Grand Tetons, Wyoming

On June 17, 2019, Medici Land Governance (MLG) brought the Teton County Blockchain Pilot online writing more than 185,000 county property records such as warranty deeds, mortgages, releases, easements, quitclaims, and liens to the FLO Blockchain (aka Florin coin). The recordset included items filed with the Teton County Clerk from 1996 to the present. Additionally, new records and updates to previous ones will be captured.

Why?

The brief answer is proof-of-existence[1]. Writing a public record to an open blockchain allows the outside observer to see proof of who wrote the record, when it was written, and what the contents are contained within. Additionally, authors[2] frequently cite security, transparency, and efficiency as reasons to record real estate information onto blockchain systems.

However, the work done for the Teton County Pilot was in the context of Patrick Byrne’s vision[3] for a “robust titling system” within a blockchain technology stack for civilization. He describes it having the following characteristics:

Consensual, peer-to-peer property exchange without a dependency upon a trusted third party institution Mechanisms that combat captured centralized authority Informal property records accessible globally to spur entrepreneurship

Byrne’s vision of a titling system aligns with the higher adoption levels of Graglia and Mellon’s Blockchain Property Registry Adoption Levels[4]. They describe a framework of how property registries could integrate and use blockchain. The framework progresses in complexity from level 0, no blockchain integration, to level 8, interoperability among different blockchain-based registries. Supporting peer-to-peer property transactions is at adoption level 7.

The completed work of the Teton County Pilot implements the first adoption level of recording immutable public records on a blockchain. This stepping stone paves the way to powerful capabilities such as smart workflow and fractional rights.

| Level | Name | Description |

|=======|======================|=================================|

| 0 | No Integration | No use of blockchain |

| 1 | Blockchain Recording | Public blockchain used to record|

| | | documents related to land |

| | | transactions |

| 2 | Smart Workflow | Blockchain used to record |

| | progress of a transaction[5] |

| 3 | Smart Escrow | Smart contracts used for |

| | escrowing payment |

| 4 | Blockchain Registry | Central database replaced with a|

| | | permissioned blockchain[6] |

| 5 | Disaggregated Rights | Various rights to a single |

| | | parcel are disaggregated and |

| | | managed via blockchain |

| 6 | Fractional Rights | Rights for a given parcel are |

| | | fragmented and managed via |

| | | blockchain |

| 7 | Peer-to-Peer | Rights are transacted |

| | Transactions | without intermediaries |

| 8 | Interoperability | Different blockchain registries |

| | | merge |

Graglia and Mellon’s Blockchain Property Registry Adoption Levels

Considering the world’s real estate value is $217 trillion[7] which does not include property known only to informal systems, the ability to exchange property through a peer-to-peer, consensual exchange would unlock capital for the 70% of the world’s population without formal property rights. A county clerk recording property rights and related transactions into the public record that is open, borderless, censorship-resistant, neutral, and decentralized[8] would be profound.

What’s the future?

Let’s pause for a moment to think about current, large scale, free web applications. Many people recognize these centralized systems have damaged society.

Jaron Lanier[9] best articulated the consequences of companies like Google, Facebook, Twitter, Apple, Netflix, and others becoming highest-level large aggregators of data about their users. Social media applications became behavior modification and surveillance engines. Although they began with good intentions to provide helpful free services, the present-day result is anathema to an individual’s freedom and liberty.

Application users became the product. Generating revenue required using technology and behavioral science to change people’s actions.

Additionally, aggregating large amounts of data about individuals made these centralized applications targets of bad actors. Information considered private frequently fell into the hands of those wishing to do harm[10] or change people’s perception of reality.

Ironically, early Internet developers understood the need for digital payments but lacked the knowledge on how to implement them. They decided to punt on the issue relying on the advertising model to fund free applications.[11]

These weaknesses in the current web application model highlight the dangers of centralized systems where those who hold data can censor records destroying transparency, accountability, and credibility[12].

Build a Self-sustaining Property Rights Register

How would a blockchain register capture value without falling into the dangers raised by Lanier? Answering this requires understanding the model used by applications to capture value.

Joel Monegro’s article, Fat Protocols, illustrates where an application’s value originates. Currently, web applications extract value as shown in the following figure.[13]

Using the protocol layers such as TCP/IP and HTTP generates very little value because they are almost free to use. However, the application layer, familiar to end-users through its user interface, provides functionality with a particular user experience. Value is extracted from that layer employing advertising, subscription, or some sort of pay-as-you-go.

Most of the value is extracted at the protocol level with blockchain applications. For example, mining bitcoin is essentially part of the Bitcoin protocol and most value extraction comes from the coinbase of the block subsidy and transaction fee rewards. Applications like Coinbase must extract value by adding additional fees to user actions like when they purchase bitcoin with a debit card.

The developer’s challenge is to build an ecosystem where value is extracted both from the protocol and application layers. This can be done by using the application layer to properly distribute payments to multiple participants creating a multi-stakeholder incentive. The following figure illustrates how one model, the Open Index Protocol, makes value extraction equal between the protocol and the application.

A county clerk, for example, could implement a payment system that collected fees for each record access and immediately distributed those funds to the county clerk’s office, a tax agency, and the developer of the application platform. The county clerk would then have funds needed to pay the blockchain network to write more records.

Such an incentive system creates a self-sustaining flow where the activities of participants compensate each other. This possible implementation of Byrne’s vision would ensure all participants within the land tenure or real estate value chain get their share.

Trust in the Public Record

Before any token of representation can be used for real property, the token must link to a trusted archival record.

An example from my past illustrates this idea. I used to own horses and traveled to neighboring states with them. When crossing the state line a horse owner must present documentation that proves the horse’s identity and health. They included a brand inspection, proof of ownership, veterinarian inspection, and Coggins test. I was surprised when officials never came out of their roadside buildings to look at my horses. It was enough to see my documents, or tokens, that represented 1100 pound living creatures. They trusted the information, signatures, and stamps on the papers.

Archival trust in a record requires accuracy, reliability, and authenticity. In the Teton Pilot, accuracy relies upon the input from the Teton County Clerk which has come from decades of careful abstraction and 100% digitization of filed paper documents. The proof-of-work blockchain provides authenticity through a signature only the Teton County Clerk can provide. Reliability will have to build over time as new records are written to the blockchain as a matter of routine and outside observers see them as consistent and complete.

Another factor of trust in a record is its preservation through time. The longer a record preserves its archival bond where the information is understandable within the context of its creation, the more trusted the record. Proof-of-work acts as a proxy for preservation through time. The confirmation count of the transaction that holds the record represents an ever-increasing amount of resources expended to preserve it.

Tokenization

Once trust in the public record reaches critical mass, it makes sense to link a digital asset like Ravencoin to a record already stored in FLO blockchain through the Open Index Protocol. At that point, the blockchain record, like the documents for my horses, becomes trusted allowing the digital asset to have real meaning unlocking all of the potential of fractional ownership and peer-to-peer, consensual exchange.

When that happens, the world would witness an event where trillions of dollars become unlocked and available to the world’s economy.

Conclusion

The Teton County Blockchain Pilot marks the first step toward full-blown digital asset tokenization of real property. Over time more property records from around the globe will enter the public property register. When trust in the register’s records reaches a critical mass of acceptance, digital assets linked to those records can realize Bryne’s vision of consensual peer-to-peer exchange of real property.