Blockchain Revolution

SAFE AS HOUSES? THE ROAD TO ASSET OWNERSHIP
Land title registration is what Hernando de Soto referred to as a nonmarketed
transaction, an economic exchange generally involving a local government.
Nonmarketed transaction costs include the resources wasted by waiting in line,
tracking down ownership, completing and filing paperwork, cutting through red tape,
resolving disputes, greasing the palms of officials and inspectors, and so on.
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These
costs are rampant in poor economies where systems are weak and government
officials are known to behave without integrity. Honduras is such a place, the second-
poorest country in Central America with an extremely unequal distribution of income.
The economic downturn of 2008 stymied the inflow of remittances, and a military
coup ousted the democratically elected Manuel Zelaya in 2009. The coup was backed
by one of the region’s largest landowners, a palm oil tycoon who benefited
significantly in earlier land grabs that coerced Aguán campesinos to sell their land
titles.
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Since the mid-1990s, the World Bank and other global NGOs
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have poured
$125.3 million plus technical expertise into Honduras for designing and managing
land-related development projects that would accelerate the country’s growth.
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We
came across plans to incorporate spatial data infrastructures that would support the
geotagging of data on land and natural resource ownership and usage, climatic and
natural hazards, and socioeconomic conditions that municipalities could use to inform
strategic planning and investment. There was also mention of integrating databases of
land projects with databases of environmental and disaster management projects at
national and local levels.
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Very ambitious.
The problem is that there are still allegations of pervasive corruption in property
registry, land sales, and dispute resolution, including accusations against the
middlemen, judges, and local bureaucrats. According to the Office of the U.S. Trade
Representative, the property registration system is still highly unreliable.
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Households in rural villages were systematically passed over during land title
registration of residences, usually their most valuable asset, because the government

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limited the World Bank’s jurisdiction to urban zones. In rural areas, the cash-strapped
campesinos benefited least from land administration programs. Rural poverty has not
decreased in Honduras since 1998. Ambiguity and corruption manifest themselves in
title disputes all over the developed world. If Honduras was to suffer a catastrophic
natural disaster, as Haiti did in 2010, aid organizations like the Red Cross would be
similarly hamstrung in untangling the mess of titles to deliver safe, durable housing.
“What if there was a universal ledger that could include all these data and infuse
trust into a highly untrustworthy situation? Blockchain seems to be particularly good
at handling transactions, which none of the other systems necessarily are,” said de
Soto. “The fact is poor countries are by nature very corrupt, and so having your
transaction ledger in every node with safety procedures makes the system efficient,
cheap, and fast, but it is also the kind of thing that the poor want too because it
protects their rights,” he adds.
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Here’s how it works: The blockchain is an open
ledger, meaning that it could reside on the desktops of the Honduran officials who
needed to reference it, the mobile devices of field workers who input data, and
citizens who want to maintain a copy. It’s a distributed ledger, meaning that none of
these parties owns it, and it’s a P2P network, meaning that anybody could access it. In
jurisdictions like Honduras where trust is low in public institutions and property rights
systems are weak, the bitcoin blockchain could help to restore confidence and rebuild
reputation.
That’s what the Texas-based start-up Factom plans to do in cooperation with the
Honduran regime and in partnership with Epigraph, a title software company.
Factom’s president, Peter Kirby, said, “The country’s database was basically hacked.
So bureaucrats could get in there and they could get themselves beachfront
properties.” He added that 60 percent of Honduran land is undocumented. The goal of
the project, which has not been signed definitively, is to record the government’s land
titles on the blockchain ledger. Kirby told Reuters that Honduras could leapfrog
legacy systems used in the developed world by deploying Factom’s blockchain
technology, and it would eventually make for more secure mortgages and mineral
rights.
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“Documentation for ownership from patents to houses is extraordinarily
paper-based, and there’s no reason it should be, other than history. Blockchain works
with any transaction or interaction where property rights and timing matters,”
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said
Kausik Rajgopal, who heads up McKinsey’s Silicon Valley office and payments
practice.
At the end of the day we don’t know whether the Honduran government will
enforce land titles registered on the blockchain or sustain its use. In previous land
registration attempts, the government has backed away from the additional costs of
scaling up and including more people. But if the ledger delivers reliable, tamperproof
data, then NGOs could get the additional data they need to inform and influence

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policy decisions and governance. If it eliminates five of the six steps currently
required to register land in Honduras, and cuts the length of time from twenty-two
days to ten minutes, then those nonmarketed transaction costs drop to nearly zero.
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And perhaps it would enable journalists and rights advocates to shame large global
corporations into not purchasing or building on or sourcing timber or water from land
that has been designated for environmental protection or has historically been used by
the campesinos or indigenous people without compensating them fairly. We’re
hopeful!