How Blockchain can improve the process of renting apartments in Munich
Interview with Farhan Shahid Part I:
Blockchain technology has gone through an enormous hype-peak over the past year. The technology has been viewed as a general solution to most of the world’s problems.
However, few have gained hands-on experience and know how to apply blockchain to the right problems.
Thus, to gain a deeper understanding of how blockchain can be applied in practice, it is highly promising to talk to practitioners.
Let’s meet Farhan Shahid.
Tjark: Farhan, you’re one of few people who have built a working blockchain solution by combining different blockchain technologies. What is it that most people do not quite understand yet about blockchain?
Farhan: Yah, I think blockchain technology as a whole is not very easy for people to understand because it’s so new. So a lot of people don’t yet understand which specific problems blockchain technology can solve.
Many just follow the hype and say I do this thing, can you add a blockchain to it?
And this often doesn’t make sense, because you need a very specific use-case for blockchain. You need multiple parties interacting in a system, you need to have a trust issue between those parties and you want the blockchain to be able to resolve that trust issue.
Tjark: Please tell me a bit about you and your background. Where are you originally from and how did your path lead to Germany and Munich?
Farhan: Sure. So, I am from Pakistan and studied computer science there from 2011 to 2015.
After my Bachelor’s I started working for a software company in Pakistan as backend developer. For a lot of government and bank clients we digitized processes related to agents in the field.
But after working there for a while and setting up libraries for the backend services, the work began to become very repetitive. I wanted to learn about new technologies and broaden my horizon.
But because there is not a lot of cutting-edge technology like Machine Learning or blockchain going on in Pakistan, I had to move abroad. That’s why I applied to Technical University Munich (TUM) and came here.
Tjark: When you say, there is not much cutting-edge technology going on in Pakistan, how did you become interested in blockchain technology?
Farhan: Yah right, I didn’t really know about blockchain before I came here. I found out about it in the middle of 2017.
Then I really dove deep into it and I searched the internet all over and read a lot of content to try to understand it. And I found it very interesting.
The first time you understand how Bitcoin works, just feels really good.
Because it’s a very good solution to a very interesting problem. And after understanding it, I actually bought a little bit of Bitcoin.
Once I had some money at stake, I wanted to explore all my options, so I began to look at Ethereum and other projects. And because I’m a developer I got more and more interested in Ethereum and smart contracts.
But I still think it’s very early right now. Especially the scalability issue. You can’t really have applications that are used by millions and millions of people.
It’s still very early and there is a lot of good work you can still do. That makes it very exciting. I’m especially interested in building decentralized applications on top of a blockchain network for something useful.
Tjark: Ok and you took the first step towards this direction at TUM where you joined a blockchain seminar course and applied blockchain to solve a real-world problem. Can you tell me about it?
Farhan: Yah, sure. The use-case was proposed by the company AKDB who came in as a partner for the seminar course.
They presented the problem of so called “rental normads” in Munich and asked us whether we could solve it with blockchain.
The problem with rental normads is that people rent an apartment, but don’t pay the rent. The way landlords verify that someone is not a rental normad is by checking their employment status and how much they earn.
In order to have proof landlords require a physical document, like a personal income report. But there are two problems with having a physical document:
First, the tenant has to get the document from his employer which is sometimes a bit cumbersome. And second, the landlord can still not be sure whether the document is real. Because it is something you print out, you can easily forge it.
So initially, we connected the landlord, the tenant and his employer in a blockchain network.
In this network, when asked for a proof of income, the tenant can give the landlord premission to request the employment status information from the employer directly.
So the landlord can ask: “Does the potential tenant have the required salary and is he actually employed at your company?”
Tjark: And he receives a Yes/No reply?
Farhan: Yah, excactly. That is what we did in the beginning. But soon we realized that the process of renting a home in Munich involves a lot of other problems as well.
So we took a look at the overall end-to-end process. And when you do that, you see that the tenant does not only need to provide the employment status, but also a bank deposit, an insurance statement, and in some cases he even needs to go to the Police to get a certificate of conduct.
So you need to walk all over Munich to bring back these documents to the landlord which is very cumbersome. That’s why we expanded the initial idea.
Instead of just connecting to the employer, the landlord can connect to all the relevant third parties that the tenant is associated with and that the landlord needs information from.
So also to the bank, the insurance company, and the housing authority. And all of these entities reply with a Yes or No answer based on the question that the landlord asks.
So for insance, he could ask the tenant’s bank: “Has the person made a bank deposit of the required amount?” And the bank will reply with “Yes” or “No”. And the same for the insurance provider, or for the police.
So this solution simplifies the process a lot. And it solves the problem that documents can be forged. But the process doesn’t end here.
