Bitcoin, Blockchain, and Land Reform: Can an “Incorruptible” Technology Cure Corruption?

Since its inception in 2009, Bitcoin—a digital currency secured by encryption—has attracted attention, interest, and controversy. Less attention (at least until recently) has been paid to other applications of the underlying technology, “blockchain,” that makes Bitcoin possible. And while the anonymity associated with Bitcoin is, if anything, often associated with illicit transactions in the “dark web,” other applications of the blockchain technology might be used to enhance transparency and promote integrity. Some of the early proposals along these lines are indeed encouraging; at the same time, blockchain is not a technological panacea, and recognizing its limitations can identify areas that may require particular attention in anticorruption efforts.

First, a bit more (non-technical) information on the technology. Blockchain functions as an online, public digital ledger. In the Bitcoin context, the technology makes it possible to track and record Bitcoin transactions in the ledger and distribute that information in real-time to all computers connected to the Bitcoin network. Because of this distribution, the ledger is updated independent of any central authority. Moreover, because each chronological “block” in the chain contains both unique information about each transaction and also a unique identifier of the previous block, which is then distributed to all computers on the network, it is very difficult (perhaps impossible) to tamper with or alter the transaction records.

While the blockchain technology made Bitcoin possible, its public and tamper-proof data storage function could assist with efforts to promote transparency and fight corruption. For example, in the context of land reform, Austin-based start-up Factom has reached an agreement with the Honduran government to transfer its land registry onto a blockchain-enforced digital database. The objective is to create a reliable land title-keeping system in a country where, as USAID notes, “only 14% of Hondurans legally occupy properties and, of the properties held legally, only 30% are registered.” In addition to a lack of registration, government officials currently can alter titles to those properties that are registered, allocating properties to themselves (or to others in exchange for bribes). Moreover, citizens often lack access to records, which may provide conflicting information, and are thus unable to defend themselves against infringement of property, use, or mineral rights. By recording land title in an immutable public registry (relying, according to reports, on the Bitcoin blockchain’s data-embedding function), the partnership between Factom and the Honduran government seeks to secure for the public a clear, trustworthy record of ownership in order to improve protection of land rights, and to incentivize registration.

This seems like a worthwhile initiative, and one that transparency and anticorruption advocates should watch closely. At the same time, it’s worth noting several reasons we should be careful not to lose sight of important corruption challenges amidst the excitement surrounding the digitized ledger:

  • First, as land changes hands, someone—likely the intermediary entity overseeing the registry—must update the ledger. As the Economist notes, the data storage use of blockchain requires a certain amount of trust that the intermediary will make the entry accurately. In the case of land registries, users must trust that intermediaries or the government will adequately ensure that the chain will successfully record legitimate subsequent transfers of title. Factom, for example, compiles registry information into a data layer that it then anchors into the Bitcoin blockchain. Users must trust the means by which Factom receives and enters registry information into the Factom database.
  • Second, and relatedly, although the blockchain ledger might increase transparency of land ownership records and make it difficult or impossible for corrupt officials to alter land registries after the fact, the technology does not address corruption in the decisions as to how land is registered in the public ledger. Intermediaries might either refuse to record illegitimate transactions, a process that could require intermediaries to make judgments on whether corruption underlies transfers, or refrain from making such determinations at all. Factom’s model leaves it up to the user to decide whether transfers are legitimate—it does not prevent people from entering false data to the registry office (or relevant partnered government entity), which makes a new entry to Factom. In addition, Factom can “publish and document the process for land records” based on administrative or judicial rulings. But those rulings might themselves be corrupt. Records can be changed to reflect those rulings, although the processes for doing so are transparent, not secret. Thus, while blockchain provides immutability of past records and ongoing transparency as ownership changes hands, it does not prevent the government from using corrupt means to create those transfers in the first place.
  • Third, blockchain’s successful dissemination and use depends on governments’ willingness to adopt the technology. Government actors who personally benefit from a lack of transparency and from holding centralized power might be unlikely to adopt this technology. Moreover, governments may encounter regulatory issues—with such new applications to new technology, there may be a gap between the time it’s instituted and effective regulations are in place to monitor and prevent abuses. This may make blockchain technology even more difficult to administer because change within a blockchain is extremely difficult and requires community-wide agreement.
  • Fourth, it’s unclear how much size/storage power this technology will require, or even how much energy the Bitcoin blockchain is using now, and whether that usage is sustainable.

