SSRN Id3324828

Blockchain, the Borg Collective and Digitalisation of Land Registries
Rod Thomas*
Charlie Huang*
Introduction
Blockchain has been enthused as the future of land registration. Papers delivered at the
World Bank Conference on Land and Poverty held in Washington D.C. in early 20161
promoted the concept as allowing for incorruptible, “distributed” registries, most
importantly, removing the “middleman” out of the transaction, enabling “peer-to-peer”
direct transactions. The papers advocate such a system would enable significant
savings in transactional costs.2 By a Goldman Sachs online post from May 2016,
savings to consumers within the vicinity of some US$ 2-$4 billion are suggested.3 This
proposal is an aspect of what has been termed as the blockchain “revolution,” described
as “one of the biggest technological breakthroughs in the 21st century”4 and a possible
“game changer.”5
Initiatives to introduce blockchain registries have emerged. In April 2016 the Republic
of Georgia’s National Agency of Public Registry announced it would pilot a blockchain
*AUT University, Auckland. Rod is a Senior Visiting Research Fellow of the Cambridge
Centre for Property Law, University of Cambridge. We wish to acknowledge useful comments
made by Lynden Griggs of University of Tasmania, Rouhshi Low of Queensland University of
Technology, Nick Bohm of the UK-based Foundation for Information Policy Research and
Janine Lay and Sally Al-joubory of AUT University. Thanks to the anonymous reviewers for
their comments. The usual disclaimer apply.
1
www.worldbank.org/en/events/2015/07/20/land-and-poverty-conference-2016-scaling-up-
responsible-land-governance (accessed 22 November 2016).
2
A. Dobhal, and M. Regan “Immutability & Auditability: The Critical Elements in Property
Rights Registries;” A. Anand, M. McKibbin and F. Pichel “Colored Coins: Bitcoin,
Blockchain, and Land Administration.” These unpublished papers were presented to annual
World Bank Conference on Land and Poverty, March 2016.
3
www.businessinsider.com/goldman-blockchain-beyond-the-hype-practical-uses-2016-
5/?op=1?r=AU&IR=T (accessed 28 October 2016).
4
A. Dobhal, and M. Regan “Immutability & Auditability: The Critical Elements in Property
Rights Registries” at 8.
5
A. Anand, M. McKibbin and F. Pichel “Colored Coins: Bitcoin, Blockchain, and Land
Administration” at 13.
1
Electronic copy available at: https://ssrn.com/abstract=3324828

titling system in conjunction with bitcoin mining company BitFury, and renowned
Peruvian economist Hernando DeSoto.6 In June 2016, the Swedish Land Registry
announced its own initiative to introduce a blockchain land registry project.7 However
such enthusiasms must be understood against a background of hesitant starts. In 2015
tech companies Factom and Epigraph announced they were working with the
government of Honduras to introduce a blockchain registry for that country.8 However,
that project appears to have been “stalled”9 if not halted.10
Against this background, we examine what blockchain is, and identify the relevant
design challenges in terms of land registration. This is done by utilising three proof
requirements11 developed for critiquing the credibility of registries and identifying
potential issues that emerge.
We tentatively conclude that the use of blockchain systems for land registration are
inherently problematic. Although there are admittedly many “known unknows,”12 it is
hard to escape the conclusion that such a system has significant difficulty in
overcoming the multi-dimensional dilemmas that invariably arise from land ownership.
Further, the concept of a decentralised registry is, at the end of the day, problematic.
This is because land is a generically different concept from (say) a bitcoin. We argue
that, for land, some form of policing of the registry is required to avoid abuses or
misuses of the system. This leads us to reflect that while arguably there may be limited
6
L. Shin, “Republic Of Georgia To Pilot Land Titling On Blockchain With Economist
Hernando De Soto, BitFury” (21 April 2016) Forbes www.forbes.com (accessed 22
November 2016).
7
G. Chavez-Dreyfuss “Sweden tests blockchain technology for land registry” (16 Jun 2016)
Reuters www.reuters.com (accessed 22 November 2016).
8
“The great chain of being sure about things” The Economist (online ed, 31 Oct 2015). See
also A. Dobhal and M. Regan “Immutability & Auditability: The Critical Elements in
Property Rights Registries.”
9
P. Rizzo “Blockchain Land Title Project 'Stalls' in Honduras” www.coindesk.com/debate-
factom-land-title-honduras/ (accessed 27 October 2016).
10
11
The three proof requirements are the suggested tools to objectively compare an automatic
system with traditional manual systems: R. Thomas, R. Low and L. Griggs “Australasian
Torrens Automation, Its Integrity, and the Three Proof Requirements” [2013] NZ L Rev 227
at II.
12
United States Secretary of Defense, Donald Rumsfeld. News briefing February 12, 2002 on
the lack of evidence linking the Iraq government of Iraq with weapons of mass destruction.
See https://en.wikipedia.org/wiki/There_are_known_knowns (accessed 28 October 2016).
2

