Bitcoin mining company BitFury, the Republic of Georgia’s National Agency of Public Registry and renowned Peruvian economist Hernando DeSoto will announce Friday a partnership to design and pilot a blockchain land titling project.
The experiment revives blockchain enthusiasts’ dreams of using the technology — a transparent and secure ledger — for managing land titles. While in the United States and Western Europe, it’s common to have legal title to property such as homes, cars, etc., in many parts of the world, people do not have legal title to their assets. De Soto, president of Lima-based think tank, the Institute for Liberty and Democracy, estimates that the value of this “dead capital” totals $20 trillion.
It also signals a shift in direction for the San Francisco-based company that has, until now, been known primarily for mining.
In a signing ceremony, the partners will sign a memorandum of understanding at the Georgian Technology Park, a two million-square-foot privatized land plot in the Republic of Georgia that BitFury acquired to create a special technology zone that also houses one of its mega data centers.
“We are launching the property rights registration project for Georgian citizens so that they can register property on the blockchain,” said Valery Vavilov, chief executive of BitFury.
“Why the blockchain? It will help do three major things,” he said. “First, it will add security to the data so the data cannot be corrupted. Second, by powering the registry with the blockchain, the public auditor will also make a real-time audit. So the auditor will audit the registry not once per year, but every 10 minutes [for example]. Third, it will reduce the friction in registration and the cost of property rights registration, because people could do this in the future using their smart phones. Blockchain will be used as a notary service.”
Papuna Ugrekhelidze, the Chairman of the National Agency of Public Registry of Georgia, said in a statement, “By building a blockchain-based property registry and taking full advantage of the security provided by the Blockchain technology, the Republic of Georgia can show the world that we are a modern, transparent and corruption-free country that can lead the world in changing the way land titling is done and pave the way to additional prosperity for all.”
“Of the 7.3 billion people in the world, only two billion have a title that is legal and effective and public regarding their control over an asset,” De Soto, who is well-known for his work on how unofficial ownership of land and other property harms the prospects of much of the world’s poor, said. “When something is not legally on record as being owned, it can therefore not be used … as collateral to get credit, as a credential that you can be able to transfer part of your property to invite investment in. Things are owned, but when they’re not adequately paperized or recorded, they cannot fill the functions of creating capital and credit.”
It also creates problems for business. “If you’re going to be a mining company or an oil company or you are Hershey’s or Heinz 57 or Nestle, and you want to buy million acres in Ghana, your number one problem today is who you buy it from,” said De Soto.
Currently, buying or selling land in Georgia is a one-day process requiring the buyer or seller to go to a public registry house and pay between $50 and $200, depending on how quickly they want the transaction to be notarized. The pilot project will move elements of this process onto the blockchain and cost buyers and sellers in the range of $.05-$.10. “The outcome would be citizens of a specific region have a smartphone application and they’ll be able to move their assets, and that movement will be corresponded to tokens moving on the blockchain and doing it with even less friction than what the country has now,” says George Kikvadze, vice-chairman of BitFury’s board.
The agreement marks BitFury’s first project outside of the hardware and mining that have made the company’s reputation since its founding in 2010. Vavilov said that, on top of the mining or transaction processing infrastructure the company provides, it will now offer a software platform consisting of different frameworks for applications in voting; data analytics, such as for compliance and law enforcement; blockchain as a service for digitizing assets such as tickets, coupons and cars; and an API that will allow developers to create new applications for the Bitcoin blockchain.
“[BitFury] is a one-stop shop for any business, any government and any individual to connect to the blockchain,” he said.
Many blockchain adherents have long envisioned applying the technology to opaque, bureaucratic processes such as property rights registration to make them more transparent, secure and fast. However, a project previously announced by Factom that aimed to manage land titles in Honduras on the blockchain temporarily stalled. A May 2015 article stated an intention to have a pilot completed by December, but that month, Factom CEO Peter Kirby wrote in a blog post, “The project is political in nature, and government systems move slower than we all would like.” Additionally, the Honduran government never publicly stated any intention to either pursue or not pursue the project. However, Kirby now says, “That project is back on. The government was not stalling. It was just distracted because they are a government.”
While, arguably, the problem of land titling is greater in Honduras than in Georgia — the initial news report about the Factom deal quoted Kirby as saying, “In the past, Honduras has struggled with land title fraud. The country’s database was basically hacked. So bureaucrats could get in there and they could get themselves beachfront properties” — BitFury believes that Georgia’s more well-functioning system and reform mindset make it the perfect place to showcase the virtues of registering land titles on a blockchain.
Georgia, which Vavilov called “progressive” and “innovative,” has made a name for fighting corruption in the last few years. While it ranked near last (123) on Transparency International’s Corruption Perception Index in 2003, it now ranks 48th.
Vavilov says its well-organized data and relatively corruption-free land titling process will make it easier to organize and secure the data and run the pilot, without worrying about political considerations holding up the process. According to the World Bank, Georgia ranks third in the world for ease of registering a property for a small or medium-sized business. Honduras, in contrast, ranks 88th.
“The government is really committed to reform,” says Kikvadze. “It takes two to tango. The initial reaction was very positive and supportive, and not just from the level of the Prime Minister but also the level of technical team. Because they had completed a major reform in terms of updating the public registry couple years ago, they have a hunger for ‘What’s next?’ So it’s always good to work in an environment where you’re not treated with suspicion, but as if someone is learning from you and vice versa. In this cooperative environment, I think you can accomplish much more than in a place we had to be fighting corrupt officials and people with different agendas.”
The project has personal meaning for Vavilov. “I was born and grew up in Latvia, which was part of the Soviet Union, but is now part of the EU. When the Soviet Union collapsed, my parents lost everything because the money literally became paper,” he said. “This technology can really save people’s assets, which is especially for property rights registration in emerging markets.”
While the system is yet to be fully designed, the company intends to create a private blockchain tailored for property rights registration that is anchored to the public Bitcoin blockchain. This means that the land titles will be managed on a closed system so no one individual transaction will be identifiable and public, but that the public can have confidence that the record will not be tampered with because the data on it will collectively be stamped onto the public Bitcoin blockchain, making any fraudulent changes to the private blockchain visible to the whole world.
Despite being in its infancy, the project has already piqued the interest of other governments, and representatives of two Peruvian presidential candidates will be attending the signing in Georgia to learn more about BitFury’s solution.
The company expects to launch the project by year end, and the eventual goal would be, if it proves successful, to build it out and eventually apply it in countries with even less functional land titling systems.
Laura Shin is the author of the Forbes eBook, The Millennial Game Plan: Career And Money Secrets For Today's World and co-author of Money Hacks: Forbes Stories Of Superstar Savers.