Have you heard the phrase “blockchain” and wondered what it was? You are not alone. ALTA’s Blockchain Workgroup has easy-to-understand answers to some of the most frequently asked questions from title professionals about blockchain and related technologies. Here’s a quick overview.
First, let’s define the term. A “blockchain” is a growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires the consensus of the network majority.
How is blockchain better than a regular database?
Every change ever made to each record on the blockchain 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. 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.
Are county clerks and registers moving to blockchain?
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.
Wyoming paved the way for more use of blockchain technology at its 2018 Legislative Budget Session. Teton County Wyoming and Medici Land Governance (MLG) have signed a Memorandum of Understanding (MoU) that will allow Medici Land Governance to work alongside the county clerk’s office to migrate its land records and property titles from an existing analog system to a blockchain-based system.
On August 28, 2018, Vermont Governor Phil Scott ceremonially signed into law bill S.269 (Act 205), legislation supporting the development of blockchain businesses in Vermont. The law mandates the review of blockchain technology usage for the recording of land records and other public records.
Can cryptocurrency be used to close a transaction?
There are certainly some regulatory and compliance challenges to transacting real estate deals in cryptocurrency. However, closing a real estate transaction using cryptocurrency 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.
When will I need to start dealing with Blockchain and what areas of my business might be impacted?
The use of blockchain is still in its early stages. It will take time for this technology to become widely adopted and it won’t happen overnight.
Video originally published by the American Land Title Association on September 19, 2018. ALTA’s most recent article on the topic (originally published here).