Blockchains: development of modern financial tech and cadastres
Joining the blockchain gang
21 August 2017
Manohar Velpuri details the development of modern financial tech and cadastres, their relationship to blockchain systems and how they are being applied to land and real-estate transactions around the world
A well-functioning cadastre is essential for legal access to land by the poor. It should help secure land and property rights, aid asset creation and contribute to better real-estate land transactions. Financial tech or 'fintech' – software and other technologies used to support banking and financial transactions – has gained importance in land reforms since 2010 (see first shaded box below), along with phases of cadastre (see second shaded box below).
The first phase of fintech overlaps with cadastre 3.0. Cadastre 1.0 and 2.0 set the stage for better access to land and improved land transactions as a result. Following the growth of fintech start-ups since 2012, the first phase has been seen as successfully allowing start-ups to partner with traditional banks, rather than disrupting business.
Like other software such as the web, fintech has developed in distinct phases (see figure 1):
Figure 1: Overlap of web iterations with cadastre and fintech development
Although fintech 1.0 and subsequent stages do not mark major disruption, they have still seen significant changes that attempt to reduce expenses in land transactions through the integration of the cadastral system.
The first wave has only started creating the conditions for disruption. In the second wave, players created leverage on business models with their existing expertise, and cadastre 3.0, coupled with the changing demands of consumers and the democratisation of big data, led to a fintech rebirth in managing land transactions.
As fintech 3.0 will aggressively use strategies based on blockchain (see the previous isurv feature Blockchain technology: property transactions) to distribute digital data globally, so cadastre 4.0 will develop leverage on such distributed ledger systems. It will also exploit the Internet of Things to enable effective use of data. Cadastre 4.0 aims to create a cadastre for the people by the people.
Three stages of cadastre
Cadastre is a methodically arranged public inventory of data about properties in a country or district, based on a survey of their boundaries.
Cadastre 1.0 has been used to record the development of space above and below a parcel of land.
Cadastre 2.0 has been about 3D and better modelling, a continuum of rights – recognising different tenures without preference – and citizen engagement, which began open mapping using mobile technologies. With information provided by citizens, this can offer details on ownership, transfer, use, value and tax in formats that are easily transferable to valuation and real-estate management.
Cadastre 3.0 in turn focuses on contents being made public with governments offering data for commercial use to make a 'creative economy'. It also encourages public–private partnership models.
Cadastre 4.0 and fintech
Land transactions usually require the signing of contracts, bills of sale and credit documents by buyer and seller. But can transaction times be shortened by using blockchain technology? Blockchain could after all enable integration and use of brokers, government property databases, title companies such as insurance and property databases, escrow (third-party) companies, inspectors and appraisers and public notaries.
Cadastre 4.0 will close the circle between new technologies and automation of processes, products and services and stakeholders, including citizens and landowners as essential partners at the same level.
It will also support partnerships and symbiosis between professionals in private and public service, between citizens and public authorities, and between technology and society. The system enables permanent communication between people, procedures and products, and encourages the engagement of citizens as well as greater transparency and accountability to generate more trust in the cadastral system.
Cadastre 4.0 will also have 5 or more dimensions; the fourth dimension being temporal and the fifth being anticipation, with further dimensions being precision of the anticipation, defined as unique and homogeneous rights such as ownership rights or land-use rights, responsibilities or restrictions that are linked to the whole entity, as in a land administration system.
Cadastre 4.0 and blockchain
Blockchain offers 3 essential qualities:
- secures data so it is incorruptible;
- enables a public audit every 10 minutes; and
- makes it easier and less costly to register property rights because citizens can use the service on their smartphones; the blockchain can therefore be used as a notary service, rather than requiring the use of third parties to make an assessment of the sale process.
Blockchain allows for syndicating trust on a peer-to-peer basis when communicating assets. Rather than having a powerful intermediary establishing the trust required to maintain records, a distributed network of participants does so instead.
Data that is located across multiple sites, countries or institutions is shared and synchronised in a distributed ledger, akin to a spreadsheet or database that runs across billions of computers. Transactions are validated by a community called 'miners', who use big computing resources to achieve consensus and are rewarded with digital money – namely cryptocoin, a digital token with monetary value.
