by Jeff Kinuthia

A blockchain is a digital database or ledger distributed across a network of computers which is protected by coding the data to prevent editing and removal, and blockchain technology is the underlying application that enables all of this. Importantly, a blockchain records and stores all the transactions that occur within the network, essentially eliminating the need for third parties to confirm the validity of the transactions.

Until recently, blockchain technology was largely utilized and associated with cryptocurrencies such as Bitcoin but more and more jurisdictions are slowly opening up to its use in different areas such as financial asset management and in land registration systems.

Which is timely because aggrieved citizens voiced their concerns with the government for years regarding the poor management of the lands registries. In 2016 the Ministry of Lands finally embarked on a digitization exercise of the 57 land registries across the country which have been keeping manual records since 1895. This exercise is ongoing and is aimed at improving the delivery of services through electronic land transactions.

While this effort must be lauded, it came at a period when the developed world appeared to be going one way and Kenya the other. However, the recent announcement by the ICT Cabinet Secretary that blockchain technology will be applied to supplement the digital database is a welcome relief that places Kenya firmly on the forefront of the blockchain revolution.

Blockchain’s advantage over traditional databases (such as the one being implemented by the Ministry) are numerous. First, under blockchain, a central database or settlement system maintained by the Land Registry for example, is replaced by multiple copies. This is great because the problem with a centralized system, especially in a country with endemic corruption, is that ill-intentioned bureaucrats often infiltrate and tamper with the system and a digital database is not be exempt from such tampering.

In a land transaction utilizing blockchain, multiple copies of a blockchain will be held by any number of interested parties such as owners, potential purchasers and agents. These copies continuously and automatically update their contents via a complex consensus mechanism that means that they are always identical. By using hashes to identify every real estate transaction (thus making it publicly available and searchable), proponents argue issues such as who is the legal owner of a property can be remedied.

Secondly, Blockchain technology also underpins ‘smart contracts’, which are programmable contracts that self-execute when certain conditions are met, and offer the possibility that transactions could complete much faster when combined with a blockchain registry.  For instance, title to the property could be transferred to the purchaser automatically on receipt of funds into the vendor’s account.  The result would also be to speed up the registration process.  With the ledger updating immediately, the registration gap would be eliminated.  This, in turn, would also lead to greater efficiencies and cost savings for land registries.

Third, nothing on the blockchain can be changed save with the consensus of the network. Any confirmed transactions on the blockchain cannot be changed.

Lastly, what happens on the blockchain stays on the blockchain. A public blockchain will act as a public ledger meaning that as long as the blockchain remains operative, the data on it will remain accessible.

Globally, other countries are already in various stages of exploring blockchain-based land registries:

  • In Brazil, the government partnered with a blockchain start up to overhaul the land registrar at two Brazilian municipalities by embedding land possession data into the bitcoin blockchain. The pilot program begun in August 2017 and is ongoing. 
  • Sweden is the country that’s furthest along in putting land registries on a blockchain. It is a country with an already well-established land registry system and believes blockchain could save the Swedish taxpayer over $100 million by speeding up transactions, reducing paperwork and minimizing fraud. 
  • Republic of Georgia has already agreed to use blockchain to validate all government related property transactions. Since its launch in February 2017, Georgia’s blockchain provider has helped implement property registration and has registered more than 100,000 documents.
  • Closer home, Rwanda recently announced that a Swiss cybersecurity company, in partnership with Microsoft, will soon offer support to the Rwandan Government in adopting blockchain technology in the country’s land registries.

Challenges facing the implementation of blockchain

Regulations have always struggled to keep up with advances in technology and blockchain is no exception. One of blockchain technology’s challenges is that it reduces oversight. There is thus a strong argument for blockchain applications to work within existing regulatory structures not outside of them, but this means that regulators in all industries should understand the technology and its impact on the businesses and consumers in their sector. New regulations will therefore need to be formulated to govern this intergration.

Second, many potential applications of blockchain, such as in land transactions, require smart transactions and contracts to be indisputably linked to known identities and thus raise important questions about privacy and the security of the data stored and accessible on the shared ledger. A key question that will always be raised is who has access to the ledger and how is access controlled?

Further, in Kenya, the current data protection laws we have in place are inadequate and we needed greater legislation with regard to accountability of persons and institutions that hold data. The relevant legislation, the Data Protection Bill (2013), has been stuck in Parliament for years now. Adequate data protection laws will therefore need to be implemented.

Finally, cost. The cost of implementing blockchain technology in a country like Kenya might prove to be a great challenge. This is firstly due to the fact that we are yet to digitize the land registry. Blockchain can only be implemented on a digital platform. The exercise, which begun in 2016 is still ongoing and there is currently no indication as to when the exercise will be completed. Once the digitization is complete, we will then need to set up the infrastructure which will involve acquiring the right software and computers with great computing and storage power.

What now?

The announcement by the ICT Cabinet Secretary on blockchain and land registries, and the setting up of a digital ledger and artificial intelligence taskforce by the ICT Ministry is an encouraging sign that the government is open and willing to adopt blockchain technology.

In the private sector, numerous startups have begun already begun implementing blockchain in their businesses. Examples include ‘ChamaPesa’, a blockchain savings application for savings groups set to officially launch in 2018. ‘Land Layby’, a real estate firm, recently announced that the firm is set to roll out an application for a blockchain-powered land registry by April 2018. The initial role of the platform will be to provide a mirror reflection of the Government Land Registry systems.

In the cryptocurrency sector, numerous companies relying on blockchain technology such as ‘L-Pesa’ and ‘Belrifics Global’ have gone a step further by launching Initial Coin Offering (ICO’s). ICO’s are a funding mechanism similar to Initial Public Offerings (IPO’s) in which startups sell their underlying cryptocurrency tokens in exchange for bitcoin.

Such advancements and application of blockchain locally appears to have contributed greatly to the fact that Nairobi was chosen as the host of the 2018 World Blockchain Summit in March.

Blockchain technology is a revolutionary tool that will change the way we do business in a lot of different sectors from the land registry to the financial sector and practically every industry that has great data management needs. The ultimate question therefore is not if, but when will this technology’s application will become widespread in Kenya.

 

Jeff Kinuthia is a lawyer specializing in corporate and commercial law. He can be reached on njeffkinuthia@gmail.com 

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