Blockchain solution to validate property transactions

Georgia is committed to continue introduction of innovative solutions in the property management system through piloting a blockchain solution to validate property transactions that is meant to protect landowners from corruption risks.

Completion Status:
Partially fulfilled

Commitment filtering:

Specific:yes

This commitment targets a concrete and sufficiently narrow policy area and a mechanism within the property management system to validate property transactions and protect landowners from corruption risks through the blockchain technology.

Measurable:yes

The commitment identifies a clear, measurable action and a deliverable by specifying the piloting of the blockchain technology within the property management system as a solution to prevent corruption.



Last updated: 30 December 2021
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Evaluation:

The implementation of this commitment started in 2017. According to the representative of the National Agency of Public Registry (NAPR), the main objective was to simplify the property registration procedures to ensure a higher protection of related transactions through the use of new technologies, and to increase property owners’ trust in public registration services. To that end, since February 2017, the NAPR has started applying blockchain technology in its property registration service, making Georgia the first country to do this.1 The blockchain database has no centralised system or control unit that would be vulnerable to hacker attacks. Its records are stored in tens of thousands of computers around the world. By ensuring the security, transparency and accessibility of any transaction, the blockchain prevents corruption from occurring. Using this technology reduces transaction costs too since it is an automated system requiring no intermediaries. Each property registration document has a unique hash code, which is generated in the NAPR system. This code is sent to the global blockchain network, which confirms the validity of the document while excluding any illegal manipulation to change the data provided. Between 2017 and 2020, the NAPR applied blockchain technology to over three million property registration documents published on its website.2 According to the agreement with the government of Georgia, during this period, the bitcoin mining company BitFury was registering unique hash codes of land registry documents on the global bitcoin platform for free.3 4 This was part of the company’s corporate social responsibility in exchange for consuming large state electricity resources for its bitcoin mining enterprise in Georgia.

While the blockchain technology can ensure the security, integrity and authenticity of personal data, including property data in this specific case, whether it is successful or not largely depends on social or political settings in a given country rather than on the technology itself. There also needs to be a digital infrastructure and digital literacy in place before piloting blockchain enabled registries, particularly in developing countries like Georgia. This is further complemented by high costs required for the application of such technology in the public sector.5 6

Overall conclusion: the further assessment of the implementation of this commitment in Georgia proved those conclusions right. For instance, while browsing the NAPR website, it became evident that not all property documents registered in the system between 2017 and 2020 are protected through blockchain technology, while those documents that have been registered in the system since January 2021 are not protected at all since the agreement with BitFury expired.7 This leads to the assessment that the commitment has only been partially fulfilled.

 

Challenges to effective commitment implementation
According to interviews collected for this report, this commitment does not serve anti-corruption purposes directly. This was confirmed by the NAPR representative too who stated that the commitment was just an additional data protection measure to increase public trust in property registration services. Prolonging an agreement with BitFury could be a challenge considering that the blockchain technology is an expensive service requiring high power consumption8 and the company might not be interested in continuing to provide it for free as before. It is noteworthy that, according to the allegations of the opposition politicians, the founder of the Georgian Dream ruling party and the former prime minister, billionaire Bidzina Ivanishvili, had business interests in BitFury, and his co-investment fund lent money to the company when it first arrived in Georgia.9 The allegations also state that Georgia provided land, cheap electricity and a tax-free zone to BitFury to help the company set up a bitcoin mining centre in Tbilisi.10 However, BitFury denied those allegations.11 With Georgia’s bitcoin mining industry on hold at the moment due to an increase in electricity prices,12 it is unlikely that BitFury would continue providing the NAPR with a blockchain service, which is consuming high power, for free. At the same time, using blockchain technology in public service does not fall within the priorities of external international donors aid, and therefore it is highly unlikely that these donors would agree to provide financing for individual registry services of property owners.13

 

Opportunities to accelerate commitment implementation
The NAPR has two opportunities to address the aforementioned challenge. One is to proactively reach out to other companies that could be interested in financing the blockchain service for property owners as part of their corporate social responsibility. Another is to give the owners themselves a choice to pay for this service if they want additional protection for their property data.13

 

Recommendations

In the context of the government’s anti-corruption commitments stemming from its participation in global platforms such as the IACC, the NAPR should avoid making commitments that have only a minor impact on the fight against corruption. Before making a new commitment, the NAPR should conduct a thorough needs assessment and a cost-benefit analysis to make sure that the commitment is based on real public needs and that its benefits outweigh the costs required.

To ensure the sustainability of this specific commitment, the NAPR should explain proactively to property owners how the blockchain technology works and what specific benefits it could bring to them. This would give the owners an informed choice of whether it is worth for them to pay for an additional service while registering a property. At the same time, if the government believes that the blockchain technology is useful for public service, it should provide funding for this technology through its own resources, given this does not fall into standard donor priorities.

Sources:
  1. National Agency of Public Registry, Papuna Ugrekhelidze delivered a speech on the use of blockchain technology at an international conference organised by the World Bank, 2018, https://napr.gov.ge/p/1697
    30 Dec 2021
  2. 30 Dec 2021
  3. CoinDesk, Republic of Georgia to Develop Blockchain Land Registry, 22 April 2016, https://www.coindesk.com/tech/2016/04/22/republic-of-georgia-to-develop-blockchain-land-registry/
    30 Dec 2021
  4. CoinTelegraph, Georgia Records 100,000 Land Titles on Bitcoin Blockchain: BitFury, 20 April 2017, https://cointelegraph.com/news/georgia-records-100000-land-titles-on-bitcoin-blockchain-bitfury
    30 Dec 2021
  5. U4 Anti-Corruption Resource Centre, Blockchain as an Anticorruption Tool: Case Examples and Introduction to the Technology, 2020, https://www.u4.no/publications/are-blockchain-technologies-efficient-in-combatting-corruption.pdf
    30 Dec 2021
  6. Stanford Social Innovation Review, Will Blockchain Disrupt Government Corruption? 5 March 2018, https://ssir.org/articles/entry/will_blockchain_disrupt_government_corruption#
    30 Dec 2021
  7. Interview with the NAPR representative
    28 Oct 2021
  8. U4 Anti-Corruption Resource Centre, Blockchain as an Anticorruption Tool: Case Examples and Introduction to the Technology, pp. 4-5, 2020, https://www.u4.no/publications/are-blockchain-technologies-efficient-in-combatting-corruption.pdf
    30 Dec 2021
  9. NPR, How The Tiny Nation Of Georgia Became A Bitcoin Behemoth, 23 April 2018, https://www.npr.org/sections/parallels/2018/04/23/597780405/how-the-tiny-nation-of-georgia-became-a-bitcoin-behemoth
    30 Dec 2021
  10. New York Times, Despite Bitcoin’s Dive, a Former Soviet Republic Is Still Betting Big on It, 22 January 2019, https://www.nytimes.com/2019/01/22/business/georgia-bitcoin-blockchain-bitfury.html
    30 Dec 2021
  11. Georgia Today, Bitcoin Center in Georgia Denies Links with Ex-PM Ivanishvili, 15 January 2018, http://gtarchive.georgiatoday.ge/news/8765/Bitcoin-Center-in-Georgia-Denies-Links-with-Ex-PM-Ivanishvili
    30 Dec 2021
  12. EurasiaNet, Have Georgia’s Crypto Glory Days Passed? 26 November 2021, https://eurasianet.org/have-georgias-crypto-glory-days-passed
    30 Dec 2021
  13. Interview with legal expert at the German Society for International Cooperation
    04 Nov 2021

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