Blockchain in Title: Frequently Asked Questions

June 26, 2019

On an almost weekly basis new articles are released hinting at how blockchain will upend the title and settlement industry, and although this exciting new technology presents opportunities, it can be difficult to separate the hype from reality.

In an effort to cut through some of the noise, the ALTA Blockchain Workgroup has provided easy-to-understand answers to some of the most frequently asked questions from title professionals around blockchain and related technologies.

How is blockchain better than a regular database?

In terms of managing property records, there are several advantages that a blockchain database could provide over a traditional database which make it an attractive option for managing real estate records. The first is that it’s currently all-but immutable. In other words, every change ever made to each record on the blockchain (i.e. in the database) is recorded and, under today’s technology, cannot feasibly be erased. Even when a change is made, the change would be recorded but the older incorrect version of the record would always be available. This could allow property record information to be stored as machine readable data rather than paper documents or image files of documents without sacrificing the security and certainty that those documents provide. All that said, future technology called a quantum computer could break the encryption on which blockchain relies to prevent unauthorized changes to the data.

This leads into the second possible benefit of blockchain for property records management. Records stored on a blockchain as machine readable data can be more easily searched, reviewed, and audited. Specifically, because automated systems can then be used to review records and identify items of interest such as a lien. A recent example of this was the shift by Walmart to digitize its food supply chain process using blockchain. Making this switch reduced the average time required to trace the source of food from seven days to 2.2 seconds. However, these sorts of benefits can only be realized when reliable systems are in place to make sure the necessary information is actually on the blockchain and in the right place.

Are county clerks and registers moving to blockchain?

Recently, there have been a number of high-profile projects at the state and county level to explore the use of blockchain for managing property records. Despite some promising first steps, many of those that have taken place in the U.S. have shown a number of legal and cost barriers exist around making this sort of shift.

In May 2017, the office of Cook County Illinois’ Recorder of Deeds released an extensive report on the results of a pilot they had run. The pilot had used the distributed ledger technology (DLT), on which blockchain is based, to integrate with their existing digital database of land records. According to John Mirkovic, who served as deputy recorder of deeds and author of the report, the benefits of shifting the county’s existing records onto a new blockchain system were limited, relative to the financial costs required to make such a change. The report also indicated that if the county were to begin recording property record information on a blockchain system going forward, it could take 10 to 15 years before the new system provided any significant benefit. However, expect to hear more about initiatives in this space. Connecticut, Illinois, New York, Vermont and Wyoming have each launched a blockchain task force or workgroup, many of which are focused on using blockchain for government records.

Other noteworthy efforts to make the switch to blockchain include Teton County, Wyo., and Vermont. In both cases, it remains to be seen whether the initiatives underway will result in property record management systems significantly different from those in place today, or whether such new systems would be better than existing systems. For example, in Vermont and local officials have worked with the real estate startup Propy to record traditional deeds which incorporate a hash and scannable QR code linking them to a separate blockchain database. Although a step toward utilizing blockchain, this use of blockchain supplements the traditional document-based property record management system with which most are familiar.

Can cryptocurrency be used to close a transaction?

Yes, cryptocurrency can be used to close a real estate transaction. A cryptocurrency, such as Bitcoin or Ethereum, can be used instead of dollars, or another government issued currency, to purchase property. This is not fundamentally too different from how real estate transactions are carried out with cash or any other asset. In fact, it’s already happened. In 2014, a 1.4-acre property in Lake Tahoe was sold for 2,739 bitcoins, at that time valued at $1.6 million. Although this is possible, it’s not clear there are any significant advantages to transacting in cryptocurrency and it’s not likely to become common place anytime soon.  There may also be regulatory and compliance challenges to transacting real estate deals in cryptocurrency.

When will I need to start dealing with Blockchain and what areas of my business might be impacted?

The use of blockchain both by governments and business software tools is underway but is still in its early stages. Adoption and implementation of this technology will take time and this process won’t happen overnight. However, it’s always good to stay vigilant and not fall behind the curve. In terms of striking the right balance, Tony Franco, co-founder and CEO of SafeChain, provided ALTA members with some helpful advice in an ALTA Title Topics webinar late last year.

According to Franco, three key metrics for assessing whether it’s time to take a new blockchain-based business software seriously are product adoption, risks, and claims of benefits. In this case, successful product adoption is any product that more than 10 percent of the market is paying for, the technology vendor has at least three customers it can introduce you to, and a working demo and prototype are available. Some of the risk factors Franco suggests looking out for are whether a technology vendor has historically delivered on promises, whether there are any known conflicts of interest, and whether the technology vendor focused sufficiently on creating tools that maintain compliance with laws and regulations. He also emphasizes taking a close look at the claims a technology vendor makes about their products. Some questions to ask here are:

  • What have they promised through marketing and at speaking events?
  • How many full-time engineers do they have working on this product?
  • Have they built other products that I’m familiar with and know that work?

Contact ALTA at 202-296-3671 or [email protected].