Blockchain technology is on the cusp of disrupting another billion-dollar industry that most Americans (particularly members of the millennial generation) rarely think about: Boring old title insurance.
Since the blockchain technology craze swept the US in 2015, technologists working to pinpoint new use-cases for the technology have been squawking about its potential to revolutionize how governments store and track ownership of land. The system used by most modern governments was developed centuries ago: In the US, property titles are public documents recorded with roughly 3,600 counties, towns and other jurisdictions. In some cases, the record is available only in writing and can be viewed only by visiting a town clerk’s office. Since the system in its present form leaves plenty of room for error, many homeowners purchase title insurance to protect against the possibility that their claim to the property is challenged – either because the records were lost of destroyed, or for any other reason.
Several countries, including Ukraine, the Republic of Georgia, Honduras and Sweden have already partnered with Bitfury and other blockchain startups to develop a blockchain-based title-registry system. As WSJ reports, some of these systems are nearly ready to be implemented.
For anybody familiar with how blockchain technology works, the utility here is obvious: Since the blockchain provides an immutable record of transactions, storing property titles on a blockchain-based system would substantially decrease the risk that a landowners’ claim is challenged. WSJ posits that title insurance could be among the industries that's most ripe for blockchain disruption. It's just one example of a multibillion-dollar industry that could be rendered obsolete overnight.
To help get ahead of the problem, WSJ says many title insurers are investing resources into studying and developing blockchain technology, which could allow these companies to pivot by developing and managing the systems that otherwise would’ve put them out of business.
As a precaution, many title-insurance companies are studying the use of blockchain to ensure they are “in the drivers’ seat versus being in the passenger’s seat” if these changes take place, said Steven Gottheim, senior counsel of the American Land Title Association, a trade group. “The lesson you can see in the industries that have been disrupted” is that the greatest danger is to companies that “don’t realize new technology is coming,” he said.
Mr. Gottheim said initial tests of the use of blockchain technology for title recording by IBM and startups like R3 CEV look promising. But he pointed out that enormous hurdles face the use of blockchain technology and businesses are in the “really early stages of trying to figure out if this is hype or reality."
Several US states are also studying the technology, hoping to develop land-title registries of their own. Unsurprisingly, sparsely populated states with vast tracts of uninhabited land are leading the charge. According to WSJ, the state that’s furthest along is Vermont. The state has already passed legislation legalizing the use of blockchain technology to store land titles for when the technology is finally ready.
Several state governments in the U.S. also are paving the way for the use of the new technology. Earlier this year, Arizona Gov. Doug Ducey signed legislation that enables local municipalities to substitute blockchain technology for the conventional method of recording property ownership and sales. “It establishes blockchain as a usable format for smart contracts,” said Patrick Ptak, a spokesman for the governor.
Last year, Vermont enacted a law that said that transactions recorded with blockchain technology “have the presumption of admissibility from an evidentiary perspective,” said Mr. Pieciak. It would allow people to “authenticate a blockchain real-estate transaction whether it’s over a title dispute or divorce proceeding,” he said.
Mr. Pieciak said the legislation is part of an effort by Vermont to encourage financial technology companies to base themselves in the state or to boost their businesses through the use of blockchain technology in a wide range of industries. “We’re looking at ways Vermont could do anything to make our regulatory environment more hospitable,” he said.
Mr. Pierciak said a number of questions remain, such as how mortgages would be incorporated and how title insurance world work. But technically local municipalities in Vermont now have the legal framework to switch to recording deeds using blockchain technology, although none has made that move so far.
As we’ve previously pointed out, realtors in some parts of the US are warming to the idea of settling home sales in bitcoin. Several of these transactions have already conducted, including one homeowner in Texas who purchased their home with bitcoin. These transactions are also happening outside the US: A San Francisco-based startup named Propy in September said ethereum had been used to buy an apartment in Ukraine.
Someday, real-estate transactions might be conducted in bitcoin, and stored in a blockchain-based ledger.
“I think it’s going to happen much faster than everyone anticipated,” said Alex Voloshyn, Propy’s chief technology officer.