benefits in introducing a blockchain system for emerging economies with corrupt or
inept registries, the advantages for more developed countries are not evident. This is
especially so for economies that operate a State guarantee of title regime.
What is the Blockchain?
In 2008 a person (or a group of persons) under the name of “Satoshi Nakamoto”
published a white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System on the
Internet”.13 In the paper the author(s) lamented the reliance on trusted third parties to
facilitate online commerce. They argued that the standard “trust based” model incurred
increased transactional costs and uncertainties due to that reliance.14 In its place, the
author(s) proposed a decentralised system to facilitate electronic transactions. This is
to be a direct “peer-to-peer” online network, allowing parties to transact directly with
each other without the need for interaction with a trusted third party.
“Electronic coins” called “bitcoins” would be used as currency. These were to be

constructed from digital signatures and transactions involving bitcoin verified by
network nodes. Such transactions would be recorded on a publically distributed ledger,
to ensure visibility of the dealings, and by such scrutiny, prevent issues of “double
spending.”15
Following this, in January 2009, the first open source bitcoin client was released and
the bitcoin network was born.16 Subsequently bitcoin has been through highs and lows.
Notably, the uncontrolled nature of the system has made it susceptible to use and
manipulation for less savoury activities such as online black market transactions and as
a tool for money laundering. 17
13
S. Nakamoto “Bitcoin: A Peer-to-Peer Electronic Cash System on the internet.” See
wikipedia.org/wiki/Satoshi_Nakamoto#cite_note-whitepaper-2 (accessed 27 October 2016).
14
S. Nakamoto “Bitcoin: A Peer-to-Peer Electronic Cash System on the internet” at 1. See
15
S. Nakamoto “Bitcoin: A Peer-to-Peer Electronic Cash System on the internet” at 2. See
16
Nakamoto published the first specification and proof of concept for the Bitcoin blockchain
to a cryptography mailing list on 09/01/2009. The original post has been archived at:
http://web.archive.org/web/20140326174921/http://www.mail-
archive.com/cryptography@metzdowd.com/msg10142.html.
17
N. M. Kaplanov “Nerdy Money: Bitcoin, the Private Digital Currency, and the Case
Against its Regulation” (2012) 25 Loy. Consumer L. Rev 111 at 129.
3

Recently the focus has moved away from the idea of the bitcoin concept as just virtual
currency. This is due to an increasing appreciation of the technological innovation
behind the bitcoin concept. This is the “blockchain,”18 being the publically distributed
ledger enabling bitcoin transactions to occur.
The blockchain concept works as follows. Transactions are grouped into “blocks.”
Following verification, a new “block” is added to the chain of previous transactions
(prior verified blocks) and the distributed ledger updated instantaneously, permanently
and irrevocably. The result can be seen by all users.19 The blockchain thus maintains a
continuous growing record with every new block of verified transactions, incrementally
building the chain as a unique matrix, thought to be practically impossible to corrupt
and sabotage.
What benefits does a public Blockchain provide?
The key difference between blockchain and what may be considered as a more
conventional form of land registry, is the concept of decentralisation.20 In this regard, a
blockchain titling system may be promoted as having three major benefits. These are
(1) trustless transactions; (2) durability; and (3) transparency and immutability. Each is
considered.
“Trustless” transactions
It has been suggested that property transactions are essentially the “law of lists” and
ledgers; in that, bank accounts, stock certificate entries, and land titles are all just entries
18
See generally, the United Kingdom Government Office for Science it its 2016 online report
Distributed Ledger Technology: Beyond Blockchain at 6.
www.gov.uk/government/uploads/system/uploads/attachment_data/file/492972/gs-16-1-
distributed-ledger-technology.pdf (accessed 22 November 2016).
19
Allens, Reaction to Blockchain (paper presented to Blockchain Summit, Melbourne,
Victoria, June 2016) at 4. See www.allens.com.au/data/blockchain/index.htm (accessed 22
November 2016).
20
United Kingdom Government Office for Science Distributed Ledger Technology: Beyond
Blockchain at 36.
distributed-ledger-technology.pdf (accessed 22 November 2016).
4

