Digging Beneath The Surface Of Blockchain Property Transactions
Earlier in April, Today’s Conveyancer wrote about the completion of the first full property transaction based on distributed ledger technology. The pilot, carried out in partnership with the Instant Property Network (IPN) and using R3 Marketplace’s ‘blockchain’ platform known as ‘Corda’, brought together property law firms, lenders and software developers.
While most in the conveyancing industry will be aware of this digital pilot, many may not understand how it works, what it means, the current status of the technology, and what might happen next. And if conveyancing is potentially about to be radically reshaped by the forces of digital technology, it is important for existing businesses in this field to understand the coming changes, allowing them the time to adjust their service offerings in order to compete favourably.
Understanding the component parts of digital conveyancing
To bring about an end to end digital conveyancing process, every stakeholder needs to be involved in the process, including:
- Land Registries
- Estate Agents
- Insurance companies
- Tax offices
Then from a technology perspective, there are a number of further elements which are needed to enable a true end to end digital transaction, including to:
- Enable the secure transfer of documents – e.g. using SSL certificates
- Enable the secure transfer of funds – e.g. Shieldpay
- Manage the blockchain process – e.g. R3/IPN’s Corda product
- Prove identity – e.g. Yoti or GOV.UK’s Verify service
The partners signing up to link in with the Corda’s solution are truly international; as such, this is by no means a domestic initiative. This also means that if it takes off fully, it will enable global property transactions without barriers.
How does IPN’s Corda open-source blockchain platform work?
Firstly, it is important to know that Corda is not strictly a blockchain solution. According to R3, Corda was inspired by blockchain technology, but uses no chains of blocks whatsoever. Blockchains are networks of transactions which are ‘immutable’; in other words, once written, they cannot be altered. Traditionally blockchains work by allowing all nodes within a blockchain network to have copies of all transactions. That way, what one party sees, everyone else also sees. However, with Corda, each network node only sees some of the transactions in the network; that which it needs to see, not all. This was done to allow mass scaling of the solution, as it was believed that the potential volume of duplicated data in the context of property transactions was potentially detrimental and excessive.
The Corda solution is based around the ‘Smart Property Record’ which is stored within a distributed ledger. This record brings legal contracts, title information, property history, asset valuations and attestations into a smart contract ‘bundle’ that is shared between all network participants on a ‘need-to-know’ basis; enabling real-time, secure, private and confidential transactions. It is this real-time, shared recording which enables the conveyancing process to be reduced in time, as there is no need to send copies of documents in a step-wise fashion.
Are there other digital property transaction platforms other than IPN’s Corda?
There are other digital conveyancing platforms in the UK such as ‘clicktopurchase.com’, which provides a way of digitally exchanging contracts. It is made secure by using SSL certificate technology, and the transaction is stored in its own blockchain network. Technically, it was the clicktopurchase.com platform which was involved in the first house to be sold using blockchain; but it was only in April 2019 when the first end to end property transaction was completed using IPN, for a house in Gillingham, Kent.
Who will dominate this space in the future?
The IPN pilot has certainly been positively received, and widely backed by many of the largest law firms (e.g. Clifford Chance and Mishcon de Reya) and banks (e.g. Barclays and RBS). And crucial to its potential success in the UK, back in October 2018, the HM Land Registry announced it was formally partnering with software firm, Methods, to integrate with Corda. This was a vital component in enabling end to end property transactions.
It is, however, interesting to note that the UK Land Registry is not rushing to embrace digital property transactions imminently. The original driver behind the push for a digital property transaction pilot was their Digital Street project (their research and development project to allow them to explore the future world of property transactions); in particular, to prove their ‘property exchange assistant’ concept. According to the Land Registry website, “this concept shows an online service which digitises both processes using smart contracts, as well as automating the transfer of funds and updating the register using blockchain or digital ledger technology”. However, while considered successful, the Land Registry is now expected to take a long view on what to do next, with a spokesperson for the registry stating, “it was more to look at emerging technologies [rather] than technology we could currently use.” Moreover, the Land Registry has also stated, “we’re not saying that we, or the industry, should ever develop these specific proofs of concept in real life. What we are saying is that services like this, using technologies like these, are the kind of thing we should all be considering”.
Where does this leave us?
It is hard to understand where the Land Registry may ultimately go with this. They are not the only link the chain (so to speak), but they are essential to an end-to-end digital conveyancing process. The world does, however, appear to be shifting this way, with many other land registries testing the same concepts. We can only hope, that as we have shown so far, the UK truly wants to be at the cutting edge of digital technology for property transactions. While it may not be here now, to remain internationally competitive and to take part in the possible future global system of digital property purchase and sales, it is hard to conceive of it not being the norm in the next five to ten years. This, therefore, gives existing conveyancers the time and space to plan their next steps to provide new services and remain competitive.