Dave MerinNovember 2021
One of the long standing problems with controlling real estate via smart contracts is something one could call the "Men with Guns" problem. Simply put, while smart contracts are great at enforcing digital property rights, only a monopoly on violence can truly enforce physical property rights.
If the blockchain says one person enjoys exclusive rights to use a piece of land at a given time and the government says another person does, who actually gets to use that piece of land at a given time? My bet is on whoever has the backing of the local police / militia / army.
This makes transferring real property on the blockchain or even using the blockchain as a system of record for property ownership a bit complicated.
Moving a title registry permanently onto the blockchain will likely require state participation / sign off to transfer properties from one owner to another, reflecting their monopoly on violence in the area and adoption will take time as the paper pushing departments of governments tend not to be early adopters of new technology.
Does this mean that we have to wait for governments to adopt public blockchain technology to unlock the other benefits of using a blockchain as the ledger of record for real estate?
As previously discussed, the easiest place to get started is with shorter term access / usage rights, which are historically subject to less government regulation since the government ultimately extracts their pound of flesh in the form of property taxes at the title ownership level. This is of course easier to do with shorter term leases, but that makes it hard both for the leaseholder to invest in improving the property and to run more complex / novel experiments.
It may be possible to do more. On chain insurance, largely pioneered by Nexus Mutual, has been rapidly growing, primarily to insure against smart contract risk, but it may also be a possible interim solution to the "Men with Guns" problem.
Why not insure against the risk that what the smart contract says is true deviates from what the government says is true? At a minimum, this could be used to insure that long term leases are honored after someone invests to improve the property, but perhaps it could even go further and better enable us to use blockchains as the system of record for offline ownership before the state gets around to adopting it.