on such lists, determining who owns what.21 The need to credibly maintain such lists is
then seen to be the cause of significant expense and delay in terms of transactional
efficiencies.
By way of contrast, a blockchain-based ledger has no requirement for any centralised

authority, given its broad distribution. This benefit is often termed as “trustless
technology,” giving rise to a trustless public ledger (“TPL”).22 Thus a promoted
benefit, is a perceived reduction in transaction costs, infrastructure, and registration
delays.
Fairfield suggests that it is only when TPL’s are incorporated into everyday transactions
that consumers will benefit from the huge scaling effects, made possible through the
rapid advance of internet technologies.23 While he acknowledges TPLs are not entirely
devoid of trust, nor completely zero cost, he argues the end result is a significant
advance over present technologies.24
Durability
A further advantage of a publically distributed ledger is its durability. Centralised

registries are seen to be susceptible to a range of technical issues such as server failure,
malicious attacks, natural disasters, or simply the need for periodical maintenance. Such
failures are thought to be potentially costly in terms of transactional efficiencies.
Again, a contrast is drawn with a public blockchain-based system, designed to never go

“offline” and to always be available.25 Consequently, a blockchain registry has
something of a Star Trek “borg” effect,26 as its distributed nature means there can be
21
J. Fairfield “BitProperty” (2015) 88 S. Cal. L. Rev 805 at 807.
22
J. Fairfield “BitProperty” (2015) 88 S. Cal. L. Rev 805 at 812 – 816.
23
24
25
D. Schatsky and C. Muraskin Beyond bitcoin: Blockchain is coming to disrupt your
industry (Deloitte University Press, 7 November 2015). See //dupress.deloitte.com/dup-us-
en/focus/signals-for-strategists/trends-blockchain-bitcoin-security-transparency.html
(accessed 22 November 2016).
26
wikipedia.org/wiki/Borg_(Star_Trek) (accessed 25 October 2016).
5

no failure at any one point that disables the network in its entirety. The registry thus
collectively consists of all the nodes in the entire network.
Transparency and Immutability
Finally, the very distributed nature of the registry means it cannot be altered by any one
player without such a change being apparent and accepted by the network.27 This is
relevant in emerging or other economies where corrupt officials may seek to manipulate
data, or commit outright fraud.28 Where changes may be made without notice, the
poorer and less educated sectors are seen to be particularly vulnerable.29 In terms of
this point being argued, it has been expressed that “[c]orruption thrives in darkness.”30
Against such a background, a distributed blockchain registry offers accountability
accompanied with transparency.31
What is happening
The drivers for change appear irresistible. The digital revolution had led to pressures to
modernise public land registries, which are increasingly perceived as inefficient, paper
based processing systems. The inbuilt protections for such paper based systems are
argued to have become so degraded and redundant to be of little use. This has been
recognised in other writing, which focuses on the advent of image editing, photocopiers
and printers making certification by production of paper documentation and “original”
27
United Kingdom Government Office for Science Distributed Ledger Technology: Beyond
Blockchain at 22.
distributed-ledger-technology.pdf (accessed 22 November 2016)
28
For example, in Honduras, where recent research has evidenced how politicians
manipulated land titles to buy votes from impoverished citizens, legalise squatting, and
perpetuate an institutionalized culture of corruption. See: J. C. Collindres, M. Regan, and G.
P. Panting Using Blockchain to Secure Honduran Land Titles (The International Property
Rights Index 2016). //internationalpropertyrightsindex.org/casestudy_collindres (accessed 22
November 2016).
29
A. Dobhal and M. Regan “Immutability & Auditability: The Critical Elements in Property
30
A. Dobhal and M. Regan “Immutability & Auditability: The Critical Elements in Property
31
See generally A. Dobhal and M. Regan “Immutability & Auditability: The Critical
Elements in Property Rights Registries.”
6

