In 2000, revered Peruvian economist Hernando De Soto published The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, a study on the relationship between poverty and property rights. In the book De Soto claims approximately $9 trillion is tied up in land, homes and businesses belonging to people who do not have deeds or titles.
Peter Kirby, President and founder of Factom, draws inspiration from De Soto and endeavours to make an impact in the land title arena. “Land Title corruption is a very common problem in the developing world and a immutable ledger solution could help these economies move forward dramatically.”
According to the USAid and Tenure website approximately 80% of privately held land in Honduras is untitled or improperly titled. “Only 14% of Hondurans legally occupy properties and, of the properties held legally, only 30% are registered.” The ongoing land title disputes in Honduras have lead to violence, environmental abuse, and the displacement of indigenous people.
Although the details of the Honduran project cannot yet be revealed, Kirby explains there are two key contributors to the lack of land title registries in the third world. The first is due to taxes, “if it is an unrecorded property it is much harder to tax,” he said.
The second is a distrust of the officials in control. According to David Johnston, Chairman of the Factom Board, when land registries went digital in Honduras they were held in centralized databases. These entries were easily altered by administrators. “This has been a big problem in the developing world the last decade or so,” said Johnston.
“If it is on paper, somebody can steal it from me. If all my neighbours just agree that it is mine, it is much more secure in my mind.”
- Peter Kirby, Factom CEO and Founder
Kirby advises step one should be to address existing records, and improve upon them. “If you can take the existing record, prove to the world that it is much more robust you have a different incentive system for people to start recording their undocumented land.”
This may have a direct impact on an economy such as Honduras. Kirby explains that in Honduras, and throughout the developing world, interest on mortgages sit at around 18% on a ten year loan. “They basically give you a credit card on your house. It is because they don’t trust the collateral. What does a loan without collateral look like? It looks like a credit card. If you can get a much more robust collateral, it will reduce the risk in lending there,” he added. “Instead of an 18% mortgage, maybe it’s a 7% mortgage.”
As a result, if a non-registered landowner can a) trust land titles are recorded and globally distributed by their government in a way that nobody can steal it and b) have much better lending or borrowing tools against their land. Kirby believes we will start to see a new system of records that will also provide financial incentive, “De Soto has demonstrated over and over again that if you can get a global body to agree to a land record, then it is beyond the reach of whoever the in power dictator happens to be. I think that is a really good precedent for how to think about this.”
“The blockchain is a big distributed ledger and lets us start saying your title is not recorded in the country, it is recorded around the world by your country. That is a really powerful idea and it demonstrates what this blockchain technology is actually good at. It’s not just about moving money around, it’s good at proving immutably what belongs where and who it belongs to.”
Factom have formed a partnership with the firm Epigraph, who are developing cloud based title software. “Transparency and trust are the building blocks of society and economics,” reads Epigraph’s site.
Together Factom and Epigraph have built a proof of concept for next generation land title registry. The land registry tool will use bitcoin’s distributed ledger, the blockchain, to prevent the counterfeiting, forgery and corruption surrounding land titles in the developing world, beginning with Honduras.
“We expect to have the pilot program in place and demonstrating value by the end of the year.”
Kirby explained that the Land Registry Prototype will assist in tracking ownership, not storing original documents. “Factom's not designed to be a perfect land record. Factom is designed to publish and document the process for land records.”
The registry tool will create immutable records for land ownership, which are then digitized, hashed and stored permanently on the blockchain. Factom are then able to track any change in ownership of these titles, loans connected to them, and mineral rights.
“You can also add some meta-data to Factom (Property ID number, etc.) along with the hash, so there's a way to partially recreate the property record if it's lost.”
Registry system issues are not restricted to the developing world. The North America State of Massachusetts has a dedicated court with jurisdiction over the registration of title to real property, and foreclosure and redemption of real estate tax liens. In Canada, Newfoundland and Labrador regularly sees land disputes in court as 95% of land is considered Crown Land. Both systems have overlapping deeds, which are not easy to track or trace.
“This is one of many examples of land disputes that need to be settled by a court system. The key function is to immutably record the documents so the court has a true history of what happened. They'll have to make specific decisions from there based on evidence and precedent. Those court findings can then become part of the permanent record of the land,” said Kirby
In addition to land titles, Factom stated that they have received interest from Insurance Companies, Financial Institutions, Medical Records and others. However, the application of Immutable ledgers to land registries displays a need for immediate action for Kirby.
“Immutable ledgers are a very useful tool. Land registries are a very visible use for immutable ledgers with a lot of urgency and pain associated.”