Feb. 16, 2018
FPR's Director wrote for Distributed Magazine (volume 2, Winter/Spring 2018, pg. 40-41) discussing 3 scenarios for the adoption of blockchain land registries (successful pilot test, spread of e-government, and rental market facilitation), concluding that leasing may be underestimated as a driver of adoption. Here is the full text of his article:
Blockchains in land and property registries have seen significant activity recently, signaling a new era for the real estate industry.
In the country of Georgia, for instance, the blockchain technology company Bitfury has entered the second phase of work on the national property registry, and it announced an ambitious project in Ukraine, employing its Exonum platform in both cases.
In Sweden, ChromaWay is using blockchain technology to implement a “smart workflow” to the centuries-old Swedish registry. Ubitquity is over-hauling two registries in Brazil, and velox.RE has completed a pilot project in Chicago’s Cook County.
Dubai is going even further, announcing it will have its entire government on a blockchain platform by 2020. And these are just the public projects. It’s safe to assume a number of registries are quietly exploring, if not already experi-menting with, blockchains.
Despite these efforts, we are not yet at a tipping point. One important question to ask is: What will it take for blockchains for registries to truly take off? There are three hypotheses to consider, all of which are being tested at the moment.
A Successful Pilot Test (Maybe)
We are hopeful that the Georgia (Bitfury) and Sweden (ChromaWay) pilots will go well, but before everyone races to copy what is being done there, they will need to believe that they have similar circumstances to the registries in question. The in-country context, politics, appetite for change and nuances around a registry are as important as the technical issues. So, while a post–Soviet Republic with a young, relatively clean registry may identify with the pilot in Georgia, and an advanced country with centuries of data, sound systems and high social trust may see itself in Sweden, many countries do not fall into either of these categories. This is why we do not expect this scenario to drivewidespread adoption.
E-Government Spreads (More Likely)
We are seeing this hypothesis being tested in Dubai and Ukraine. Conceptually, this scenario is more likely to succeed given the many points of connection between a registry and society. For example, a digital identity scheme is needed for people to connect to a digital registry. In addition, payments— from taxes to sales — are also inextricably connected to a registry, and the courts engage with property on a myriad of issues. In any case, when an entire government goes on-chain, potential stumbling blocks may instead become accelerators. Given the high level of support and resources involved, we expect Dubai’s pilot to be quickly successful. In the Ukraine, there are different obstacles that must be overcome.
The Rental Market Facilitates Acceptance (Most Likely)
A registry is a critical aspect of society with a considerable number of stakeholders —REALTORS®, judges, lawyers, bankers, notaries, buyers, sellers, developers — few of whom are known as innovative. The few governments (Dubai, Georgia and Ukraine) that have been early adopters represent a small percentage of the global registries. To see widespread adoption, governments will need to overcome resistance to applying new technology to govern the ownership of the largest financial asset of most families.
Applying blockchain technology to rental markets is a more plausible point of entry. The downside is smaller and the upside is greater. If things go wrong in a rental market, causing things like lost payments, losses can be recovered via the established processes and the ownership of an asset will not be put at risk.However, the transaction costs— collecting payments, securing deposits, validating identity and credit — are a greater relative share of the cash flow involved, making the efficiency of blockchains relatively more appealing as a result.
Once blockchain technology is applied to rental markets, citizens, stakeholders and governments will understand that the claims of efficiency, transparency, speed and resilience are more than hype. Using the technology day in and day out will create familiarity essential for widespread adoption.
There are some examples of blockchains being applied to leasing and rental markets. In Australia, two banks that provide guarantees for commercial leases are testing a blockchain solution. In Dubai, the government is planning to start its use of blockchain technology in real estate by registering rental agreements, which is a legal requirement there. And, finally, the city of Rotterdam is using a blockchain to keep track of leases.
While these efforts may not have received the same attention as the efforts around registries, they certainly should. They are likely paving the way for larger projects that will have a better chance to succeed by virtue of the foundation laid.