Notwithstanding these concerns, blockchain technology has a number of promising pro-transparency, anticorruption applications. In addition to land registration, blockchain might be well-suited for tracking donations and payments, monitoring supply chains, and facilitating compliance with disclosure laws (though significant regulatory reforms might be required to digitize the relevant information and transfer it to a blockchain ledger). Nonetheless, blockchain’s anticorruption benefits are still largely unproven, and the early experiments with the technology, such as Factom’s project in Honduras, should be closely monitored to get a better sense of what this technology can and cannot achieve.

6 thoughts on “Bitcoin, Blockchain, and Land Reform: Can an “Incorruptible” Technology Cure Corruption?

  1. Thank you for the excellent and informative post. With all the press surrounding the anonymity Bitcoin gives users, it’s interesting to hear about how the underlying Blockchain technology can be used to increase transparency.

    One quick question for you: What, if any, effect does the availability of computers, internet access, and high-speed internet access have on this technology? I worry if the sources are only available in to those with privilege in certain countries, this could substantially undermine the value of this technology.

    • If we leave the entry of information into the blockchain upto intermediaries like established government registration offices, as mentioned in the post, then only the intermediaries need to have good internet access (which is not difficult to achieve).

  2. Thanks for a great post on a really interesting topic! In addition to the benefits you mentioned, blockchain property registries also have the potential to change access to finance in the developing world through collateralization supported by enforceable legal property rights.

    One question – you mentioned as a barrier that governments in countries with perhaps the largest transparency problems are not likely to sign on voluntarily to blockchain registry type projects. Honduras certainly falls into that category, as previous posts about MACCIH on the blog discuss. Why did the Honduran government sign on in this case? Are there any lessons from that process that could be useful going forward?

  3. The concept of blockchain technology is appealing when one thinks of how to combat corruption. The idea that one can pay are fair price and have it listed on a public record would likely make citizens of any State more trustful of public officials and government transactions.

    While the implementation sounds promising, I agree with your thoughts about how blockchain technology can not stop all corruption and that officials can still find ways to engage in egregious conduct. In addition, I am concerned that there is a great stress on separating Bitcoin from blockchain technology and as a result forgetting some of the fundamental aspects of the original technology and why it was created. Governments must remember that mining to procure the “currency,” decentralization and anonymity, are central to the creation of blockchain technology.

    With public blockchain applications for anti-coruption and transparency, there would be fewer or select users utilizing the applications provided. In addition, the economic benefit could change and While this may be helpful in identifying public records, it could provide easier ways for hackers or hired persons to enter systems of those registered, possibly leading to a less “tamper proof” and thereby compromised system.

    While you have addressed many issues related to combating corruption within the public sphere and with public officials, I also want to touch on the private sector and individuals within a State. As corruption happens on many levels within society, I believe it is important that the impact blockchain technology has on that level is addressed. For individuals, blockchain technology may be helpful when it comes to simple sales and contracting. Through a system, they are guaranteed to pay the same price as others for a good or a fair chance at something they require without having to resort to bribery. Individuals can ensure that they were charged a fair price and perhaps, businesses can use the ledger to attest that they do not engage in corrupt or extortionate practices.

    However, as a commenter mentioned above, there may be issues like access to internet services. There may also be issues of power and electricity stability. For example Nigeria is know to have issues when it comes to losing network and electricity almost every day and at times, for days. This can limit the ability to use with the blockchain technology.

    There are more risks that come into play as this technology is implemented between private companies. Depending on the State, companies may face legal issues. While the ledger is public, one should be cognizant that hackers and others willing to access the privately stored information may be working on loopholes. It can be as simple as a employee in any business accessing information they should not be privy to in order to assist in fraudulent transfers. Additionally, access to this privately stored information could allow for extortion of a businesses’ customers.

    Finally, I am wary of the adoption of blockchain technology given that Bitcoin, in many ways, is an experiment and it is still being figured out. It seems that many do not fully understand the technology and how it works. While it’s “tamper-proof” and public recording features are appealing, I fear that many including governments are putting their trust in a technology without considering the issues mentioned above. I believe that before the determinations that blockchain should be adopted as an anti-corruption method, the technology must truly be understood from its inception to how the blockchain itself uses public and private keys.

  4. Pingback: Practical Blockchain Applications Are Taking Off – Futurist

  5. Pingback: Blockchain is the most disruptive invention since the Internet itself - not just in finance - Invest Offshore

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.