signatures of little worth.32 Added to this, there is often present an incessant drive to
modernise registries on the strength of varying initiatives or imperatives, which again,
is discussed elsewhere.33 Given these, innovations such as blockchain appear attractive.
The initiatives by the Republic of Georgia and the Swedish Land Registry have already
been referred to in the introduction. The Swedish initiative will see the Registry
working with ChromaWay, consulting firm Kairos Future, and a telecommunications
service provider Telia.34 Indeed, ChromaWay has released a technical “demo” as a
proof of how the blockchain concept may operate in the land registry arena.35 Also of
note was the release of the “Ethereum blockchain” in 2015.36 This offers an alternative
to the bitcoin blockchain as it is specifically designed to focus on providing a platform
for commercial blockchain-based applications.
Other initiatives and tools for analyses
New Zealand is one of the global leaders in regards to a modern “online” land title
registry.37 While the majority of the World is still using paper-based titling systems,
since the early 2000’s, New Zealand has moved towards a fully digital, online registry
beginning with the introduction of “Landonline.” This is discussed more fully
elsewhere.38
One of the significant changes of Landonline was the abolishment of the “duplicate
certificates of title”.39 Traditionally this was held by the landowner or mortgagee, which
32
R. Thomas, R. Low and L. Griggs “Australasian Torrens Automation, Its Integrity, and the
Three Proof Requirements” [2013] NZ L Rev 227 at III.
33
R. Thomas, R. Low and L. Griggs “Designing an automated Torrens system - baseline
criteria, and possible risks” [2015] NZ L Rev 425 at VIII.
34
G. Chavez-Dreyfuss “Sweden tests blockchain technology for land registry” (16 Jun 2016)
Reuters www.reuters.com (accessed 22 November 2016).
35
The technical demo can be accessed from the official ChomaWay website at:
http://chromaway.com/landregistry/ (accessed 22 November 2016).
36
For more information on Ethereum visit: https://www.ethereum.org/ (accessed 22
November 2016).
37
B. France-Hudson "Living in interesting times: Landonline, leader in its field at what cost?"
(2006) 12 Canta LR 121 at 121.
38
T. Bennion and others New Zealand Land Law 2nd (Wellington, Thomson Reuters, 2006) at
ch 3, for a discussion of the introduction and implementation process of Landonline.
39
Land Transfer (Computer Registers and Electronic Lodgment) Amendment Act 2002 (NZ),
s 8.
7

provided some measure of protection against unauthorised dealings, as most
transactions could not be registered without producing the certificate of title.40
Under Landonline, paper-based records have been digitalized through data entry and
organized into a structured digital format knows as a “computer register”.41 This is the
electronic equivalent of the issued certificate of title for the land. This computer
registers shows only the current ownership and outstanding interests and restrictions
for each title. Transfers and registration of the more straightforward transactions are
now automated42 via the online e-dealing system and this has been mandatory since
2009.43
The merits of the Landonline system have been examined elsewhere. It has been
proposed that the integrity of an automated system should at least have the same level
of integrity and safety as the original manual system was designed to operate in.44 Three
“proof requirements” have been developed as tools to objectively assess and compare
the merits of the Landonline and the proposed Australian ECNL electronic system. By
this analysis, both systems were found wanting.45
The three proof requirements consisted of the following.
Proof of:
1. Identity of the applicant;
2. Ownership of title interest; and
3. Entitlement to deal.
40
Land Transfer Act 1952 (NZ) s 40(1).
41
Defined under s 4 of the Land Transfer (Computer Registers and Electronic Lodgment)
Amendment Act 2002 (NZ).
42
Dealings such as “bespoke” leases, or authorisations required to subdivide land are still
dealt with manually, although the documentation of lodged on line for manual processing by
trained registry staff.
43
T. Bennion and others New Zealand Land Law 2nd (Wellington, Thomson Reuters, 2006) at
[3.4.01].
44
Three Proof Requirements” [2013] NZ L Rev 227 at VIII.
45
Three Proof Requirements” [2013] NZ L Rev 227 at VIII.
8

In summary, the fact that you can prove you are “Bob Jones,” does not mean that you
are the same Bob Jones who owns an identified parcel or land, or indeed (if you are
able to prove you are that same Bob Jones) that you (the correct Bob Jones) have the
requisite authority at law to deal with that land.
As stated, under Landonline, the means of all three proofs has been suggested to be
unsatisfactory.46 The issue of proof of identity has been argued to have been conflated
with the issue of proof of ownership, if not proof of authority to deal.47
Proof of identity and proof of ownership
By this system, proof of identity is satisfied by production of personal identification,

