This article is part of our special report EU law goes digital.
Once feared as a technology that would make legal practitioners redundant, blockchain has now actually strengthened the role of notaries as interpreters of complex transactions, best illustrated by the convoluted issue of land registries.
Blockchain has been hailed as the most promising disruption in the digital world since the arrival of the Internet. While the web enabled exchanges of information, blockchain allows people to exchange value with increased confidence like never before.
In these distributed ledgers, the existence of a network of computers to sustain and control operations makes a third party unnecessary to ensure that the transaction happens.
For that reason, middlemen responsible for building and maintaining trust among the parties could look redundant once blockchain networks spread across the planet.
But these third parties, from central banks to credit card companies, are not just waiting to be forced out without a fight.
For notaries, blockchain may even become an “ally”, José Manuel García Collantes, President of the Notaries of Europe, told EURACTIV.com’s partner EFE.
The Notaries of Europe, an association bringing together more than 40,000 notaries in 22 member states, will look at how best to exploit the opportunities of blockchain during a two-day conference to be held in Santiago de Compostela on 5-6 October.
EU wakes up
The European Commission has also stepped up its efforts on two fronts. In January, it will publish an action plan for FinTech, including a set of proposals to regulate digital firms operating in the financial sector, including those using blockchain and its most famous application, Bitcoin.
At the same time, the Commission is putting money into research projects to explore potential uses of distributed ledger technologies (the ‘Blockchain for Social Good’ prize), and to address some of its shortcomings.
The EU executive is also currently developing a European Blockchain Observatory Forum, and a European Financial Transparency Gateway, which will make available the information that listed companies must report to national authorities.
Blockchain brings a new generation of smart contracts, in which codes are introduced in the ledger. They are safeguarded by tens or thousands of computers, making it almost impossible to alter the information because the operation must be done simultaneously in all the computers.
Still, these new contracts can apply only where there is no room for interpretation, notes Cristina Carrascosa, a legal advisor at Demium Startups.
And even in cases where automated contracts are possible, José Carmelo Llopis, a notary at Ayora, believes that a human element will always be needed to oversee the whole process and build trust among the parties.
Carrascosa and Llopis took part in a session with notaries to explain how blockchain could become a tool for them to support their daily work, according to ValenciaPlaza, a news website.
The technology is so promising that García Collantes believes it is worth exploring the idea of setting up a “private blockchain network” for European notaries.
Blockchain gained prominence with the emergence of cryptocurrency Bitcoin but has since attracted widespread interest due to its multiple potential applications.
Its use for land registries triggered enthusiasm because of its capacity to offer secured lists in a more efficient way than traditional methods.
Given the lack of public registries of land assets in developing nations, some have argued that a blockchain-based approach could increase efficiency and even prevent fraud.
Honduras already introduced a system based on a distributed ledger because of this very reason and Sweden is also discussing the possibility of using such a system.
Hands-on land registries
But the use of blockchain for land registries also illustrates the need for notaries in the digital ecosystem, according to a paper drafted by Maurice Barbier, a member of the Council of European Geodetic Surveyors, and Dominik Gassen of the German Federal Chamber of Civil Law Notaries.
Despite all the euphoria, the authors draw up a long list of “reservations” when it comes to blockchain applied to land registries. This includes network integrity, the anonymity in the system which favours fraudsters, and the need for additional document storage which blockchain currently doesn’t allow.
Finally, the decentralised network of computers supporting the distributed ledger requires an immense amount of energy.
For instance, a single bitcoin transaction requires as much energy as 1.6 US households per day and requires more than 5,000 times the energy needed by the VISA credit card system. Maintaining a blockchain network at this stage would therefore require an investment that would likely not be cost-effective compared to other solutions.
Against this backdrop, and given that the complexity of real estate transactions cannot be reflected simply in a code embedded in the distributed ledger, Barbier and Gassen argue that blockchain may not be the best solution in the end.
In addition, the more participants and transaction types exist, the more complex the adoption of new standards becomes, they warned.
Instead, the two authors contend that blockchain could be more useful in the context of the ‘internet of things’, where there is a high affinity for common standards in the communication between machines, for example between home devices.
Others meanwhile remain upbeat about the potential of blockchain to register land transactions, particularly in special cases. Elliot Hedman, CEO of Bitland Global, a technology firm for real estate registration in Ghana, referred to Haiti.
“When the earthquake struck, all of their records were on paper, if they were written down at all,” Hedman warned, adding: “There are still people fighting over whose land is whose.”
- January 2018: the European Commission will publish its action plan on FinTech.