Last week we started to look at blockchains. This week let's
take a couple of examples to show how they can and will improve
the way things are done, and at the same time might put rather a
lot of people out of work.
Since this is the Unique Property site blog let's start with
real estate. Let's have a look at the UK's favourite habit,
buying property. How does the activity of buying and selling
land and houses work at the moment?
You find a house you'd like to buy. The first thing you need
to do is get in a surveyor to report on the deal and whether
the place is mortgageable. When you've sorted out the finance,
you go to a solicitor, who checks the details at the land
registry, and maybe also checks the local authority to make
sure there are no plans to put a motorway through the front
garden, or open a pig farm at the end of the road. All of this
takes time, and means dealing with different organisations and
checking various databases. It can easily t ake three months
from your first decision to buy, to moving in.
Just for the record, it took me eleven months to buy my first
property in Portugal, but then Portugal is one of the slowest
countries when it comes to getting things done, and the sheer
barrage of bureaucracy is mind destroying.
On the other hand, the fastest deal I have done was about
twenty-five years ago when I bought a property in the North of
England. At nine o'clock in the morning I rang the selling
agent, and agreed to buy. I wired the money through later that
morning and by one thirty I received a phone call telling me
the house was mine.
Soon, that kind of turn-round time will be commonplace. The
first thing that will have to happen is the Land Registry
putting all of its material onto a blockchain. It should add
all information pertaining to every plot of land, in other
words, government departments will have to list all decisions
which are likely to affect the land. This will mean that all
information is in one place and downloadable. A prospective
purchaser would be able (presumably for a fee) to look up the
proposed purchase property's file, and make a decision there
and then whether to go ahead with the purchase.
The buyer would then pull up a purchase contract, which would
be a smart contract, and fill in the details, then pass the
document to the vendor, who would fill their side of the
contract. Part of the contract would stipulate that it would
come into affect when the money was paid, and an electronic
copy of the transaction would exist on the chain, and a copy
would be on the hard drive of the parties' computers.
And you won't be using legacy banking for the transfer of
money or setting up a mortgage. Both banking and mortgage
facilities already exist in the digital world, and they will
proliferate from here at a significant rate of knots.
Let's look at how things would have changed.
The deal could be done in minutes rather than
There would be no need for any intermediaries
The conveyancer would be out of a job
There would be no paperwork
The smart contract would automate the transfer of funds
No-one would be needed at the bank to okay any transaction
The mortgage contract would be automated
Direct debits & mortgage funding would also be automated
Smart contracts? What are they?
Glad you asked. They are an essential part of most of the
really useful blockchains. Let's have a look at how they work.
Smart contracts use blockchain technology to verify, validate,
capture and enforce agreed-upon terms between multiple
parties. Smart contracts on the blockchain allow for
transactions and agreements to be carried out among anonymous
parties without the need for a central entity, external
enforcement, or legal system. And these contracts operate on
the Etherium blockchain.
I once read an article by someone who was intending to fly to
Japan to attend a wedding. His plane was late taking off so he
missed his connection. He didn't have enough money in his
account to buy another ticket for a later plane. He claimed
that if his insurance company had used smart contracts, there
would have been no need to make a claim against the insurance
policy, he would have been paid out straight away after the
first plane was so late that it meant a connection was missed.
A simple way such a contract would work is: I buy insurance
for £25. The insurance company pays (say) £2000 into the
contract. A set of commitments that have to be performed and
at what times would be agreed. If all goes well the £2025 is
paid to the insurance company. If there is a failure along the
way that £2025 is paid to me.
Most contracts will be more complex than this, but that is the
Let's go back to the guy who couldn't get to the wedding. How
is that contract enforced?
The contract would have needed to have a lot more data fed
into it. The whole itinerary would need to be provided for. If
any part of the itinerary didn't hold up for some reason, then
the agreed compensation would automatically and immediately be
That leaves one crucial question unanswered; how would the
contract know there had been a failure along the line?
Part of the smart contract would have to address this
question, and it would involve consulting what is called an
oracle. There would need to be an online database listing
flight departures. The smart contract would ask a previously
defined oracle to scan the departure and arrival times of the
various connecting planes to see if they all left and arrived
on time, or at the very least in time for the insured to catch
a connecting flight.
The oracle would be chosen because it had the facility to scan
arrival/departure times of planes at the relevant airports.
That way the smart contract would know whether the conditions
for a successful claim had either been met, or had not been
Initially this would be a bit complex to set up, but simple
enough when the insurance company had done enough testing to
get several template contracts that worked satisfactorily.
Once such template smart contracts were in use, the checking
of insurance claims would not need to be done by humans
shunting pieces of paper this way and that to come to the
facts of the matter.
Once again, the use of these smart contracts would save time
and money. They would reduce rather complex dealings to a
simple matter of activating a set of computer code to do the
things needed. They would operate without any further input
from humans. Great for disintermediation, and great for
putting people out of work, but also great for making life a
lot easier for most of us, and also great for cutting
insurance fraud significantly. Welcome to the world of
blockchains and smart contracts.
I am not going to give examples of other types of blockchain,
but you can probably see that this new way of organising
things is going to make a lot of activities a lot simpler, and
a lot cheaper. At the moment blockchain is already being used
in the more modern banking institutions. Blockchains are also
in use in the logistics business. It is only a mater of time
before we see most businesses working blockchain to
blockchain. Those that dont will be positively Dickensian.
If you have any questions about any of this feel free to ask.