which is argued to be able to be easily manufactured. Proof of ownership is reliant on
the production of second hand, and casual and unreliable information. In this regard,
reference is made to standards published by the New Zealand Registrar-General
supported by the New Zealand Law Society which, for “routine transactions,” require
proof of ownership to be satisfied by production of (say) a utility bill, bank statement
or local body rates notice addressed to the owner at the property to be dealt with. Not
surprisingly it has been suggested that such production is “not proof of anything let
alone best proof”.48 These documents can be copied or even intercepted in mail.
Proof of authority
Proof of authority to deal is especially problematic under any system that may operate
independently of registry involvement. Again, the issue is discussed in more detail
elsewhere.49 The transfer of land may breach statutory prohibition, or clash with issues
of personal incapacity, such as trustees’ limited powers of alienation, or transfers
46
Three Proof Requirements” [2013] NZ L Rev 227 at 725.
47
Three Proof Requirements” [2013] NZ L Rev 227 at 724.
48
See a more detailed discussion of these points in R. Thomas, R. Low and L. Griggs
“Australasian Torrens Automation, Its Integrity, and the Three Proof Requirements” [2013]
NZ L Rev 227 at IV, A.
49
Three Proof Requirements” [2013] NZ L Rev 227 at 244-249.
9

undertaken by underage minors. Such a registration result is particularly problematic
where the registration result is guaranteed by the State.50
Blockchain application
Of the blockchain proposals presently under discussion, Factom suggests directly

storing encrypted land registry information such as a record of ownership of land titles
and any related transactions directly on the “bitcoin blockchain” using the software that
they provided.51 Such a registry will benefit from decentralisation provided by the
public blockchain, ensuring the records remain immutable with a clear auditable trail
of all the transactions involving the land title.
A recent alternative proposal is the use of what has been termed “coloured coins.”
These are virtual tokens derived from bitcoins, which represent tangible property. Land
ownership can be represented by a single, or even multiple coloured coins.52 It is
proposed these tokens can also have secondary metadata attached to each token, which
can be used to track public registry details.53
Private details of ownership could possibly be encrypted by the land system

administrator so only those with the correct private key are shown the information.
Using a block explorer software, people connected to the Internet could thus verify and
track ownership of each token.54
Critiquing under the three proof requirements
50
The Torrens system of land registration is the system that is used in New Zealand and many
other English Commonwealth countries consisting of a State guarantee of any land title or
dealing “registered” under the system. See general discussion in: P. Butt Land Law 6th ed
(Thomson Reuters, NSW, 2010) ch 20. The Land Registration Act 2002 (England and
Wales) is a different variant of the same theme.
51
For more information on the technical aspects of Factom’s proposal, see:
www.coindesk.com/factom-white-paper-outlines-record-keeping-layer-bitcoin/ (accessed 16
November 2016)
52
53
54
10

Blockchain’s coloured coins application could possibly assist with the first and second
proof requirement, but not the third.
Proof of identity and proof of ownership
A system would have to be set up, with authority to accept parties’ evidence of what
would be the “root title” interest by virtue of a “first registration” concept. This would
be the first recorded title transaction in the blockchain.
An unresolved issue is how that person is identified in the first place as the root title
owner. This exercise should perhaps be undertaken by the State, given it is desirable
at the initial stage to ensure property interests are suitably mapped, and do not overlap
in any way. This does not necessarily equate to the grant of an “estate” or interest in
land, and may be more extensive. In Australasian terms it could extend to customary
native rights.55 In United Kingdom terms, it could extend to certain overriding interests,
such as (perhaps) “manorial rights.”56
Proof of ownership would then be met by having access to the user code of the person
recognised as the owner of the appropriate coloured coin. Thus a public and a private
key function would be required for this purpose.57
Given this, if “Bob Jones” can prove he is the owner of the root title it overcomes both
the first and the second proof requirement (that of proof of identity and proof of
ownership). The qualities of the blockchain solve the “double-spending” issue in that
the coloured coin can’t be replicated, duplicated, or falsified in any way.58 However,
55
See a general introduction in T. Bennion and others New Zealand Land Law 2nd ed
(Wellington, Thomson Reuters, 2006) at ch 5.
56
See generally, C. Harpum. S. Bridge and M. Dixon Megarry and Wade The Law of Real
Property 8th ed (London, Sweet and Maxwell, 2012) at [2-011].
57
A. Noonan “Bitcoin or Bust: Can One Really Trust One’s Digital Assets.” (2015) 7(2) EPJ
583 at 591.
58
For a more detailed discussion of the technical aspects see: S. Nakamoto “Bitcoin: A Peer-
to-Peer Electronic Cash System on the internet.” See
11

