June 15, 2017
Earlier this month, the Economist described how governments are putting property registries on “the blockchain.” After citing the examples of Georgia and Sweden, they note that Ukraine “wants to become ‘one of the world's leading blockchain nations.' The country's e-governance agency sees the technology as a way to address ‘historic distrust of government,' …[and] has plans for all kinds of blockchain-based registries, including of land and businesses.”
Putting a land registry “on the chain” is anything but a standard process. How will it happen in Ukraine? Context is required to frame a hypothesis. To provide this perspective, we build on our analysis of the political environments in Georgia, Sweden, and Honduras; describing the different approaches in use by the Blockchain firms working there.
In Sweden, Chromaway is working with a variety of partners to put the Swedish registry on a private chain via Esplix, "a smart workflow middleware." They are not radically changing the land registration process. Rather, they are implementing a blockchain-based solution on the back end of a centuries-old registry to get the different parties from realtors to banks to the government to record actions on a private permissioned blockchain shared between the various stakeholders.
In Georgia, Bitfury is aspiring for a more dramatic change. Georgia is using a private permissioned blockchain to keep critical records and then using the public Bitcoin blockchain to publish hashes of essential documents. By hashing a document (which is generating a unique short set of characters based on that data) and posting into a field for extra data (think: memo line on a check) one can use the public Bitcoin blockchain as a notary. Since the chain is ostensibly immutable, once those hashes are published, the document is time stamped. This idea, first suggested in 2012, is not new. Our list of blockchain myths further explores the complementarity of public and private chains.
What will the approach be in Ukraine? Since Bitfury is the partner, will it just be the same as Georgia? Not likely. In both Sweden and Georgia, as we noted, Chromaway and Bitfury are building on incredibly well-designed/recently reformed and sophisticated registries with little corruption. Data from Transparency International and the World Bank, who rank corruption and cadastral practices respectively, support this assertion. We also discussed how a similar effort failed in Honduras and hypothesized that this was because of a high level of corruption as well as a cumbersome land registration process.
Compared to Sweden, Georgia, and Honduras where does the Ukraine fall? Unfortunately, the profile of Ukraine is strikingly similar to that of Honduras both regarding having a cumbersome process, as well as an unenviable level of corruption. TI ranks Ukraine as 131st in the world with a score of 29. The World Bank ranks Ukraine's registration process at 63rd, noting it contains seven procedures, takes 23 days and scores 15.5. (See scores for Sweden, Georgia, and Honduras here.)
Ukraine faces significant challenges including declining population, Russian interference and stop-and-go reforms. Their ongoing change process is less than smooth. If they anticipate that blockchain -- or any technology -- will be a panacea, we are concerned. The following quote from the deputy head of the Ukrainian e-governance agency is not reassuring. He says blockchain’s “novelty and complexity have provided some cover: ‘Most officials don't understand what we're doing, so they don't sense the threat.'" At first glance, this suggests expectations are high. Blockchain can help, but institutions must evolve in parallel and they rarely change quickly. Such thinking also potentially underestimates the nuance and expertise required in dealing with registries. Efforts from Jamaica to Canada illustrate well how much work is involved just in implementing systems, much less using them to address endemic corruption. To get a sense of the complexity in Ukraine, one only to read a World Bank article on land reform from 2016 titled 26 Years of Land Reform: the Glass is Half-Empty or Half-Full. The last paragraph begins with what are strong words from the ranks of the IBRD, “despite 25 years of reforms, a lot has yet to be done. Many of the above reforms are not related to highly politicized issues...and would depend only on the political will of the Parliament and Government…”
There are reasons for cautious optimism that this project will work. First, Bitfury is large and well established. They seem to be progressing in Georgia, they already have a strong presence in Ukraine and we hope would not have made a public announcement unless they had done their homework. Second, Ukraine is a former Soviet Republic, similar to Georgia, there is not a long cadastral history to sort through nor detailed reconciliation required before putting a registering a blockchain. Third, there is no shortage of technical talent in the Ukraine. The most recent study we found indicated that they had the 4th-largest population of programmers after the US, India or Russia. Specifically, Bitfury has offices and significant staff in Ukraine. Those programmers have a strong incentive to improve the quality of their government.
The most compelling reason for optimism is that that are implementing blockchain broadly. If the announcement had been that Ukraine was just putting their registry on the chain – as Honduras did – given the corruption and all that is ‘yet to be done' we would sound the alarm. Since they are looking at all of the government, however, they may succeed. Not only will it allow them to handle the issues of digital identity and payments which are inextricably related to land registries, but it will also afford them time to tackle this challenge. They may well need that time.
Ukraine is one to watch. What Bitfury is attempting to support in Ukraine makes their project in the Republic of Georgia feel like low-hanging fruit. If they succeed, it will be compelling evidence for the transformative power of blockchain for a government. Beyond reducing corruption, the benefits of putting essential services "on the chain" have advantages which do not receive enough attention. For example, Brian Forde's argument for blockchain as a facilitator of open data algorithmic regulation in HBR is compelling. We look forward to hearing more in the months ahead.