Disclosure: The views and opinions expressed herein are solely those of the author and do not represent the views and opinions of crypto.news editorial.
There are many ideas for utilizing blockchain technology in real estate. However, an often overlooked aspect is land registration. The bold claim that real estate tokenization will disrupt the industry essentially boils down to securitization through security tokens. I find that such ideas have merit, but lack perspective and are not as destructive as declared.
My PhD research focused on developing the next generation land registration system. I introduced the concept of ‘title tokens’, a new asset class that, unlike security tokens, acts as a record of actual ownership. Blockchain technology basically acts as a kind of database. So, instead of maintaining ownership records in traditional land registries, either on paper or electronically, blockchain can help manage them more effectively. This will be explained in detail in this article.
To explain why the next generation of real estate registration systems should leverage blockchain technology, it is important to clarify some misconceptions about this technology and highlight its innovative features.
First, the categories of distributed ledger technologies broadly categorized as “permissioned” and “private” ledgers are inconsistent with the original definition of blockchain according to rigorous academic standards. More importantly, permissioned ledgers that go beyond this terminological distinction cannot guarantee data immutability. And immutability is a game-changing feature of blockchain.
Not all blockchains are blockchains.
The method of generating blocks of data with timestamps interconnected by hashes was introduced by Haber and Stornetta in 1991. This method aims to ensure the authenticity of data, not protect it, and there is no evidence that it has ever been called a “blockchain”. The term appears to have first appeared among Bitcoin developers and its protagonist 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, we came up with a way to operate within a decentralized network. This is where we get the term ‘blockchain’.
Today, with various consensus mechanisms and approaches to creating distributed ledgers, blockchain can be defined as a digital ledger with a basic unit of account (cryptocurrency) and data storage capabilities. It operates on a decentralized network with an open, competitive, and decentralized consensus mechanism.
Licensed cartel DLTs cannot be changed.
Permissioned distributed ledgers, including private ledgers, which are a subset, lack free and open competition. In fact, they indicate the opposite. These ledgers operate under the centralized authority of control nodes. Collective governance scenarios (with more than two nodes) can use somewhat decentralized consensus mechanisms, but only within a closed group of member nodes. In effect, they act as a centralized system for the outside world and are similar to cartels. Therefore, although all blockchains and distributed ledgers use blockchain methods, not all blockchains constitute a blockchain.
This terminological distinction may seem pedantic and relevant only to theoretical discussions. But this is important to understand the broader implications. Permissioned ledgers cannot guarantee that data will not change because they lack the important characteristic of immutability. Control nodes, acting as a cartel, have all the power of network administrators and can control access and potentially change data by rewriting or deleting chains if necessary. From this perspective, it is not fundamentally different from other centralized technologies. The term “blockchain” is often misapplied to various ledger technologies, creating a false perception of superior data security.
A fundamental advantage of blockchain is its ability to ensure data immutability. Immutability means that no one, including the person responsible for the registry, can change past transactions and stored data for any reason. No other feature of blockchain plays a decisive role in upgrading land registration systems. Because no other technology in human history has been able to guarantee this. Bitcoin, for example, has operated without compromise for over 15 years, a claim no other public system can make. Frequent news of data breaches involving major companies (Google, Facebook, Twitter, Amazon, Visa, Mastercard, etc.) highlight the exceptional security of blockchain technology.
So why is it important to protect data on publicly accessible digital storage? Let us first consider the main functions of land authorities. If Alice and Bob execute a title deed and either of them loses or tampers with the document, the authenticity of the contract can be contested. A third party is needed to independently store documents as the source of truth. This is the minimum role of a registrar in any country.
Before blockchain, to secure this capability, registrars had to physically maintain the associated infrastructure, such as an archive building with racks and folders for past paper registrations or a data center to run the database with the corresponding software. Either technology is fragile and data damage or loss cannot be reversed. Therefore, access to people who could manage the system and create records was very limited.
Registration means limiting this function to authorized individuals, such as registrars or notaries. In contrast, blockchain allows registries to be maintained electronically without these vulnerabilities, allowing a virtually unlimited number of users to enter directly into a blockchain-enabled registry without the risk of database crashes. This only applies to blockchains, not permissioned DLT. The latter cannot withstand severe denial-of-service attacks (DDoS), etc., if exposed publicly. Data loss is a threat like any other outdated technology.
Existing systems require separation of the two activities: transaction execution and registration. In the first act, the parties involved sign a contract (deed of title). Then, in the second act, they bring it to the registrar, who creates an official record of their actions. This becomes the source of truth about who owns what.
In many countries, the transfer of ownership is deemed by law to occur when a deed is registered by an official authority. Parties are not permitted to create records in the registry itself, as described above. Because centralized technology is weak enough to do that. 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 a registrar. This means that two separate actions (contract and registration) can be merged into a single blockchain transaction. Transactions executed within a smart contract’s algorithm, once posted to the blockchain, serve as the definitive registration record.
Maintaining infrastructure is not the only function of land authorities. In many countries, registration involves more than recording everything the parties bring to the land office. Verification of transactions is required, and in some countries, transactions must be reviewed by a notary public. Achieving independence from third parties means automating all of these functions. Only then can we fully leverage the benefits of programmable relationships through smart contracts that enable DAOs, justice, and other aspects of the digital economy.
The bad news for those who believe in complete disintermediation is that registries are still needed. There appear to be many situations where a third authoritative party is needed, such as to resolve disputes (and thus the registrar may need to enforce court judgments), in cases of inheritance, or in cases of loss of private keys (cryptocurrency wallets). . Neither the owner nor his successors can gain access. Land registration applications, which I call blockchain property registries, must be designed in a way that provides administrative access to ensure the rule of law. However, it is expected that 9000 out of 10 property transactions will not require direct involvement of land authorities as registration will be seamless and automatic.
In summary, traditional land systems cannot fully accommodate the innovative potential of emerging digital economies such as DAOs, dApps, and DeFi. This is because they are vulnerable and dependent on supervision by land authorities and other intermediaries. development. Blockchain technology solves this problem by protecting data in a decentralized, open public infrastructure, mitigating the risk of irreversible loss in property registries, and laying the foundation for automating intermediary functions.
The concept of the Blockchain Estate Registry illustrates this change, proposing a system where most transactions can be automatically verified and registered without human intervention. However, it is important to note that blockchain does not inherently guarantee immutability. This depends on the size of your network. Smaller networks can be vulnerable to certain types of attacks, while larger, more established networks are generally more resilient. Therefore, for public registries, choosing blockchain should favor those with a long history and substantial community.
Nevertheless, I advocate the introduction of a multi-chain system through cross-blockchain protocols. This approach addresses common challenges associated with blockchain technology such as bandwidth, scalability, transaction speed, and cost, creating a viable solution for public asset registration. This topic requires further discussion.