As Bitcoin continues to grow in popularity and lesser-known coins like Dogecoin are making the news for simply existing, it was inevitable that someone would find productive, real-world uses for the kind of blockchain technology that makes these cryptocoins possible.
In early August, the New York City Department of Finance announced a partnership with Medici Land Governance (MLG), Overstock.com’s (NASDAQ: OSTK) wholly owned blockchain accelerator, to explore the potential of a decentralized digital ledger to record real estate deed information. Using blockchain technology, in theory, should allow for more secure, transparent, and immutable data, reducing deed fraud.
NYC and MLG’s ambitious project
New York City already has a digital repository for real estate transaction history, called the Automated City Register Information System (ACRIS). It dates back to 1966 and will remain the official data source for these records.
MLG will be creating a parallel, proof-of-concept system using blockchain technology. It will demonstrate what a digital ledger of half a million records might look like -- and how it might perform. Once the data is loaded, access to the blockchain records will be restricted to the NYC Department of Finance, and the integrity and accuracy of the records will be tested.
This is an incredibly ambitious project. A blockchain of this size could require significant computational power, as well as many person-hours, depending on how the data is transferred and verified.
To its credit, MLG has already been working on blockchain-based land registries in both Teton County, Wyoming, and Carbon County, Wyoming. The 2019 Teton County system has been hailed as a success, although the Carbon County system was only announced in April of last year and may need additional time to prove its mettle.
Additional challenges in New York City
Although the Wyoming experiments seem to be going well, the New York City blockchain project is significantly larger in scale than either of those projects. Although sometimes these kinds of things scale easily, there’s no guarantee that this much data in a custom-built blockchain will. There may be significant challenges ahead for MLG, though it certainly has the potential to create something amazing for the real estate industry.
The New York City project intends to create the base ledger from 500,000 entries, which will then be built upon as properties are bought and sold, creating thousands of new transactions in a very short time -- the city has about 40,000 property transfers every year. MLG’s successful blockchain ledgers have, to date, have served areas very different from the bustling, cosmopolitan NYC.
According to the United States Census Bureau, Wyoming's Teton County boasts just 23,464 residents, 14,186 housing units, and 2,221 “employer establishments.” Teton County issued just 207 building permits in 2020. Carbon County isn’t much different, with 14,800 residents, 8,845 housing units, and 520 “employer establishments.” Contrast that scale with New York City’s 8.3 million residents and the 500,000 records that we know will jumpstart the digital ledger, and we might expect some significant challenges.
Improving title searches with the blockchain
Despite potential hurdles ahead for MLG, this contract with the Big Apple may be the very thing that will bring the concept of blockchain for tracking deeds into the mainstream. The idea of smart contracts and title searches that leverage blockchain technology to provide pristine title provenance has been considered and even explored in a small way. But laying the foundations for this technology in a city the size of NYC is another thing entirely.
Title searches have always been a cumbersome process, often taking weeks to complete. Traditional tactics generally include digging through fragmented systems that are often difficult to access. Some title searches still rely on old microfilm, microfiche, or paper records. There is no regional or national standard, making a title search much more an art than a science.
But what if it could be more of a science? What if all the data was in a single digital structure built to be added to (but not deleted), like so many links in a chain? It could revolutionize the title insurance industry.
The Millionacres bottom line
The successful implementation of the MLG blockchain ledger system in Teton County, Wyoming, was a great way to test how blockchain technology can have practical applications, even if it took place on a relatively small scale. The location makes sense for a trial run of this innovative approach. It had never been done before, and seeing how it would behave in real-world conditions was vital to properly stress test a system of this type.
Expanding the technology to New York City is quite another thing entirely. This is, to use real estate parlance, the highest and best use of a digital ledger. If blockchain technology can make it there, it can make it anywhere.
What does it mean for the future of real estate? We can’t be sure yet, but it may well represent a new, exciting way to organize the immense amount of information required to perform title searches and issue title insurance. That could spell cheaper title insurance for both buyers and sellers, faster closings for both parties (since even cash deals have to wait for the title to come back clean), and more complete data with a higher confidence level than ever before.