fraud can still be committed if someone steals the access to the coloured coin. In this
respect, the system may be no more secure than access to your bank card password.
Ownership issues
What then, of derivative interests and multiple land holdings? What is not known is
how such entities interact with the coloured coin representing the owner of the land.
Given the lack of a controlling registry, how does a mortgagee, lessee, or dominant
tenement owner under an easement interest ensure their interest is protected? Do they
have their own coloured coin, and root title? It has been suggested that for such
interests, “dual signatures or authorisations from “multisignature wallet[s]” could be
required,59 but we are not certain how this would work.
Although a mortgage or lease interests may also be stored in the wallet of the land
owner, the mortgagee or lessee should surely have their own wallet, and be able to deal
with their assets without recourse to a need for the “signature” of the land owner? If
so, then how do such connected but separate land interests, stored in different wallets,
interlink in terms of dealings and ensure appropriate recordation takes place?
Indeed, what if the wallet has a number of discrete and separate title interests stored in
it? Does online access to the “wallet” to transact one title interest enable other interest
stored in the wallet to then be dealt with without further authorisation? If so, the
consequences may be catastrophic for the owner of the wallet.
At least with the New Zealand Landonline, which has also been criticised in terms of
proof of identity and proof of ownership,60 an independent “trusted” third party is
tasked with certifying to the registry for each dealing that the various proofs have been
59
60
Three Proof Requirements” [2013] NZ L Rev 227 at IV.
12

met.61 If nothing else, where this certification right is abused, the land owner will
hopefully be able to seek appropriate redress from the certifying party.62
Proof of authority to deal
The third proof requirement is proof of authority to deal. This remains problematic.
Given blockchain operates free from any legal code requirements, there is no
mechanism for registry staff, or other third parties, to challenge, overturn or perhaps
revoke transactions with coloured coins. This will be considered further.
Given the preceding issues, it is not easy to see how a successful blockchain system
could be introduced without compromise. Accepting some form of centralised control
or intervention which may be beneficial, appears to compromise some of the key
advantages in using blockchain.
Issues to be resolved
No need for trustless transactions
Fairfield argued that decentralisation reduces transactional costs63 but he seemed to be

referring to relatively low value, fast moving commodity goods. With high value items
such as land transactions this argument surely has less impact, especially if a centralised
registry enables sound governance.
Consideration therefore needs to be given whether decentralisation is necessary for land

title transactions where the system is free from corruption or incompetence. Indeed,
the contrary proposal can be argued. Where the operating environment is stable, a
centralised registry may optimise efficiencies and credibility of result.
61
See discussion in R. Thomas, R. Low and L. Griggs “Australasian Torrens Automation, Its
Integrity, and the Three Proof Requirements” [2013] NZ L Rev 227 at 246-249.
62
See discussion in R. Thomas, R. Low and L. Griggs “Australasian Torrens Automation, Its
Integrity, and the Three Proof Requirements” [2013] NZ L Rev 227 at 246-249.
63
See, generally, J. Fairfield “BitProperty” (2015) 88 S. Cal. L. Rev 805.
13

While proponents of blockchain talk about efficiencies obtained by distribution of the
registry, the issue of transactional costs also needs to be addressed. While blockchain
may make a registry less expensive to operate, conversely it may increase costs to
individual users. If it is accepted that such a blockchain system is essentially the
operation of a nemo dat system,64 it is the cumulative strength of all the links that prove
the title. Thus, it may be that on each conveyance, a competent conveyancer may need
to consider each block to see whether credible title can passed.
In this regard, consideration would also have to be given to title interests which are not
part of the chain such as unregistered leases, or other unregistered third party claims
that a court of law may find to be binding on the title owner. The issue of when a
purchaser of a coloured coin may take title free of such interests is obviously
jurisdiction specific, and cannot be addressed in terms of the generic blockchain
construct.
Such uncertainties must be compared with the benefits of a competently run State
guarantee of title system. The ability to rely on the register as a determinator of current
title interests binding on the title owner is considered to be good for commerce in
lowering transactional costs and arguably thus enhancing the speed at which
transactions may be carried out.65
Third Party Interests
Land exists independently of the created coloured coins. Land titles tend to be unique,
dynamic, and susceptible to change. As stated, the title may consist of complex,
changing interests such as encumbrances, mortgages, leases and easements. Again,
from available published material, this aspect has not been properly considered.
This issue has already been discussed in terms of derivative interest. However, the issue
is more complex than that.
64
“Nemo dat quod non habet” is the legal rule that a person can only transfer the rights to
property that he or she actually has.
65
R. Thomas, R. Low and L. Griggs “Designing an automated Torrens system - baseline
criteria, and possible risks” [2015] NZ L Rev 425 at III.
14

