Is blockchain for land succumbing to 'pilot-itis'?

View of Burj Khalifa the tallest building from the Business Bay area in Dubai, UAE July 8, 2018. Picture taken July 8, 2018. REUTERS/Satish Kumar

* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

The pilotitis epidemic is real. And the remedy: a sober look at whether a place is truly well-suited for blockchain technology

Tim Robustelli is a program associate for the Future of Property Rights program at New America, a think tank based in Washington, DC.

Blockchain companies and their partners have initiated hundreds of projects over the past few years. Evangelists of the distributed database technology claim it can revolutionize nearly everything.

They want to use it to track sushi from ocean to plate and to source cattle in Wyoming. Swiss citizens voted via the technology in a local election while NASA recently proposed its use for air traffic control. 

While some ideas are wackier, land administration and real estate are a widely accepted natural use for blockchain.

The technology promises to streamline real estate transactions and allow greater investment opportunities within high performing economies and may also help protect poor communities from land grabbing and lessen the chances of record tampering throughout the developing world. 

This potential has started to bear out in several places.

The Republic of Georgia and the blockchain firm Bitfury successfully anchored 1.5 million land records on a blockchain in order to help fight corruption and bolster public trust in government institutions.

Elsewhere, the Smart Dubai Office continues to work enthusiastically to create the first blockchain-powered city in the world. Through one current project, Dubai plans to use blockchain to increase efficiency in the real estate sector, allowing residents to find a new apartment and sign a lease within minutes

But several other blockchain efforts have come down with a severe case of "pilot-itis". These projects have worked on a small scale - and have even been replicated - but have not been able to reach the masses. 

Propy has tested blockchain to record property transactions in the small Vermont towns of South Burlington and Hubbardton, but expansion throughout the state and elsewhere has been slow.

In Brazil, Ubitquity used blockchain technology to record real estate deals in the southern municipalities of Pelotas and Morro Redendo, but we have not seen evidence of project expansion. You can likely count the transactions for each project on both hands. 

Pilots are a good first step for working out the kinks in a project. But those with no hope of scaling drain the considerable time, energy, and resources of multinational companies, entrepreneurs, and governments. And for the people and places that could most benefit from the technology, "pilot-itis" and its misdirection of resources also translates into missed opportunities for development.

So why are these land projects stuck in pilot mode? Because blockchain technology continues to be applied under the wrong conditions. 

In 2018, we laid out seven necessary pre-requisites for a successful blockchain-for-land project, including an identity solution, digitized records, and a trained professional community. A year later, we remain confident in these criteria.

So far, successful pilots have benefited from favourable institutional conditions - such as a ready supply of digitized records - as well as sufficient political will and a sustained atmosphere of collaboration among stakeholders. 

Conversely, here’s a quick look at what’s kept other projects from scaling:  

Fragmented land systems

It’s hard to scale a blockchain project in a place with fragmented land administration services. A big culprit is the U.S., which is a tempting target at first glance due to its strong economy and lucrative housing market. Yet, most property databases in the U.S. function at the county level. In Vermont, the management of property is at the municipal level. That’s well over 3,000 different ecosystems with their own laws, procedures, and institutional structures. Similarly, in Brazil land is registered by 3,400 privately-managed cartorios. In these places, blockchain-for-land projects must be implemented with each individual records office; a gruelling process.

Enthusiastic but unprepared decision-makers

Decision-makers around the world are eager to explore the potential of blockchain, but often fail to completely understand the technology. An executive at a blockchain firm recently provided us with an example from a South Asian country, where his company was brought in to build a proof-of-concept for a land registry. The executive felt that while government officials were enthusiastic about the possibilities created through blockchain, they did not understand it well enough to implement what the company had demonstrated. Although this process can be frustrating for technologists, we suspect decision-makers will become better prepared to deal with blockchain over time.  

Sceptical professional communities

Interference from entrenched stakeholders also helps explain why blockchain isn’t scaling as quickly and broadly as some in the real estate industry had hoped. This often includes brokers, government property databases, title companies, escrow agents, attorneys, inspectors, appraisers, and notaries. These groups must not only understand blockchain, but also be convinced that the technology is a tool and not a threat to their livelihoods.

Some traditional stakeholders are more proactive than others in embracing blockchain. The Chamber of Commerce in Barranquilla, Colombia, for example, believes that it must adapt to the technology. Instead of worrying that blockchain will replace it, the Chamber is actively exploring ways to incorporate blockchain within its operations. Where entrenched parties have an open attitude, blockchain can work.

Paper land records

Places that show the most interest in blockchain for land are often worst suited for projects. This starts with paper records. When records haven’t been digitized, a blockchain-based registry is often a non-starter. Think about it: what are you going to put on the chain, an old, faded piece of paper?

It’s been difficult for blockchain companies to find a jurisdiction that includes both engaged policymakers and a digital land administration system.

Vermont, for instance, passed legislation last year hoping to become a hub for blockchain. Yet the widespread lack of digital land records in the state could further limit efforts to small and lengthy projects on a town-by-town basis. In Honduras, as well, officials expressed interest in a blockchain-based land registry. But the pilot project never got off the ground, in part due to an outdated, paper-based system.

We believe in the promise of blockchain for land - just not everywhere.

The pilotitis epidemic is real. And the remedy: a sober look at whether a place is truly well-suited for blockchain technology. 

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