Property fraud is one of the biggest problems in India. In 2013, New Delhi alone had 181 reported cases of property fraud while Mumbai came a close second at 173 cases.
In, what stands as a truly monumental decision, Andhra Pradesh and Telangana are partnering with Swedish start up ChromaWay to counter these property fraud cases by applying the blockchain technology.
Property Fraud and Black Money
Real estate dealings are one of the biggest avenues of investing black money. The most popular way of doing it is to hold property in someone else’s name. This is called “benami” aka “false name”. Since November 2016, benami properties worth over $282 million have been seized.
The Joint Commissioner of Police Satish Golcha told PTI:
“Around 30 percent of all the cases which are reported to us are related to real estate.”
In an infamous case of benami, the Crime Branch discovered that promoters of the Nirmala Krishna Nidhi Fund had purchased property under the name of their nominees, depriving hundreds of people of their life savings.
The crime branch found out that the accused had purchased high-end properties like shopping malls, residential plots, and bungalows in Thiruvananthapuram, Kollam, and Kundara. The overall fraud has been pegged to be around ₹500 crore (~$7.8 Billion)!
Also, let’s not forget the movie “Khosla Ka Ghosla”, which is basically about property fraud.
How Can The Blockchain Prevent Fraud?
So, now the question is, how can the blockchain possibly help reduce corruption and fraud in land registry cases?
Before we begin, let’s understand what a blockchain is.
A blockchain is, in the simplest of terms, a time-stamped series of immutable record of data that is managed by cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) are secured and bound to each other using cryptographic principles (i.e. chain).
So, now that we somewhat understand what a blockchain is, let’s look at some problems that blockchain application will solve.
The Three Main Problems That Blockchain Will Solve
When it comes to land registry, or any form of data storage, what are the three main problems that one faces and how can blockchain solve every single one of them?
#1 Digital Units Shouldn’t Be Easy To Replicate
As the ChromaWay land registry whitepaper observes any unit which is of immense value should be extremely hard to replicate. This is the reason why fiat currency can’t be easily replicated at home. If someone can take home a printer and print out $100, the value of the currency would go down by a huge amount.
The same should go for confidential documents like land registry papers as well. It shouldn’t be possible for someone to have two copies of the same registry but with different details. The blockchain has solved this problem years ago. This problem is called “double spending”. Let’s take bitcoin’s example, it is impossible for me to spend the same bitcoin simultaneously in more than one transactions.
Using the “double spending protection” in blockchains helps one prevent this from taking place.
#2 Digital Files Should Be Tamper Proof
Another problem that should definitely be solved when it comes to storing land registration files is to make them as tamper proof as possible. Back in the day all these files used to be physically stored in registers, this obviously brought in a host of problems.
- Anyone can steal the registers.
- It is very simple to bribe someone to tamper with the records.
- Registers are susceptible to wear and tear.
Even when the system was made digital, certain problems still persisted.
- The system could always be hacked.
- The bribe angle still remained. Anyone could bribe an official and make them change the records.
What was needed was a system that could store all these files and make them “non-tamperable” so to speak.
Enter the blockchain.
One of the most fascinating aspects of the blockchain, which this author feels could help fight corruption in different industries, is the simple fact that files once stored in the blockchain cannot be tampered with.
Each block in a blockchain has its own unique digital fingerprint called “hash”. Once the files go in side a block, they cannot be tampered with because the cryptographical hash functions will prevent that from happening.
Imagine this, a file once stored, can be viewed by everyone (since the blockchain is an open ledger) and not be tampered by anyone, including the file creator.
#3 Digital Processes Should Be Tamper Proof
The third problem that the blockchain can fix is securing a trustless process.
Every official institution has a process for each and every activity but they may not be strictly adhered to. This could happen for a number of reasons:
- General human negligence.
- Malicious intent.
As you can see, these problems are both human related.
In order to secure something as important as land registries, a set process should be followed which cannot be tampered with. A lot of actors need to follow certain steps every single time to ensure the safety of the process and to eliminate any corrupt human behavior.
The blockchain pretty much solved this problem a long time back through “consensus mechanism”. Think about it, a blockchain is a distributed system with a large number of actors. In order to make any decision, all these people need to come to a majority consensus, how do they do it?
There are several mechanisms that help them to achieve so such as Proof Of Work, Proof of Stake etc.
The main takeaway is, a blockchain can ensure a seamless, secure data storing process which is free from human emotions.
So, as we can see, using the blockchain technology will produce an easy and innovative solution.
Response From The State Government
J A Chowdary, Special Chief Secretary & IT advisor to Andhra Pradesh CM N. Chandrababu Naidu had this to say:
“Blockchain is the technology of the future. It will not only change the way we perceive processes but it also has the potential to transform the economy. Of course, we all are yet to fully discover this technology and hence the Government of Andhra Pradesh has engaged with startups from across the globe such as ChromaWay to run proofs of concept within its own departments. ChromaWay’s expertise and previous implementation in countries such as Sweden have added immense value to our understanding of blockchain.”
How Is It Going To Work?
The idea is to use a system that has a blockchain back-end and a web app front-end. This will keep the execution as simple as possible for normal folks whilst making sure that the blockchain does its cryptographic magic in the background. ChromaWay uses its own database platform called “Postchain”.
“Postchain is built from the ground up to work with most widely-used platforms, and integrating it into the government’s systems is done seamlessly.”
One of the many interesting developments that can take place is the introduction of unique fingerprints for the owners and their lands.
This is how it can possibly work:
- Have the geo-coordinates along with a polygonal description of the land and hash the total value and store.
- Since the hash of a given input is always unique, the property now has its own unique id.
- Tie this hash to the Owner’s ID, hash the result and store it on the blockchain.
To understand why generating a unique hash signature will go a long way to help reduce chances of a “benami” and property fraud, you need to understand what a hash is.
Hashing, in layman’s terms, means putting an input of any length and getting an output of a fixed length.
Two of the fundamental properties of a hashing functions are:
- A unique input will always generate the same output hash.
- If the input is changed even a little bit, it will greatly affect the output hash.
So, let’s do a little test to check out the second property. (We are going to be using the SHA-256 algorithm.)
Just a small little change was enough to drastically change the output hash.
Now, keep this in mind and think about the land registry fingerprints.
As we have already seen, the hash generated for the land and user ID will be unique (property #1 of a hashing function).
So, what will happen if someone else wrongfully takes control of a property? The ID mixed with the property ID will generate a drastically different hash (property #2 of the hashing function).
By using simple cryptographic functions, possible property fraud can be kept at bay.
While it remains to be seen whether the government can actually integrate blockchain technology with their system, the possibilities that it brings are truly endless. One simply can’t help but dream! Imagine having the medical records saved in the blockchain, imagine integrating blockchain with the food industry.
The possibilities are endless, however, one step must be taken at a time. As of right now, let’s just hope that this gets executed flawlessly.
Draft White paper: here