Blockchain is beginning to be increasingly explored by different industries looking to benefit from the accuracy and speed that the technology can offer. We recently looked at the use of blockchain in banking and financial services and how it can enable faster business transactions while reducing back-office processes.
What is blockchain?
Blockchain is a form of distributed ledger technology (DLT) where data is distributed across a network of computers rather than being copied. Because it's distributed, rather than copied, the danger of copies being altered and differing across the network is removed. With blockchain everyone who has access to the network automatically receives any changes made to the data.
By way of an analogy, if a digital document were emailed to multiple people, all of whom were making their own amends, blockchain would be the mechanism synchronising these documents. This would ensure that whenever the document was opened, and no matter who it was opened by, everyone would see the amends that had been made previously by the rest of the group.
A smart contract built on blockchain is essentially a self-executing contract that uses automation. Rules are put in place so that if an event occurs it generates an action. For example, if blockchain was being used to coordinate the delivery of goods, a rule could be put in place so that payment is only released when an item has arrived and delivery has been confirmed.
What examples are there of blockchain being used in land registry?
The real estate sector is beginning to explore the benefits of blockchain; the technology is being considered for use in land registration due to its ability to manage financial transactions, asset transfers and regulatory obligations.
HM Land Registry's Digital Street is one example of how blockchain is being adopted in the sector. The Digital Street research project is part of HM Land Registry's business strategy for 2017 to 2022 to digitise and automate daily transactions and explores the use of a digital register to make buying and selling property simpler, faster and cheaper.
Smart contracts, underpinned by blockchain technology, are being considered for use in the Digital Street project to automate the process of moving funds and updating the register. Blockchain is still a young technology and it is likely to be years before the UK adopts a registry built on it, yet its use in real estate has the potential to bring many benefits to the industry if it is successfully explored.
How is blockchain being used in land registry and real estate?
The use of blockchain in land registry is primarily being explored for its potential to enable the "almost instant" transfer of property securely. With smart contracts enabling self-execution when certain conditions are met transactions could be completed faster. For example, a rule could be put in place to facilitate the title of a property being automatically transferred to the new owner when they deposit funds to the appropriate account.
There is also the potential for the registration gap to be removed. The use of smart contracts would speed up the process by automatically updating the ledger, instead of buyers having to transfer ownership through an application form.
What are the benefits of using blockchain in land registry and real estate?
HM Land Registry has stated that it believes that if all parties involved with the purchase of a property have the right data at the right time then they could make decisions faster, making the process simpler with more certainty. The plans for a digital register would allow buyers to access data about a property so that they can conduct their due diligence faster. The use of blockchain and smart contracts to create this register is hoped to automate systems to provide absolute assurance about property ownership in England and Wales.
The automation offered by smart contracts using blockchain has the ability to streamline processes enabling business transactions to be faster and more efficient. The technology can also enhance trust between parties in transactions due to the contracts being automatically executed and enforced, ensuring that outcomes are validated by everyone in the blockchain's network.
Understanding the impact of blockchain for real estate
The impact of the research being undertaken by HM Land Registry regarding blockchain and land registration will be interesting to observe. Businesses in the real estate sector should continue to remain aware of how blockchain could improve processes and speed up transactions.
Our Insights and Resources are recommended for businesses considering implementing blockchain technology. We will update you regularly with information from our legal experts in our real estate and tech teams, as well as other sectors and services you may be interested in.