Practical use of blockchains and smart contracts for a lay man

Blockchain, Cryptocurrency, Bitcoin

For a reader who isn’t following this space, the very mention of blockchain would be associated with cryptocurrency and the obvious association would be with Bitcoin. Following this, chances are the reader may assume the topic is about speculation & trading and move on to other “interesting” topics

The fact is, this space has a lot of next generation tech. If you want to draw parallels; blockchain & smart contract are like the internet in the 80’s. In an earlier blog, I had explained on how one can build immutable decentralised social media apps which would not have any censorship and stored permanently in the blockchain. You can read about it here

The blockchain tech is very promising with a lot of practical use cases. Lets do a thought experiment on where blockchains can be implemented in real estate and how it can solve the common man’s problem

Before that, let me define some common terms

Blockchain in the most simplified form can be considered as a spreadsheet which records transactions

So every time a transaction is executed, that transaction has to be validated by a group of computers across the globe called nodes and if found correct, one of these nodes will add this transaction as another row aka block. This way, all transactions will be recorded and stored in a decentralised manner

Decentralisation is the method of storing & processing data in a distributed network

Let’s say you want to send money from your account to another account. You need to login to your bank account, where you connect with the central server(s) of your Bank, which validates your identify, checks if you have the needed balance and then processes your request. So if the server(s) is down or if the bank unilaterally decides not to allow you to transact from your account, you cannot transfer the money

In a decentralised world, this data is distributed across hundreds if not thousands of nodes. So even if one or many nodes are down, any of the other nodes can validate your identity and process your request. Further no single node can arbitrarily decide to prevent you from accessing your fund, you are in total control of your funds or whatever information you have stored in the blockchain

Smart Contracts are what takes the transparency that comes with blockchains and the decentralisation which removes private party control of your data to the next level, where you can totally remove the dependency on the intermediary

In the simplified format, smart contract is a piece of code which gets executed if the conditions defined in the contract are met. For example, two people can define a contract such that if A transfers Rs. 100,000 to B, then B will release his stocks. So the moment A transfers, B stocks are automatically released to A. You do not need a T+2 days!

Now that we have understood the key terms, let us understand what it takes to buy a property

Property purchase steps in the current system

If you were to buy a property in Bengaluru, India, these are the steps that you need to follow

  1. Collect all the available docs from the builder or seller
  2. Do a research on what are the certificates needed for the registration of the property
  3. Do research on how do you truly ascertain the Title of the property i.e. are you buying from the sole & true owner

According to, you need around 22 certificates/documents from various bodies to ensure that you don’t face any legal hassles in future!

  1. Cross check if all the approvals required from the local government like occupancy certificate, possession certificate, no objection certificate from establishments such as fire, water, electricity departments are available
  2. By this time, chances are you are overwhelmed and approach a lawyer, who would invariably would ask for additional certificates such as Encumbrance certificate, Property Tax receipts, etc
  3. You then visit the registration office and request for an Encumbrance certificate for the past 10 years or longer. You may need to visit other offices to get other certificates
  4. Post this, you submit these documents to your lawyer, who may need a week or two to review and provide his legal opinion
  5. If he gives a go ahead, you need to book a slot in the Registration office, where the seller and you appear on the agreed time with some more documents to verify your personal identities

Congratulations, the registration is complete!

All this had costed you not just your precious time & peace of mind but also money. Money in terms of legal fees, government taxes and of course the “convenience fee”

Let’s take a step back and ask ourself, why do we need to go through all this hassle?

The short answer is lack of trust

  • As a buyer, you have no idea if the seller is tricking you. There are too many loop holes that can be exploited
  • As a custodian, the government needs to maintain the ledger, so that, you as a buyer knows the transaction is authentic. To maintain the ledger, they need to have a host of services which cost money, therefore you pay registration fees
  • As a government, it needs to ensure property transactions are tracked, so that they can tax the right owner for using the common facilities enjoyed around the property, such as road, street lights, footpath, etc

Now imagine a future with blockchains and smart contracts

If we use blockchains & smart contracts for property transfer, then how would the process look?

  1. You physically assess the property
  2. Once satisfied, you set the amount you would like to buy the property for and send it to the owner
  3. The owner if satisfied, will accept the offer & sign the transaction. The property will be automatically transferred to your name in the blockchain & your money will be credited to the seller’s account

Wasn’t that quick?! What happened here?

For one, we did not need a third party such as a registrar to record the transaction. When both party signs the transaction through their private keys, the blockchain gets updated with the current Title owner

Secondly, these are trustless transactions, meaning there was no question of trust needed between the two parties. Since the blockchain data is immutable and stored in thousands of nodes, there is no question of manipulation

Thirdly, the registration cost could eventually be brought down to zero, as we do not need a third party (aka government) to store, verify and validate data. Further you can also save on all other legal and “convenience” costs

Of course getting the initial data of even one city into the blockchain would be a huge upheaval and there are other nuances too to be considered

Imagine the situation where with just a click of a button, you can securely buy or sell a property

This would not just ease the life of a citizen but also the long drawn civil court cases! That is the power of blockchains and smart contracts