On March 23, I had the great pleasure of participating in the 2017 Road to Reinvention Conference presented by The University of California Irvine's Center for Digital Leadership. I participated in a panel discussion entitled "What the Heck is Blockchain and Why Should I Care?" Bill Maurer, Dean of UCI's School of Social Science and one of the world's leading authorities on blockchain invited me to participate because of my interest in the potential for blockchain in the real estate arena. Bill moderated the session; the other panelists were Mic Bowman, who heads the blockchain development effort at Intel, and Mark Moore, assistant general counsel at Silicon Valley Bank.
My basic thesis was (and is) this: That due to certain specific problems in real estate transactions, blockchain holds great promise. Among the problems blockchain could address is land title registration. While this is handled reasonably well in the United States at the county level, in many countries around the world there is no history of government title registry. Even in the United States, title registration is particularly susceptible to fraud. By providing a broadly distributed, transparent, unalterable record of transactions, many issues of fraud could be avoided. US title searches are one of the most onerous aspects of property transactions; while about 70 percent of title searches result in no problems, the remaining 30 percent can be difficult. And the title search process itself has progressed little in the past 100 years, despite advances in technology. It involves a painstaking search of public records, first to determine an unbroken chain of ownership, and then to discover encumbrances such as tax liens, mortgages and claims that can complicate transfer of ownership. The cost of the title search and accompanying title insurance can add significantly to the cost of the transaction. Title companies typically compile their own databases of property information. A publicly searchable blockchain could greatly simplify this process and reduce transaction costs. There are several pilot projects underway built on blockchain platforms to address property transfers or registration including one in Cook County, Illinois for property transfers and another in the Republic of Georgia to create their first nationalized parcel id registry.
Similarly, blockchain holds promise in the area of escrow. Because blockchain ledgers can contain self-executing code, the need for escrow agencies could be reduced or eliminated by having the transfer of funds held in escrow automated so that it happens without a manual instruction when contractual conditions have been met. Real estate transactions are notoriously slow. Blockchain based applications could speed up these transactions so that they could happen as quickly as stock and bond transactions. It currently takes about 10 minutes for a blockchain transaction to be validated, which is a limiting factor in some applications, such as retail. In real estate,10 minutes is the blink of an eye.
There are issues with blockchain technology, as one might expect for such a new development. Blockchain relies on validation of transactions through solving complex mathematical computations. In the bitcoin world based on a blockchain platform, this is referred to as mining. Mic Bowman pointed out that this is a surprisingly energy-intensive process: It is estimated that by the year 2020, blockchain validation may use as much energy as the country of Denmark! Clearly, something needs to change for blockchain to be economically viable on a large scale. Although there is currently enormous hype around blockchain, there is no one solution to all business problems.
As we explore emerging technologies (ET) including blockchain applications to address real estate industry challenges, it is advisable to consider if the problem could be alleviated by one of the several distinctive aspects of the platform: its disintermediated, ownerless, distributed nature; its built-on protection against fraud due to the fact that past transactions cannot be altered; the security provided by the fact that all copies of a blockchain ledger must remain constantly in sync and others. If one or more of these characteristics is critical to a solution, blockchain warrants a much closer look and a collaborative approach to pilot projects that move current conversation to action steps. You'll hear more about an OSCRE initiative in the coming days that we hope you will consider joining.
Are you prepared? Standards implementation is a critical step to prepare for this new technology that will no doubt change the way business is conducted globally. The stakes are high. For more information on OSCRE’s initiatives, please email us at email@example.com.
©OSCRE International 2017