50 states, and while blockchain technology might ultimately save time and money, state laws and local practices can’t switch systems overnight.
“I do believe that in the fullness of time, we’ll see real estate in the U.S. all recorded and tracked in some distributed ledger system,” says Lewis Cohen, a partner at Hogan Lovells, a law firm that worked on the Cook County pilot. “Realistically, it’s going to take some time to deal with the fact that right now we have 3,200 counties, and even if you take it to the state level, we still have 50 states.”