How Close Are We to Digital-Native Property Records?
We're halfway there, but going full on digital-native leaves a lot of questions
You’ve probably seen a few headlines like “A House Sold as an NFT for the First Time in History,” or some variation of “How NFTs are transforming the world of real estate.” These headlines make it seem like the world is just moments away from putting land “on-chain,” but in reality, the way property NFTs work today is a clunky workaround of what could be a much more elegant and efficient process.
Today, the owner of a property NFT doesn’t actually own the land or house. The NFT holder owns the Limited Liability Corporation (LLC), and the LLC owns the land. When you “sell the house” you are really just selling the LLC, and one of the assets of the LLC is the house. Put another way, if I “bought my house” via NFT and I went to look at the deed kept in city records, I would see XYZ LLC listed as the owner on the deed, not Nicholas Bonard. In the ownership records of XYZ LLC, it wouldn’t list Nicholas Bonard either. Instead it would say “whoever owns this specific land NFT is the owner of this LLC.”
This inefficient workaround is mainly because legacy cities still require a IRL paper deed (the actual legal document that transfers ownership from one person to another) to record a property sale. But what if paper deeds weren’t required? What if a city established its own blockchain-native1 system for recognizing property ownership?
From Physical to Digital
The idea of taking an existing system, product, or process from physical to digital is not unique to property records. Recent technological innovations make it seem like everything is destined to go through a similar transformation: from physical, to hybrid, to digital. Here’s a few examples:2
Text Documents: Piece of paper with ink » Digital scan of the piece of paper » Microsoft Word document
Money: Physical cash (Dollar bills) » Paypal or Venmo » Cryptocurrency
Meetings: Face-to-face or in-person » Video Chat or Facetime or Zoom » Virtual reality
Proof of Land Ownership: Physical piece of paper deed » NFT that points back to physical paper deed » NFT that is the property record (no paper required)
On this physical-to-digital spectrum, we are very clearly in the hybrid stage when it comes to proof of land ownership. What would a digital native system look like?
A Glimpse into the Future
Digital Land in the Metaverse
We actually have digital-native land NFTs right now. They are for digital land in the metaverse though, not physical land, but there are many important parallels. See Decentraland and the Sandbox (image below) as primary examples.
In a digital world like the Sandbox, the process of buying and selling the digital land NFTs via an online broker is exactly how you might imagine this happening with physical land in the future. You click the parcel you want, buy the NFT for that property, and that’s it! You now own that digital land. It's like if you went on Zillow, saw a physical land property listed for sale, and then clicked a “buy” button… and now you own the property. You could achieve a hybrid version of this today, but it would require that every listing in Zillow be a property that is owned by an LLC which is owned by an NFT. A few will decide to do this for the novelty, but to do it for every property would be a ton of paperwork and legal fees.
Digital Overlays on Physical Land
In the case of Geo Web (which just launched! and is shown in the screen shot below), it is a digital overlay to existing land but it ignores existing property ownership. Its exactly how I would imagine purchasing physical land via digital overlay, but the key difference here is that you can “own the land” on the blockchain via Geo Web but not actually own it in real life. In this early stage Geo Web is sort of like the very first commercial star registry, where you can pay to name a star but the registry isn’t recognized by any professional astronomical association, and others might decide to start new star registries in the future. Regardless, the purchasing and ownership mechanism in Geo Web is a brilliant proof of concept that can serve as inspiration to real world land registries.
In the case of Parcel 0, CityDAO owns a 40 acre plot of land in Cody, Wyoming. CityDAO divided the property up in to 10,000 individual parcels (mostly square and still leaving trails and gulches as public goods) and then air-dropped the parcels to CityDAO citizens (see a screenshot of the parcel viewer below). This is still a digital overlay on an existing property system, but CityDAO actually owns the entire parcel they are subdividing as opposed to Geo Web which doesn’t own any of the earth but is subdividing it anyway. CityDAO citizens can’t walk into the City of Cody’s Deed and Title Office and see their name on the deed, but this seems to be as close as you can get to having land ownership on-chain.
These examples start to get at digital (and crypto) land ownership records, but its not digital- or crypto-native, where you build a land registry and recording system digitally, from scratch.
Imagining a World Without Existing Property Records
What if you had land that was outside the jurisdiction of an existing country? Where the land ownership records were reset and you were starting from scratch? A clean slate, tabula rasa, if you will. Then you could establish a property rights system that runs in a digital-native or crypto-native way. This could be a Network State purchasing an island where the Network State owns the island free and clear - it is not beholden to the laws of previous owner or its system of property rights. What would that actually look like?
It seems pretty clear that you can maintain a digital land registry that will record property ownership and facilitate the buying and selling of land much more efficiently than today. But after that, I have questions.
So Many Questions!
Do you start by taking a piece of land and then dividing it up into a squares? That only deals with the surface of the earth. What about the ground below and sky above. Do you create blocks in 3 dimensions - Minecraft style?
How big is each block? One cubic meter? One cubic centimeter? Smaller? Would cloud server storage space be an issue?
If land is made up of indivisible blocks, how does that work when rivers and coastlines shift? You bought riverfront property…. but then the river moved and now you just have… property near a river?
Are there blocks that are public goods? What about water rights, mineral rights, and air rights? Everything below 20 meters is owned by the Crypto City?
Do you let citizens (or an architect) draw their own property boundaries during an initial mint, like the creation of the “root” deed? Can owners then sell pieces of the parcel if they want? How would a fractional property NFT work?
Do we separate the land from the buildings on top of it (Georgism!)? Do the buildings become their own NFT?
When it comes to land ownership records, the world seems to be trending in the direction of digital land ownership - most likely in the form of blockchain based records. There are some legal and paperwork hurdles, but there is a pretty straightforward path for a city to put existing land ownership records on-chain and become a crypto city (probably a crypto implementer or crypto cyborg on the crypto cities spectrum). But a crypto-native property records system, where city property records start from a blank slate? The path to that is less obvious. So for now, I’ll end with these questions, but I aim to bring some answers in future newsletters.
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Tags: hashGovernance hashLandUseAndProperty hashCityDAO
In this case I’m using blockchain-native and digital-native interchangeably. Blockchain is clearly the best way to maintain a digital proof of ownership for many reasons, including the fact that it does not require a central entity to store the records, and existing NFT infrastructure (like opensea.io) would make the sale of these very easy.