What of non-consensual interests not derived from or emanating in any consensual
manner from the owner of the coloured coin? These may be third party competing
claims. Indeed, as a matter of law, the coloured coin no longer represents a current title
interest. In this regard, yet again the issue of allowing possessory title claims (which
even apply in pure Torrens State guarantee of title systems66) are not addressed in terms
of any known blockchain proposal. There may also be a need to place “notices,”
“caveats,” or “stops” on any title restricting alienations or noting the existence of
overriding interests. Again, such notions sit uneasily with a system designed to operate
free of third party control, be it the State, or some other “trusted” party.
Indeed, issues of more fundamental scope may arise. In many legal jurisdictions, the
interests in land are limited in their nature. Perhaps granted “estates” may be limited to
those emanating from the Crown, lesser freehold estates by limitation, and leasehold
estate.67 Yet by registration it may be possible for a land owner to effectively create
additional interests in the coloured coin/land not presently recognised at law. An
example (depending on the jurisdiction) may be issues such as positive covenants or
contractual obligations not presently accepted as constituting a “property” right.
To implement a coloured coin regime which satisfactorily deals with some or all of
these issues appears problematic. If it is necessary to develop secondary systems to
cope with such issues, one would have to wonder if the resulting system can still be
promoted for its transactional simplicity.
Lack of legal governance
Digital environments are unique in that their governance is regulated by two key
sources of authority.68 The first one is the appropriate “legal” code as may be enforced
66
See for example, the Land Transfer Amendment Act 1963 (NZ).
67
C. Harpum. S. Bridge and M. Dixon Megarry and Wade The Law of Real Property 8th ed
(London, Sweet and Maxwell, 2012) at ch 3.
68
Allens, Reaction to Blockchain (paper presented to Blockchain Summit, Melbourne,
Victoria, June 2016) at 13. See www.allens.com.au/data/blockchain/index.htm (accessed 22
November 2016).
15

by the blockchain governance structure. The second is the technical code, being the
software and protocols that the system actually operates through.
In terms of public blockchain-based system, there is no single entity that can control
the enforcement of any legal code. This is because of its decentralised, distributed
nature. Consequently, its operation is enforced almost exclusively by its technical
code.69 This could become problematic for a number of reasons.70 One example
follows.
Consider hypothetically that a “coloured coin” system is introduced. If access to the

coloured coin owned by Person A is stolen by Person B, who then subsequently
transfers that interest to Person C, we need to resolve if that transaction is valid at law.
Person C may not be a bona fide purchaser. This may occur because he or she has acted
in collusion with Person B. Under a State guarantee of the registration result, this may
be overturned where it fails to meet the statutory prerequisites to achieve indefeasibility
of title.71 However a problem appears to arise with blockchain.
Say a court order is issued requiring the title to be returned from Person C to Person A.
Given the blockchain does not actually care about the legal code, and there is no central
controlling registry, how would such a change occur? Aside from forcibly making
Person C initiate the transaction, the governance framework has no known mechanism
to change entries. Indeed, what happens if Person C cannot be found?
Of course, issues may also arise in less “colourful” circumstances. The true owner of
a coloured coin may misplace or lose his or her access code. Again, if there is no central
69
Allens, “Reaction to blockchain” (paper presented to Blockchain Summit 2016, June 2016)
at 13. See www.fullprofile.com.au/news/2016/7/6/full-profile-featured-in-allens-blockchain-
reaction-report (accessed 22 November 2016).
70
This issue of the lack of legal governance surrounding blockchain arose in June 2016, when
the DAO (a investor-directed venture capital fund operating on the Ethereum blockchain) had
one third of its assets, valued at an estimated US$50 million at the time, taken due to a
weakness discovered in the DAO’s technical code. One month later, the Ethereum community
controversially decided to “hard-fork” the Ethereum blockchain, essentially returning the
taken funds. This decision was controversial. It calls into question the core concepts of
blockchain transactions being “immutable”. For more information regarding this see:
www.coindesk.com/understanding-dao-hack-journalists/ and www.coindesk.com/ethereum-
executes-blockchain-hard-fork-return-dao-investor-funds/ (accessed 16 November 2016).
71
Land Transfer Act 1952 (NZ), s63 (1)(c).
16

