Can Blockchain Technology Replace Land Records?

Fair disclosure:  I am entirely unqualified to answer the above question.  In fact, I had never heard of blockchain technology until this morning when I read a blog entry by my friend, John Cunningham, with a link to an article discussing four technological innovations that may affect the legal profession. One of them is blockchain, part of the technology that makes bitcoins possible.  Not only that, but I don’t know a lot more about bitcoins than I know about blockchain.  I do, however, know a little about real property records.

Now that you’ve been warned, if you’re still interested, read on.

What is Blockchain?

As already mentioned, blockchain is the technology that makes bitcoin possible. A particular bitcoin is created through a process known as mining. Thereafter, every transaction involving the bitcoin, each transfer of ownership, is recorded in a “block,” with each block containing a reference to the block that records the last transaction involving the same bitcoin.  A block, once created, cannot be changed.  The result is a permanent, immutable ledger of linked records that permit the history of each bitcoin to be traced from its current owner back to its inception.

Using Blockchain for Land Records.

The first thing that came to my mind in reading about the bitcoin blockchain is the similarity to the records of ownership of real property that, at least in the United States, are commonly maintained by county officials, usually called recorders. Those recording systems provide some degree of assurance to a purchaser of real property that seller actually owns the property, and the immutability of blockchain technology makes it more potentially more suitable than other forms of electronic records as a replacement for paper recording systems.

Not surprisingly, I’m far from the first person to recognize that similarity.  In fact, the Cook County (Illinois) Recorder of Deeds is already testing the concept under an arrangement with Velox RE Tech, Inc.  As Deputy Recorder of Deeds John Mirkovic put it, “A blockchain-based public record is where you would start if you were to create a public land record from scratch.”

Although some differences between land records and bitcoin records (at least in my limited understanding of bitcoins and blockchain) come to mind, I doubt that they present insurmountable barriers to adapting blockchain technology to replace current land recording systems.

Analog Versus Digital

The first distinction between bitcoin records and land records doesn’t appear to present any problems at all.  Although bitcoins are divisible, they are not infinitely divisible. The smallest bitcoin denomination, known as a “satoshi,” is equivalent to 0.00000001 bitcoin. Therefore bitcoin blockchains track discrete quanta of virtual money. Although land cannot, as a practical matter, be infinitely subdivided into smaller and smaller parcels, recording systems are not inherently restricted to tracking discrete quanta of land.  In other words, land records are analog, and bitcoin records are digital. Given that digital systems have been replacing analog systems for decades, that distinction alone is barely worth mentioning.

Types of Ownership Interest

There are other differences between ownership of bitcoins and ownership of land that may present problems to be solved.  As far as I can tell, these things are true about bitcoins and ownership of bitcoins, but none of them is true about real property rights.

  • Bitcoins are created by only one process.
  • Once mined, bitcoins never disappear.
  • Bitcoins always have one, and only one, owner.
  • Bitcoins cannot be transferred to another person without some action (or at least acquiescence) by the owner.

Those factors make the historical record of bitcoin ownership relatively simple compared to the records of land ownership.

For example, unlike ownership records for bitcoin, land records must accommodate any number of owners and several different types of joint ownership, including joint tenancy, tenancy in common, and tenancy by the entireties. Land records must be able to deal with the possibility that one, some, or all of the joint owners may transfer their interest to one or more other persons, either with or without a change in the type of tenancy (e.g., joint tenancy to tenancy in common).

In addition, land records must accommodate conditional ownership, such as life estates (ownership lasts only as long as a specified person lives) and fee simple determinable (ownership terminates upon a specified event), and other temporary property rights, such as leases.  Unlike bitcoins, these types of property rights, once created, do not last forever.

Moreover, real property records must deal with property rights, such as easements, that represent something less than “ownership.” Some such property rights have characteristics that are, as far as I know, nonexistent in bitcoin blockchains.  For example, some of them, such as mechanics’ liens and tax liens, can arise from outside the historical chain of ownership, even without any action by the property owner. Compared to bitcoins, those rights seem to spring out of nowhere. Similarly, many of these limited rights, once created, can also disappear. For example, the release of a mortgage exterminates the right to foreclose on the property. The right is not transferred to anyone; it just disappears.

As mentioned earlier, I doubt that any of these observations represent insurmountable obstacles to adapting blockchain technology to real property records, but I think they may make the task more difficult than it may appear on first blush.  Maybe the transition will occur while I’m still practicing law, or maybe not.  I hope so.