By R3 Government Relations team

In our ecosystem of participants building on our Corda platform, real property has been an area of growth over the past few years. R3’s work with the UK HM Land Registry starting in 2018 garnered much attention because of the broad scope of the project, which was to put the entire real property transaction lifecycle onto a blockchain, and also because it was the first major government to publicly undertake such work. As a technical matter, blockchain is well suited for maintaining accurate land records through the life of the land, creating one version of the truth of all pertinent facts, including ownership and transfer, and facilitating auditability.

The proposed rule changes to the Federal Accounting Standards Advisory Board (“FASAB”) for land accounting and documentation pose a unique and promising opportunity for the federal government of the United States to use blockchain to manage its own land. The technical design and implementation of a system to facilitate compliance with the FASAB rule change and futureproof our federal land management in the US is achievable, and successful rollout would enable powerful ancillary benefits of having a reliable, transparent, and consistent view of federal lands, now and in the future.

FASAB rule change

The US Federal Government owns nearly 28% of the total US land area. Federal accounting standards require documentation and reporting on this land and its use. Currently, “Reporting entities select the physical quantity information to report, which results in information that is not necessarily comparable.”^[1] The FASAB has proposed rule changes that “require consistent and comparable disclosures of information for land (that is, reporting estimated acres of land, physical quantity information, estimated acres of land held for disposal or exchange, and predominant land use).”^[2]

The proposed standards would begin to take effect in FY2021 and would be fully effective beginning FY2025. The Board further added in a supplemental memorandum that the government should “validate that the required information is independently verifiable or auditable.” ^[3]

Challenges of complying

As the FASAB noted in its April 2020 memo, “Acquisitions and disposals of [federal] land were not documented like modern land transactions.” ^[4] It provides as examples federal land being acquired through “(1) ceded territory by the original thirteen colonies, (2) territorial annexations, (3) purchases, and (4) treaties.”^[5] A side effect of this history is that some federal systems have never stored land according to acreage, and in some cases federal lands have never been surveyed. Additionally, there is lack of reporting on land use as is required in the proposed rule change. Available data on federal land is not standardized, making it difficult to query. Moreover, there are multiple sources of information, bringing the true state of the data into question without available audit history.

Using Blockchain for Land Registry –solution attributes

The solution to these problems requires the following:

• Consistent and complete disclosures of information for land (acres, physical land quantity information, estimated acres of land held for disposal or exchange, and predominant land use). This includes creation of acreage data where it does not exist, which in some cases means converting non-acreage data to be expressed in acres.
• Ability to onboard information from legacy system integrations (altering or replacing). The scale of conversion and the ability to provide auditability have raised considerable concern among system custodians and auditing firms.
• Ability to record ownership and any dispute around ownership. Disputes may be around ownership of a full parcel or partial parcels, such as in the case of boundary disputes. Those disputes may be by other stakeholders including state and local governments, tribal governments, private citizens or commercial interests.

How it works on blockchain

Blockchain is a term that includes within it a large variety of types of technologies. For example, some blockchains–called public permissionless–are open for anyone to participate and allow participants to be anonymous. They also use proof of work, a highly energy intensive protocol, to validate transactions among distrusting peers. That is in contrast to the type of blockchain that would be used for the solution proposed here.

In this instance, a public permissioned ledger would be appropriate. Public meaning visible to all, and permissioned meaning updatable by land holders with the authority to commit updates to the blockchain including the Department of the Interior, Department of Agriculture, and the Department of Defense. That construct, offered by R3’s Corda platform, provides both transparency and auditability. Importantly, given the transparency, it is incumbent on the property owner to dispute an improper assertion of ownership. With regard to the stakeholders, including the general public, the data’s current state and its entire history can be verified by anyone and everyone. Different cryptographic tools like hashing algorithms can be used to ensure the data is accurate and hasn’t been tampered with.

Parcels are specifically identifiable and no two digital representations can be created for the same parcel or overlapping parcel areas. Parcels can be split and merged while maintaining their initial attributes. Each parcel unit can inherit attributes from its previous form and be updated with new attributes. For example, one parcel of partially disputed land (e.g., land subject to a boundary dispute) can be split into two parcels where each parcel has all the same attributes as the original unified parcel except that one of the split parcels is disputed and the other is not.

The data maintained on each parcel is flexible, which means that any information that is relevant to be recorded and maintained about a parcel can be. That data can include ownership, acreage, primary and secondary land use, and more. The information contained about the parcel is supplemented by information that is stored off-chain, which the parcel’s on-chain information points to. The parcel’s on-chain information is not limited to pointing to one piece of data off-chain, but can indicate multiple documents as well as any dispute in ownership. Importantly for merging legacy data into the new system, a parcel’s information may also include pointers to documentation of the GIS polygon data such as land surveys, from which acreage may be computed. Parcels can be queried, including for those that are missing one or more data fields. That function can facilitate audit of parcels without adequate documentation as to their area, primary use, claims of ownership, and more.

In terms of what can be seen, viewers are able to see the lifecycle of the asset, including transfers of ownership to, from, and between governments as well as grants of rights such as leaseholds or easements. From a government perspective, this allows for auditability of transaction history and enforcement of rules.

How parcels can be updated, moved, divided, or otherwise changed on blockchain 

Parcel records (tokens as they are referred to on blockchain) can be updated to reflect the current state of events, such as when a parcel of land becomes disputed or the acreage is reassessed. The tokenized format of the parcel enables each parcel’s history to be tracked back through updates and even splits and merges. As we said above, through splits and merges, each parcel maintains the attributes from its previous form and is updated with new attributes. For instance, if one plot were acquired by purchase and an adjoining plot acquired by a treaty, even when their tokens (representing the parcels) are joined into a new token, the original components maintain their different claim origins.

Using blockchain to facilitate compliance with revised FASAB rules

As laid out above, the technological challenge of compliance with revised FASAB rules could be conquered effectively and efficiently with blockchain. The greater challenge of complying is settling the inevitable disputes that will arise between the government, state and local governments, private citizens, Native American tribes and other stakeholders. Implementing a blockchain-based ledger that ensures parcels are unique and with the relevant data will not resolve the disputes; it will, however, provide accurate records, identify the properties over which there is a dispute to be settled, maintain the full record of competing claims for the parcel, and ultimately record resolution, which will involve a variety of stakeholders including courts.

This work would join a large and growing group of countries around the world using blockchain for land management. That group includes the UK, Sweden, Finland, Ukraine, Georgia, Brazil and South Africa, among others. There are a number of land registries and other noteworthy property solutions being built on Corda, many with the support of government, from fractional ownership to insurance to mortgage reporting, and we see continued expansion of the real property offerings on our platform.

Sources

[1]  ACCOUNTING AND REPORTING OF GOVERNMENT LAND, Statement of Federal Financial Accounting Standards Exposure Draft April 30, 2018

[2] ACCOUNTING AND REPORTING OF GOVERNMENT LAND, Statement of Federal Financial Accounting Standards Exposure Draft April 30, 2018

[3]  FASAB Memorandum Subj: Accounting and Reporting of Government Land, April 10, 2020

[4] FASAB Memorandum Subj: Accounting and Reporting of Government Land, April 10, 2020

[5] Id.