registry to issue a replacement code (or override the need for an access code to be
provided), what then occurs?
Indeed, what happens where the land represented by a coloured coin is subdivided or
somehow split? Does this require surrender of the coloured coin? To whom?
Presumably fresh coloured coins should issue? How is this to be controlled? Hopefully
such actions will follow and give effect to territorial authority subdivisional controls
and regulations on the issue.
Best use for blockchain
Broadly considered, it appears the benefits of blockchain (such as they are) are best
suited for a deeds system rather than one involving a State guarantee of the registration
result.72 This is because the strength of blockchain is the cumulative chain of
transactions, which add to, and enhance, the strength and credibility of whole. Thus the
system is somewhat akin to a standard deeds system by operation of nemo dat
principles. In computer speak, this may be expressed as “garbage in, garbage out.”
By way of contrast, under a State guarantee of title regime, only a current “snapshot”
of the present state of the title has importance. Ready access to past land dealings are
irrelevant, and simply clutter the register.
Conclusion
This article asks more questions than it answers in seeking to explain the utility of a
blockchain system for land registration. It is no more than a preliminary foray or look
at this new concept. The use of blockchain appears imminent, but it is not yet here.
More questions have to be asked, and more detail provided. Yet the more one asks, the
less clear the possible answers appear to be. We have certainly not reached the position
where all "resistance is futile."73
72
See general discussion of the deeds system of land transfer in P. Butt Land Law 6th ed
(Thomson Reuters, NSW, 2010) ch 19.
73
The mantra of the Borg “Collective” or “Hive,” from the TV series Star Trek. It should be
forgotten that the Borg desire to assimilate is driven by an admirable desire for perfection.
See wikipedia.org/wiki/Borg_(Star_Trek) (accessed 25 October 2016).
17

In concept, the use of a coloured coin blockchain system may assist in overcoming
some concerns with the first and second proof requirement. These are proof of identity
and proof of ownership. However, the issue of authority to deal, which is the third
proof requirement, and the manner in which a system deals with derivative and non-
derivative interests is left unresolved. Surely some form of State (or other “trusted”
third party) intervention is necessary to avoid abuse and misuse of the register? Yet
such a suggestion appears to contravene one of the central attractions of the system,
which is its decentralised focus and the ability to operate “peer-to-peer” without third
party intervention.
Whilst blockchain land registries may have some attraction to developing economies,
where government systems are sound and stable, its benefits are less clear. Its benefits
are quite uncertain for countries with a State guarantee of title regime.
18

SSRN Id3324828

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SSRN Id3324828

Uploaded by

Copyright:

Available Formats

Blockchain, the Borg Collective and Digitalisation of Land Registries

Electronic copy available at: https://ssrn.com/abstract=3324828

Electronic copy available at: https://ssrn.com/abstract=3324828

What is the Blockchain?

“Electronic coins” called “bitcoins” would be used as currency. These were to be

Electronic copy available at: https://ssrn.com/abstract=3324828

What benefits does a public Blockchain provide?

Electronic copy available at: https://ssrn.com/abstract=3324828

By way of contrast, a blockchain-based ledger has no requirement for any centralised

A further advantage of a publically distributed ledger is its durability. Centralised

Again, a contrast is drawn with a public blockchain-based system, designed to never go

Electronic copy available at: https://ssrn.com/abstract=3324828

Transparency and Immutability

Electronic copy available at: https://ssrn.com/abstract=3324828

Other initiatives and tools for analyses

Electronic copy available at: https://ssrn.com/abstract=3324828

The three proof requirements consisted of the following.

Electronic copy available at: https://ssrn.com/abstract=3324828

Proof of identity and proof of ownership

By this system, proof of identity is satisfied by production of personal identification,

Electronic copy available at: https://ssrn.com/abstract=3324828

Of the blockchain proposals presently under discussion, Factom suggests directly

Private details of ownership could possibly be encrypted by the land system

Critiquing under the three proof requirements

Electronic copy available at: https://ssrn.com/abstract=3324828

Proof of identity and proof of ownership

Electronic copy available at: https://ssrn.com/abstract=3324828

Electronic copy available at: https://ssrn.com/abstract=3324828

Proof of authority to deal

No need for trustless transactions

Fairfield argued that decentralisation reduces transactional costs63 but he seemed to be

Consideration therefore needs to be given whether decentralisation is necessary for land

Electronic copy available at: https://ssrn.com/abstract=3324828

Third Party Interests

Electronic copy available at: https://ssrn.com/abstract=3324828

Lack of legal governance

Electronic copy available at: https://ssrn.com/abstract=3324828

Consider hypothetically that a “coloured coin” system is introduced. If access to the

Electronic copy available at: https://ssrn.com/abstract=3324828

Best use for blockchain

Electronic copy available at: https://ssrn.com/abstract=3324828

Electronic copy available at: https://ssrn.com/abstract=3324828

You might also like