What is Blockchain and how does it work?
Blockchain is big news. It’s everywhere you look, with all sorts of people telling you it will change the world. There are property implications for blockchain and people are starting to create specific platforms for property dealing and ‘blockchain for cities’.
So, what is it?
In essence, it is quite simple. Blockchain is a database. The significance is that it is one which is tamper proof and secure. This means it can be relied upon, the result being that the data does not need to be checked by intermediaries. With intermediaries removed, processes can occur far faster between parties, without the need for third parties validating.
If you consider all the third party intermediaries involved in the property industry, one can appreciate the significance. Consider a few examples:
- If the contract you have just signed, digitally, is recorded in a Blockchain database, then you have absolute proof of the transaction. A system then recording the transaction, such as the Land Registry, can rely upon the information without checking
- If your identity information could be reliably recorded in a Blockchain ledger, parties can use the data with confidence. The delays in checking buyers’ credentials are eradicated
Imagine a whole serious of electronic transfers of data. Say a transfer of a music file, or an email, or perhaps a property contract. Each one of these electronic files is ‘hashed’. This means it is converted into a list of characters in a string. It’s all gobbledegook so you can’t read the data by looking at this ‘hash’. Changing the tiniest thing on the input, maybe only a full stop or a capital letter on an email, will completely change the hash.
Now imagine there are 100 pieces of data, all hashed, and they are all scrunched together, this forming a Block of information. Imagine another line of 100 pieces of data. And they are also scrunched together into a Block. One of the 100 pieces of data is the first Block. The first Block is now part of the second Block. And so on. As a result, you end up with a long Chain of Blocks… a Blockchain.
Since changing a file in the tiniest way will change a hash, this will change the hash of next hash, and so on. So, changing some data in this Chain of Blocks is extremely difficult. If something could be changed in a file, everything following would change as well.
The second key point is that copies of this Blockchain are held on multiple servers. So, it is a decentralised database. It is not held on one machine. Since it is decentralised, changing a record on one server will no longer match the others. One would need to change all the servers’ data at the same time. Combine the Chain of Blocks, with this decentralised system and you have a way to hold data in a manner which is tamper proof.
How to use blockchain
It should be remembered that adding Blockchain technology to a poor process will not make the process a good one. In crude terms, assume a system has been created to record only part of relevant lease information – say, lessee and the rent they are paying, but forgetting to mention the property. The data is totally secure and we know Tenant A is paying Rent A, but since we don’t know for which property, it isn’t very helpful.
But used correctly, Blockchain’s significance for the property industry will be dramatic. Information will flow faster and more reliably, leading to quicker transactions and reduced costs. Inter-linked collaborative systems will share reliable data to their mutual benefit. Delays and errors in hunting down data in relation to buildings will be eradicated. Long data checks on individuals will be reduced to seconds, so imagine the increased ease of finalising a mortgage.
In 2017, our Click To Purchase business became the first to record online digital property contracts in a Blockchain ledger. We did it to have a seat at the table as the technology emerges. I would urge others to come to table and put down your money, since your idea may be a winning hand.