The logic is simple and compelling. A strong land registry can mobilise massive capital in developing countries. A national land registry using smart contracts leveraging blockchain technology can be universally trusted. What are we waiting for?
Peruvian economist Hernando de Soto, president of Lima-based think tank, the Institute for Liberty and Democracy, argued that weak property rights result in “ dead capital”, which represents $20 trillion globally. This is particularly true in developing countries, such as Ghana, where it is estimated that 78% of land is not registered at all. It is also crucial for the land registry to be trusted by everyone. Without this, people can’t securely develop plots of land or put them up as collateral because they don’t have clear legal titles. In a world “where ownership of most assets is difficult to trace and validate and is governed by no legally recognizable set of rules,” de Soto wrote, “most assets, in short, are dead capital.”
Blockchain technology functions as a powerful decentralized ledger that records every transaction and stores information on a global network that cannot be interfered with. It offers huge advantages in cost, transparency and reliability, as the records stored in the blockchain are immutable. The blockchain acts as a shared database to provide a secure, single source of truth.
Blockchains in a land registry system will add security so that the data cannot be corrupted, allow real-time audits, and reduce the friction and cost in property rights registration, because people could notarise a property transfer using a “smart contract” with an app on their smart phones (without the need for a notary, who normally is the “trusted” intermediary to register the deed.)
Smart contracts are a next step in the progression of blockchains, used to automatically implement the terms of multiparty agreements. They are pieces of software, not contracts in the legal sense, that extend blockchains’ utility from simply keeping a record of transaction entries to automatically implementing terms of multiparty agreements.The result is a method by which parties can agree upon terms and trust that they will be executed automatically, with reduced risk of error or manipulation. In this case the “smart contract” would be a work flow for the sign-off by the relevant parties in the property transaction, with the resultant automatic registration in the registry.
So what is the state of play? Swedish National Land Survey (Lantmäteriet) have just completed a successful proof of concept together with ChromaWay and mobile operator Telia, and are moving to the next phase. Developing countries who are in process include Georgia, Honduras and Ghana. The National Agency of Public Registry of Georgia has signed with technology company BitFury. Although the system is yet to be fully designed, a pilot is expected by the end of 2016. Honduras are reportedly working with Factom in this off-on project.
The most ambitious is the BitLand project, which has designs on the whole of Africa, and is working on a pilot with the Land Administration Project with 28 communities in Kumasi in southern Ghana. The Land Commission has been working in Ghana for the past 17 years trying to solve the land dispute problem. But corruption and nepotism have plagued every area of the public sector, so that they have had difficulty accomplishing their goals and consolidating the land title tracking system. The blockchain and Decentralised Conglomerate platform will be provided by Danish company, OpenLedger, and the pilot is expected to be up and running in 6-9 months time.
So what are we waiting for? Although it seems an obvious solution, there are a number of implementation challenges, particularly in developing markets. i) The technologies are complex and there is an education process in getting stakeholders on board. The Swedish trial is leading the way and should make it easier for other countries to follow. ii) Governments are effectively ceding direct control of their registries to an “autonomous authority”, although they are able to audit their registry in real time. iii) Infrastructure and connectivity are always an issue. Ghana have long, rolling power blackouts daily which means more expensive infrastructure. Smart phone penetration and LTE network coverage are not where they need to be. iv) Electronic identification and authentication of individuals is a key element. Mobile operators, whom regulators require to positively identify even pre-paid subscribers, or banks with their KYC requirements, could possibly be partners. Telia is providing identification services for the Swedish project.
Empowering people through legal ownership in developing countries will be realised in the coming years.