Can Blockchain Technology be the Solution to the Land Ownership Problem in Developing Nations?

This is an old article I wrote in late 2016 on blogger, before turning it into a more academice article that is now published in The William and Mary Policy Review. This first iteration was not good, but thought I would reshare anyway.

If you are in the international development or foreign policy realm it is of no surprise to you that land rights are a problem in developing nations. If you are a tech-head, a tech evangelist or a casual reader of how technology is transforming our world, blockchain technology may not be such a foreign concept to you. You may have even come across a paper with a similar title and thought to yourself, ‘technology sure is cool’. While an Op-ed, this article will shed light on an issue and dive a little deeper on what blockchain can do it about it. Like most things, blockchain still has issues, and you will not be deprived the right of knowing what these issues are, but hopefully this article awakes a desire for you to learn a little more. I will start by discussing the informal economy, then I will address why this is a land ownership problem. Following that I will discuss reform. I will first introduce blockchain as a technology, and then I will discuss its relationship to reforming land registration systems in developing nations.

The Informal Economy

What exactly is the informal economy? The informal economy is a foggy area in the economy where it is not taxed, nor has any form of government intervention. The size of the informal economy is staggering, making up nearly 48% of North Africa’s GPD, 51% in Latin America, 65%

in China, and almost 71% in Sub Saharan Africa as reported by SIDA (Swedish International Development Cooperation Agency). Most ordinary people may inappropriately think of the informal economy as analogous to the black market and therefore assumed it to be a sector of criminals. In academia, until the 2000’s, the informal economy was seen as a shrinking sector, that would disappear as a country reached a certain threshold in GDP and growth. Both mainstream and academic thought were wrong. The informal sector is full of entrepreneurs and families operating and often thriving where there are no formal opportunities for them outside of the agricultural sphere. The informal economy is booming and isn’t going away anytime soon, but it does come at a cost and there is a root cause.

As a result of the informal economy ‘slums’ in urban areas have arisen, commonly in the form of squatter settlements on public and private lands, occupation of overcrowded abandoned buildings and illegal commercial land subdivisions on customary land as reported by the Global Urban Institute. Customary land is just a way of expression that territories that have developing traditional legal systems passed down from generations and outside of the scope of the formal law of that country or state. These settlements develop quite severe issues including famine, disease and lack of access to clean drinking water. The problems within these slums, like those of the informal economy as a whole, all stem mostly from one major issue: insecure land tenure and lack of private property rights.

Lack of Land Tenure for the World’s Poor

Insecure land tenure is not just the problem of those in ‘slums’, but also those agricultural farmers far away from cities, who because of insecure land tenure are often forced to migrate to engage in the informal sector for livelihood. So what is insecure land tenure? It is the result of a

failed land registration system in developing nations that gives ‘de-jure’ or legal rights to their land. An Economist of the name Hernando De Soto has captured the gravity of the insecure land problem in the form of a monetary value. Because individuals occupy their land off the books, they have in essence dead capital, or the inability to convert one’s assets, their land, into capital by means of loans. This dead capital across the global equates to nearly $10 trillion USD.

Land Registration Systems

Land Registration Systems are the systems that record titles, deeds and lawful ownership of property and land. They are usually run by government agencies. In the developed world, through a long and expensive process very stable and mostly trustworthy land registration systems have been built. These systems as a result are complex. Within this process includes a Cadaster, which is a mapping and parsing of boundaries of plots of land, both public and private, within a country. These systems also include the valuation of property and land. In addition, most developed countries operate under a deeds or title system. Within a deeds system, to track for ownership of land, one must follow a chain of transfers. Often in a title system, possession of the title is authoritative of who legally owns the land or property.

In developing nations, the process of undergoing such a long and expensive project to develop a viable land registration system is problematic. Most of the countries that have poor registration systems fall into several categories that present their own problems.

Post-conflict countries- typically suffer from limited government credibility, often due to regime changes and a large displaced refugee population with castes problems of its own.

Colonial legacy countries- biggest issues come from limited resources, confusion of legal rights

surrounding a disconnect between customary rights and formal rights.

Transition economies- those found most frequently in Eastern Europe and Latin America, have the biggest issue with limited experience with private property in general as they transition to democracy.

Evolving market economies- biggest challenge is in unequal wealth distribution and limited safeguards against corruption.

With all of these issues, it seems to be a fool’s errand to assume that we can expect developing nations to undergo such a project, using western style land registration systems. Countries like England and France have undergone such a project over many hundreds of years. Newer, yet still developed nations like America, Australia and New Zealand have still had as many as 200+ years to perfect their systems. Extrapolating on this, many developed nations themselves are undergoing problems with their land registration systems. Not only are these systems expensive and temporally taxing to build, they are just as expensive to maintain.

An example of how expensive they are lies in a growing issue in England, one of the oldest and most developed countries in terms of land registration systems. England is currently undergoing major discussion on privatizing their land registration system. The discussion centers on the huge financial gain to be had by England’s Treasury Department. That gain is in excess of $1 trillion Dollars. This financial gain however, comes at a cost. That cost is transparency. By privatizing the land registration system, observing records would come at the cost to individuals. In addition having a central third party with interest in return on investment rather than open access to public knowledge can result in some less than ethical practices.

Of course England isn’t alone in rethinking how the land registration system in their country works. Norway has also decided to do away with the old. Their choice for an alternative however is not in privatization, but in blockchain technology. A solution that not only will secure transparency, but will also increase efficiency and reduce administrative cost associated with maintaining it.

