The growth and
popularity of blockchain technology is at an all-time global high and
does not appear to be slowing down anytime soon. Courtesy of the
versatility of its use and application, blockchain technology may have a
newfound utility in the future management and registration of land
transactions in Kenya. This is according to ICT Cabinet Secretary, Joe
Mucheru.
Introduction
The growth and
popularity of blockchain technology is at an all-time global high and
does not appear to be slowing down anytime soon. Courtesy of the
versatility of its use and application, blockchain technology may have a
newfound utility in the future management and registration of land
transactions in Kenya. This is according to ICT Cabinet Secretary, Joe
Mucheru.
So, what is blockchain technology?
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.
Blockchain technology and real estate
Property fraud is one
of the biggest problems facing developing countries and Kenya is no
exception with many Kenyans having fallen victim to fraudulent land
dealers. For years, aggrieved citizens voiced their concerns with the
government regarding the poor management of the lands registries and 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.
Blockchain versus traditional databases
Blockchain’s advantage
over traditional databases (such as the one being implemented by the
Lands 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 exempted 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, proponents argue issues such as who is the legal owner of a
property can be remedied.
Secondly, blockchain
technology 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 and
registration delays would be eliminated leading to greater efficiencies
and cost saving.
Third, nothing on the
blockchain can be changed save with the consensus of the network. Any
confirmed transactions on the blockchain cannot be changed, negating
fraud.
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.
International application of blockchain
Globally, other countries are already in various stages of exploring blockchain-based land registries:
- In Brazil, as
a test case, the government partnered with a blockchain start up to
overhaul the land registry at two Brazilian municipalities. - Sweden
has a well-established land registry system and believes blockchain
could save the Swedish taxpayer over USD 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
Similar to any novel
technology, blockchain and its application also comes with its
challenges. Some of the challenges likely to be faced are:
Regulation and governance
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.
The recently enacted
Computer Misuse and Cybercrimes Act (the “Act”) is however a commendable
step in the right direction. It first and foremost acknowledges and
defines blockchain as a digitized, decentralized, public ledger of all
currency transactions. Additionally, the Act goes on to set up a
National Computer and Cyber Crimes Committee, which is tasked with,
among other things, advising the government on matters relating to
blockchain technology, critical infrastructure, mobile money and trust
accounts. However, further regulations on the governance and structure
of blockchains will still need to be implemented.
Data security and privacy
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 accessed on the shared ledger. A key question that
will always be raised is who has access to the ledger and how access is
controlled. Additionally, even with the very recent passing of the Act,
the contentious issue of data security and protection has not been
adequately addressed. Nevertheless, the Act states that one of the
duties of the National Computer and Cyber Crimes Committee (established
under the Act) is to ensure that the right to privacy guaranteed under
the Constitution is protected.
Cost
The cost of
implementing blockchain technology is high. This is firstly due to the
fact that we are yet to properly digitize the land registry. Once the
digitization is complete, we will then need to set up the infrastructure
which will involve acquiring the right software and hardware to support
the technology.
The future of blockchain technology in Kenya
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 already begun implementing blockchain in their
businesses. 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 Offerings.
Summary
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.
Should you have any enquiries regarding this article or any general queries on the subject matter, kindly contact Nyawira Kirubi, Partner and Jeff Kinuthia, Lawyer, MMAN Advocates.
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