For much of the world, concepts of real property begin in feudal England back when landed noblemen had their estate executives “survey” their land, that is walk around measuring with their feet and identifying boundaries. This was done to determine the rent due for use of the land by the tenant farmers. A large, highly productive lot might require a steep rent, say 3 pigs at Christmas and a couple of goats at Easter, while a small and unproductive one might only run an annual chicken and a bucket of potatoes. To achieve fairness and clarity for both tenant farmer and nobleman, “buttes and bounds” were determined by stride and by boundaries encountered. So a lot description might read something like, “lande that lyeth between the river on the north and the field that butteth upon the hyway on the south.” To “butt” was to encounter or to “mete” an obstacle. To this day, we refer to land descriptions as “metes and bounds”.
This methodology led to a certain imprecision so before long, in 1538, a volume was published with the catchy title: “This boke showeth the maner of measurynge of all maner of lande, as well of woodlande, as of lande in the felde, and comptynge the true nombre of acres of the same.” Perhaps not the most succinct of titles, but the book flew off the shelves because it gave everyone, not just nobility, a means of computing their land area and identifying boundaries. This new desire to measure and mark inevitably led to the standardization of land measurement and to a flurry of map drawing with the accompanying metes and bounds descriptions to define and to legally record land ownership. How little things have changed.
Our fundamental concepts of real property, originating so long ago, seem about as solid and set as the land itself. You can rent, own, mortgage, sell, bequeath. Everything else is pretty much variations on those central themes. The processes for achieving any of those transactions, while not identical, are certainly similar from place to place and they all seek to achieve the same objectives. Real estate just hasn’t been the first thing to leap to mind when you’re thinking about innovation. But along comes blockchain technology and suddenly our staid concepts of real property require a major rethink.
Blockchain will not suddenly upend real property but it has the power to do so. The issue isn’t so much the capability of the technology as much as the capacity of humans to adjust and to accept change if it confers enough of a benefit for all the upheaval. Achieving the right balance is the tricky part and it may mainly fall on lawyers and blockchain developers to understand the possibilities and to lead (a whole discussion in itself for another day).
So, what can blockchain do to real estate after centuries of tradition and black letter law? Well, blockchain can transform our concepts of ownership, of conveying title, and of recording interests. The manner in which we transact a purchase or sale may no longer require a bank, a lawyer, or a real estate agent. It won’t even involve a national currency. How we finance real estate could also change significantly. About the only thing that can’t change is the dirt itself.
And It’s a Great Ledger Too
Blockchain technology is an ideal record keeper. It never forgets. It is highly redundant, so years worth of property records would never again be lost in a fire (ask Chicago about that) or zapped from existence due to a server meltdown or hack, or simply lost due to the degradation of materials such as paper or microfilm (yes, still in use). It is a distributed architecture, so no digital record exists in only one place but in many. It time stamps every element of a transaction and locks it away using cryptography. Technically, it is not fully immune from hacking but is highly secure and each moment moves a record statistically closer to immutability with each new block attached to the chain. The blockchain is structured such that to change a single comma in any record would require rewriting an ever growing string of other records. The math says not to lose sleep over it.
But if that minuscule possibility of tampering with the blockchain still troubles you, consider the gaping holes in our current system of securing real property records. We like to think that land fraud only happens in those disorganized, primitive places where some might envision deeds getting tossed into wicker baskets. The truth is that in many small towns in America, with only have a part time clerk or two, the only thing that stops rampant fraud is the pure honesty of public servants and a lock on the door. And now that many property closings are done electronically between parties who never meet in person, the ability to submit forged documents electronically or by mail has led to numerous instances of land fraud in the United States. Consider that the Cook County Recorder of Deeds (CCRD) has reported on their test of blockchain technology stating that, “Fraudulent property transfers are one of the main reasons CCRD became interested in blockchain, and the idea that conveyances could be protected behind a password.”
So without tampering with any of our long-held real property concepts, blockchain can be hugely beneficial as nothing more than a secure distributed database that immortalizes our current transactions. But it can do so much more.
Back to Future Possibilities With Blockchain
On the blockchain, the registering of deeds can expand to the registration of rights by all parties that may have any interest in a parcel. Thus all encumbrances now scattered hither and yon (tax office, building department, utilities, etc.) could be centralized. Easements could be clearly listed with related maps displayed. And once a parcel is transferred to the blockchain, its story would continue to build systematically upon the previous record, eliminating the need for title searches with each conveyance that tread the same old historical ground at great expense. Uncertainties regarding title, that currently plague about 30% of US titles, would all but be eliminated. This would then dramatically reduce or eliminate the need for costly title insurance. The system could at last be elegant with the time needed to conclude a real estate transaction reduced to minutes or hours, rather than weeks.
But, there’s more. With a blockchain registration system is in place, it would be a relatively small step to designate your property anywhere on earth for sale, enter into contract, and transfer title directly between principals using cryptocurrency or jurisdictionally issued tokens on the blockchain. This, of course, assumes that all parties already have cryptographically verified identities. Naturally.
But imagine further that rather than selling all your property, you just want to sell a fraction of it, not to share your real estate, but perhaps, to share your expected appreciation. A parcel would become commoditized, transforming it from immovable realty into a digital asset. Rather than going to a bank to refinance, you could distribute fractions of an interest in the appreciation of your home, your office building, or your empty lot among multiple parties who buy in. And if the individual can do it, why couldn’t, a municipality finance public works in the same way by issuing crowd-funded municipal bonds? The city of Berkeley, California is already testing the concept of a micro blockchain municipal bond to purchase a firetruck.
With the option of tokenization, the need for mortgages, particularly commercial ones, could be impacted in the same way that venture funding has been impacted by the new option of Initial Coin Offerings (ICOs). Nothing in law currently addresses such an interest in real estate, if it is one at all, but the blockchain may require us to come up with one.
When you begin to imagine blockchain combining with real estate to transform a fixed asset into a commodity, or perhaps into a new type of security, old concepts of real property and of real estate financing begin to crumble. Completely new concepts flow, and law that has seemed quite settled, begins to experience tremors.
Nearly 500 years ago, a book with an absurdly long title showed a new way to think about real estate and it caught on. This blockchain thing may just do the same now.