Blockchain Technology

For those of you tech-nerds, this section isn’t necessarily for you, but read along anyway to correct me where I fail. The Blockchain in essence is just a distributed public ledger. It’s innovation from a traditional database that we would typically see in a public or private sphere, is that it is not operated under a central authority; information is stored cryptographically making it secure and immutable. Immutable just means that it is nearly impossible to tamper with records. The easiest way to understand blockchain is by using bitcoin as an example. Following from the logic of bitcoin, we can move to a more suitable discussion on the kind of coin that will be instrumental in explaining just how blockchain can solve the land registration problem in developing nations.

Bitcoin is a cryptocurrency. Cryptocurrencies are digital currencies that take advantage of cryptography to control the total amount of the currency as well as to secure and verify transactions. Bitcoin operates on a peer to peer system, meaning that transactions take place between interested parties without the need of an intermediary like a bank or escrow. Those engaging in transactions on this system derive both a public and private key. These keys are vital in identifying ownership of assets being transferred on the system. Public and private keys are, in

laymen terms, digital signatures. This system is beneficial in its ability to substantially cut transaction times down. In place of using an intermediary for transaction verification, transactions are sent out to a distribution of nodes, known as miners, who verify that the transaction is valid. Also, by solving a math problem these minors can add transactions to what is known as a block. Blocks are nothing more than how the information is recorded to this ‘database’. After each series of transactions, a new block is added onto a chain of other blocks, bearing unique information that represents its place in the chain. Akin to page numbers in a book, where we know page 2 comes after page 1, based on a unique identifier of a block we know where it falls in the chain. As you can see, demystified, our chain of blocks is the etymology behind the name blockchain. Along with the security and efficiency of blockchain transactions, they also come with another very beneficial characteristic, transparency. As I mentioned in the definition, these transactions are on a public ledger.

Returning to our land registration problem, we can see that there are characteristics inherent to the blockchain that would make them very beneficial to developing a land registration system. In a land registration system we need to be able to identify ownership to verify a valid transaction, we need the system to be secure and efficient and we need it to be transparent. With these foundational tools we can move on to discussion just how we would turn the blockchain into a land registration system.

Blockchain and Land Registration Systems

Bitcoins, like real fiat currency, are meant to be fungible. Fungible is a way of saying that the currency is mutually interchangeable — if I give you a dollar and you give me a dollar we will not distinguish between the two. With digital currencies, although they are meant to be fungible,

we can in fact create a type of coin that, if carefully tracked, can be distinguishable. A distinguishable coin opens up a new world of transactions in the digital transaction world of the blockchain as it gives rise to the opportunity to exchange other financial assets on the market. With this, we would be able to verify the ownership of property as well as conduct in trade with this property. This concept is the inception of what is known as colored coins.

Colored coins in their most simplistic explanation are colors associated with different kinds of assets. Blue can be a bond; gold can be a property for instance. From here we will identify a piece of property as a gold coin on the blockchain infrastructure. We now have the infrastructure, but how does it work in reality for the land registration system?

In the most simplistic fashion once rightful owners of property in developing nations have been identified, the asset can be put into the system. With the blockchain infrastructure, this gold coin could hypothetically hold the information required for legal ownership in a smart contract inside. This transaction is known as the genesis output. When ownership is transferred, the new owner is recorded under the same transaction of this coin, while the initial owner relinquishes his rights. As mentioned before, ownership of the asset can be verified the digital signature known as the key in the system. From here on if someone wants to verify that they are getting a legal transaction, they just need to follow the trail of transactions of this real property to the genesis output.

Short Comings of Blockchain in land registration

With blockchain come social, political and technical problems. This list isn’t meant be exhaustive, but merely a quick snapshot of some of the hurdles — hurdles that we can hopefully overcome to create a system that can potentially raise billions of out poverty and bring the

benefits of the informal sector to the formal one. From a social perspective, there will be many discrepancies in post-conflict societies on rightful ownership even under customary law since many refugees were uprooted from their home lands. Other issues may include, but are not limited to communities being afraid that with formalizing their property, taxes will be far too high to maintain a living and their property. From a political perspective, it must be asked, are developing nations willing to let customary land tenure serve as a base for legal ownership under any land registration system? Finally, the technical implications come both from the infrastructure as well as the deployment. With deployment, we have to ask which medium we will use to get these billions registered. We know that cell phones are the most likely solution; the issue is how we get internet to these phones to ensure the viability of this project. From a computational side we must deal with something known as the blockchain bloat. The blockchain bloat is a way of saying that the cost of running the system will rise since storage is neither free nor infinite. The other computational problem is that transaction verification is not free. It is cheap, but it may be the case than in this mass influx of new information to the system from the developing world, hashing the transaction will not be sufficiently covered financially since there are limited financial resources available to these members of the global community in the first place.

A positive outlook

Although this is a huge challenge, with real implications, the future looks bright. The informal sector is home to millions of entrepreneurs, who with a little help, will likely be the biggest proponents of promoting this system to their extended network. In addition there are already great minds in the tech, political and social spaces that are tirelessly working to see this through.

Along with people like Hernando De Soto and Nick Szabo, who have pioneered some of these thoughts, we have countries like Norway, Georgia, and Honduras who are undertaking this task. As a growing advocate myself and a new, but lifelong student, I welcome you to explore this journey as well. Together we can build something inspiring.