Public blockchains provide a distributed database to record information that is uncensored and is accessible for anyone.
Every few minutes, the transactions are verified and stored in a block, each of which must refer to a previous block, forming a blockchain. These chains permanently time-stamp all transactions, enabling a distributed platform for protection and transfer of money.
Seventy per cent of people who own a property do so through a title. Putting these rights in a blockchain means they cannot be hacked through a central, governmental server, as a distributed ledger is estimated to be 20 times more powerful than all computer resources put together. To hack a bitcoin blockchain back 2 years needs enormous energy as it has been secured by strong cryptography. Stealing a title is not easy.
Case study: Denmark
Cadastre 3.0 and fintech 1.0 have improved real-estate management in Denmark. Cadastral mapping enables efficient real-estate land transactions with global collateral management, and supports economic development and growth.
In Denmark, there are 4 basic registers of properties:
Cadastre 3.0 and fintech 1.0 enable transactions to be digitised, removing much current friction. A simple yet robust homebuying process based on an improved data environment could be based on the Danish example, as its registers and housing purchase process can be seen as a perfect cadastre 3.0 situation: the system evolved over time using the internet as a platform, developed through the collaboration of citizens.
Around the world
The transparent, secure blockchain register is already interesting several countries that want to document land ownership. Property title record-keeping is labour-intensive to administer and susceptible to fraud, so some countries have taken up blockchain-based land registry projects.
Honduras was perhaps the first to pursue such an initiative in 2015. The Republic of Georgia (see 4th box), working with blockchain technology company the Bitfury Group, is also developing a system for land transactions and property titles. In Nicaragua, more than a third of rural land was held without clear title and could be seen as a case for implementing a blockchain-based registry. Estonia has the infrastructure for public registers to be reviewed, including property registers, using blockchain.
Blockchain can unlock land capital and have a social impact while reducing costs and increasing revenue for governments. Almost 90% of rural land in Ghana is not recorded in an official database and lacks tenure security. This absence of title greatly limits borrowing, causing problems with conflict and succession.
The organisation Bitland is therefore creating a blockchain-based land registry for the country; participating NGOs with legal recognition from the Ghanaian state are developing their land through transparent registers of ecological systems, resolving land conflicts by saving the title to the blockchain.
Bitland created a system capable of reducing corruption in land disputes and preventing unfair advantages for the government. The project could bring wealth to entire communities, not just the few. It uses a decentralised trustless technology platform known as BitShares blockchain to reduce the gap between the government and unregistered areas. It creates a crypto-token for every claim and transaction on the BitShares blockchain through voluntary participation by personal and or community consent, which is time-stamped and approved by the government for later reference.
The Bitland Global organisation has issued a digital token called CADASTRAL to represent the Bitland Network. CADASTRAL uses the Bitland application to register land titles, settle disputes, sell land, purchase property and issue microloans for commercial development. Twenty per cent of all proceeds will go to a reserve with multiple denominations of the CADASTRAL network.
Case study: Georgia
Georgia is the first country to use the bitcoin currency and platform to complete property-related government transactions, and secure and validate official land transactions without human interference. It is secure because the ledger is distributed across many computers, so a would-be hacker would need to attack at least 51% of the network simultaneously to alter records.
Efficient land transaction management currently depends on the maturity of the cadastre. The land transaction cadastre is relevant in developing countries, especially those with a considerable amount of unregistered land.
Land transactions also need quality-aware procedures and services. Quality is related both to data and the context in which it will be created and used. The inventory of needs for cadastre 4.0 would also lead to the expansion of scope of ISO 19100 standards. ISO/TC 307, with the scope for standardisation of blockchains and distributed ledger technologies to support interoperability and data interchange among users, applications and systems, is now being worked on by Standards Australia along with the standards related to cadastre.
There are currently 15 other participating countries involved with the proposal, including the UK, Canada, China, Germany and the USA, as well 17 observing countries, including Argentina, the Republic of Ireland, Spain, Switzerland and South Africa.
Manohar Velpuri is a Massachusetts Institute of Technology-certified fintech specialist