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Source of Title Blog

Exploring Blockchain and Its Application to Real Estate Titles
by Robert Franco | 2019/01/13 |

I'm going to admit it -- I do not understand blockchain.  And, I do not like it when I don't understand something.  I have tried to read some articles and I've watched YouTube videos in an attempt to get a better grasp of the technology.  Unfortunately, it remains an elusive concept.  My goal this year is to figure it out.  If this is going to be a technology that government offices adopt to maintain our public real property records, that has the potential to eliminate title companies and attorneys in real estate transactions, I want to know how it works.      

Source of Title Blog ::

Really.  That is the claim.  

For real estate, the blockchain has the potential to change the way we do business. We are developing smart contracts, which will enable real estate contracts, escrows, property records (deeds, for example) to be completed and monies distributed without title companies or attorneys. These contracts are often compared to a vending machine concept: You deposit your money, and the machine spits out a product with no human intervention.

One company that has promoted blockchain in the real estate realm, Propy is making similar claims

When transacting on the Blockchain, buyers and sellers can interact directly with each-other in real-time. With the help of a Blockchain broker, they can also transact property in a cost-effective and time-efficient way. Blockchain transactions do not require intervention of third-party entities, traditionally used in property-buying transactions such as: lawyers, multiple brokers, escrow and title companies. This is called, disintermediation.

According to Wikipedia, a "blockchain is a decentralized, distributed and public digital ledger that is used to record transactions across many computers so that any involved record cannot be altered retroactively, without the alteration of all subsequent blocks."  On a basic level I can comprehend that this means the information related to a transaction is spread across many computers; thus, "decentralized and distributed."  I'm not all that clear on how that is better.  But, I'm going to approach this with an open mind.

Blockchain makes "smart contracts" possible; these are contracts that can be self-executing and/or self-enforcing.  For example, let's assume a typical land installment contract is created as a smart contract on a blockchain.  The terms of the contract would require a record of the equitable interest of the Buyer, and require electronic monthly payments from Buyer's account to Seller's account. It may also require that Buyer maintain insurance on the property and pay the real estate taxes.  The insurance and taxes could be linked to the blockchain, also.  This contract could be self-executing -- if Buyer maintains his taxes and insurance, and he makes all of the required payments, title could automatically be transferred from Seller to Buyer. 

On the other hand, if the Buyer fails in his obligations by defaulting on his payments, for example, the contract could be automatically terminated.  Thus, self-enforcing and extinguish the Buyer's interest in the property, clearing the title for another sale. 

But, I don't understand how all of this works in practice (or how it would work, if it were adopted for real world use).  At this point, it all seems rather theoretical.  How do you get all of this information entered into a blockchain?  How do you get all of the third parties to participate, or at least verify the triggering events involved in a smart contract?  What are the safeguards to ensure that the transactions are correct?  What kind of infrastructure is required to make it all possible?

I can see where there could be some theoretical advantages.  With the prevalence of escrow theft, it would be great if there was a mechanism that ensured that funds were wired to the correct party at the moment title transferred.  It seems that a smart contract would be well-suited for that.   

Although it is touted as more secure, efficient and accurate, I wonder if that is really the case.  Because of the distributive nature of blockchain, it is very difficult to alter a record, because all (or a majority) of the other servers in the chain would have to agree to it.  But, how many instances of title fraud are caused by someone altering an already recorded document?  More likely a forged document is introduced into the records and I don't see how blockchain will prevent forgery.  

And, no system is hack-proof.  Earlier this month, the cryptocurrency Ethereum Classic was hacked for over $1 Million.  It was done by re-writing the blockchain - something that is sometimes said to be impossible. 

In the most basic terms, the attackers disrupted Ethereum Classic in order to spend the same money twice. They sold Ethereum Classic coins for cash, then rewrote the blockchain so that they came away with both the cash and the coins. In a conventional payment system, it’s up to banks and other central enforcers to stop double spending, but there’s no such figure in cryptocurrency. Instead, transactions are enforced through a distributed ledger, produced collectively by currency miners.

But if miners work together, there’s a way to write transactions out of that ledger. All they have to do is split the blockchain at the right moment, and only build on versions of the chain that don’t include the unwanted transaction. All they need is enough mining power to overwhelm the rest of the mining pool — hence, 51 percent. It’s a fundamental weakness in the way cryptocurrencies work, acknowledged since the earliest writing on cryptocurrency. Bitcoin and its siblings all rely on a critical mass of what Satoshi called “honest miners.”

In this case, the 51 percent attack was used to execute a double-spend: writing a bad check and then muscling it out of the ledger. But that’s not the only bad thing you can do once you’re in control. In a paper last year, NYU cryptographer Joseph Bonneau raised concerns about majority attackers wreaking havoc on a coin’s ledger to crater the price and fulfill a short position, something he called a “Goldfinger attack.”

This is where I think "understanding" is crucial.  Some would argue that you don't have to understand how lift overcomes drag in order to get on a plane and fly across the country.  I, on the other hand, think that we need to understand how this technology works before we hand over our centuries old public records to a new technology.  If a public records blockchain were to ever get hacked, how would we even know it if we don't understand it?  And, how could it be fixed?  It is simple to understand that if the records in my local recorder's office are compromised, we can get the microfiche reader out and look at the back-up (or whatever back-up may exist these days).  What is the blockchain equivalent?

I'm not saying blockchain isn't do-able, or even that blockchain isn't better.  I'm saying that before I can get comfortable with the idea, I have to understand it.  So, that is my goal... to learn blockchain.  I'll keep you posted on my progress and maybe we can all learn something. 

I keep reading that blockchain is the future; and, the future may not be far off.  An all-blockchain real estate transaction was completed in Vermont early last year.  And Vermont and Ohio have passed laws recognizing blockchain records, a necessary step to pave the way for legal transactions.  In fact, many states are actively working on legislation related to blockchain.  

Maybe what the world needs is a real estate lawyer that is well-versed in this new technology.  So... wish me luck!

 

 




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Categories: Attorneys, Innovation, Public Records, Technology, Title Industry

1807 words | 530 views | 1 comments | log in or register to post a comment


Re: Exploring Blockchain and its Application

I've thought further of who will be affected by block chain and it won't just be lawyers, title searchers, county clerks and registries, but real estate salespeople will be affected as well.  If someone wants to buy property and only needs to go online (to a real estate company or ebay?), then RE people stand to lose at least a percentage of their commission if not the whole thing.  

I stand by my comments as before, notwithstanding the person whose argument was that I am stupid.  This is a transfer of income out of many different industries workers' pockets and back to financial and tech companies. 

To my understand, blockchain's fans are largely libertarians and was first applied during the recovery of the 2007-2008 financial meltdown when the libertarian universe was railing against the Federal Reserve's Keynsian policy of shoring up the economy by deficit spending.  The other alternative offered by the libertarians was to buy gold and gold stocks.  The total uproar of both alternatives was to gleefully pillory "Helicopter Ben Bernanke".  The problem then and since has been the lack of political follow-up which would have entailed spending that bore real, reliable, robust and long-lasting fruit...infrastructure.  

Your inquiry into the infrastructural challenges and the concomitant risks of hackers rerouting blockchain - which they've done - is instructive and salient.  I wish you luck, Robert, in gaining the understanding you only think you lack.  I think you have an excellent handle on it. 

 As for me, sign me "stupid".  And unconvinced. 

 

 
by Carol Clark | 2019/01/14 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

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