After you are in agreement with the landlord, the next thing you need to do is the city registration. And this is also cumbersome because you need to go to the city registration office and often have to wait there for multiple hours.
So what we did was, once the landlord and the tenant sign the physical contract in person, they scan it and upload it to IPFS, a decentralized file storage. You can think of it like a hard drive.
So they upload it to IPFS and they both sign that transaction in which they both approve that this is the actual contract.
And once they have both signed the transaction, then that contract is moved automatically to the housing authority. And the housing authority can see it directly and trust that it is not forged by either the tenant or the landlord.
That way the authority doesn’t need to see the the physical document.
That simplifies also the city-registration process. And it can actually have a lot of impact, because a lot of people in Munich switch apartments. The data we’ve seen was around 500.000 people every six months. But I’m not sure about that. That seems to be a big number.
Tjark: Regarding data privacy the Yes/No answers seem to be a very good way to only reveal the most necessary data for building trust.
How do you ensure that no one else can read the questions being asked or the Yes/No answers about the salary?
Farhan: Yes exactly. The transactions are on the public Ethereum blockchain, but encrypted, so no one can read them.
We decided to use the public Ethereum blockchain to minimize trust between the parties. Because in a public blockchain you can be sure that nobody is controlling the transactions or can alter them.
However, I don’t think this is a big problem in Germany because you trust the government to do the right thing.
But in places like Pakistan trust is lower, so I think it makes more sense to have a public blockchain in which you can just be sure because of the cryptography that nobody can mess with what’s happening.
Tjark: Does such a solution scale?
Farhan: Because our solution uses the public Ethereum blockchain, it only scales according to the current performance of Ethereum.
So far this means we cannot have millions and millions of users yet. But there is actually a lot of intersting research going on. There are many competent teams with very good reasearch background working on these problems.
For instance, in the case of Ethereum, there are multiple efforts to improve the blockchain. At layer one, there is for example Sharding.
At layer two there are solutions like Plasma or Truebit or state channels. And there is also zkSNARKs to improve scalability.
So I think it will take perhaps a couple of years because it is actually such a hard problem to solve. But for example Ethereum’s switch to Proof-of-Stake is an important step to reduce the energy waste for securing the network.
So, I think eventually in a few years we will have a lot of performant blockchains that we can build decentralized applications on top of.
And then we can change our current perspective on blockchain. Currently, blockchain only make sense as a solution to problems with a huge trust issue. Problems for which you are willing to sacrifice scalability and speed because the trust issue is very high.
But once the scalability problem is solved, we can also target areas that don’t have such a big trust issue because the blockchain is just performant enough.
Tjark: Back to your rental normads solution: Why do we need a blockchain at all? Why not set up a third party and use a centralized data base?
Farhan: Yah, the idea is not to trust a central authority.
This might not be a big problem here, but in a lot of developing countries it is a big problem. So what happens there is that because of corruption, a lot of land contracts are changed.
That’s why you need to make sure that nobody at the central authority can mess with the process.
In a centralized system, if a central authority does not like a tenant or a landlord, it can continuously withhold the transaction.
So if the landlord uses a central system to ask the tenant’s company for financial information, the central authority can withhold this request and thus prevent the process from completion.
What blockchain solves is the trust issue. You can trust another party without a central authority that is overlooking the process.
This is especially helpful in developing countries like Pakistan where there is not a lot of trust in the government and not a lot of trust in general.
So even when the government says everything we’ll do will be transparent, but puts the data in a central database, they can always go back and change the past. And you don’t want that.
Tjark: Is there another challenge to which you would like to apply blockchain to, perhaps in Pakistan?
Farhan: Yes, a specific use-case of blockchain that I find very powerful are remittance payments.
Instead of going through the traditional banking system and paying high fees for long transaction times, you can use a blockchain.
This is especially interesting to prevent child labor in Pakistan. And I’m actually planning to help improve such conditions in Pakistan with blockchain.
Tjark: How do you plan to do that exactly? How can blockchain help prevent child labor?
To find out how Farhan Shahid aims to improve child labor and education conditions in Pakistan with blockchain, see part II of this interview.
About the interviewee:
Farhan Shahid, 26, was born in Lahore, Pakistan. He recently moved to Munich to pursue a Masters degree in Informatics at Technical University of Munich which he will finish in April. He is blockchain developer with an entrepreneurial mindset and part of a developer team in Pakistan that does blockchain contracting work. You can reach him via LinkedIn.
About the author:
Tjark Friebe is highly interested in learning about cutting-edge technologies and how to apply them to solve real-world problems. To do so, he started a blog on Blockchain explaining the technology and interviewing practitioners from the space. You can reach him via LinkedIn.
