Understanding Smart Property

Blockchain tech may change the way we transact assets and think of ownership.

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Understanding Smart Property
Imagine getting pulled over for speeding on the highway. The officer who pulls you over steps up to the driver’s side window and asks, “License and registration?”

Now, imagine that instead of pulling out a bunch of papers you show that officer 105 blockchain confirmations that you are the vehicle’s owner.

Blockchain tech won’t get you out of the ticket, but it just may change the way we transact assets and think of ownership.

The blockchain

As we have written before, the fact that Satoshi Nakamoto came up with a solution to the Two Generals Problem. This means two people can remotely reach an agreement over a potentially unreliable communication network, and that agreement can be publicly verified.

We started this website because the application of this technology to currency is revolutionary. But there are other things people can agree upon via the blockchain besides the monetary value of a token.

Take, for example, the ownership of property, which Nick Szabo first described in his “The Idea of Smart Contracts” back in 1997.

Smart contracts go beyond the vending machine in proposing to embed contracts in all sorts of property that is valuable and controlled by digital means. Smart contracts reference that property in a dynamic, often proactively enforced form, and provide much better observation and verification where proactive measures must fall short.

What Szabo lacked back then was the technology to realize this, which many people believe blockchains represent.

Here is how Adam Rothstein describes smart property at Rhizome:
Rather than recording ownership of non-physical cryptographic made-up money-units using a distributed, peer-to-peer database, the smart property database (the blockchain) is tracking contracts that determine access to things like cars, real estate, or stocks. Your car's title is not just a pink sheet, it's also an entry in the blockchain—in other words, a cryptocoin.

The car ownership example

The Bitcoin Wiki lays out the steps necessary that would lead our hypothetical cop to being able to verify the speeding car’s ownership:

The car’s computer requires authentication using an ownership key. The ownership key is a regular Bitcoin ECDSA-256 key. The car starts its life at the factory gate with the public part of a newly created ownership key. A small token amount of Bitcoins are deposited on that key; call the amount T (it could be 0.0001 BTC, for example). Additionally, the car has a digital certificate from its manufacturer and an identification key, which has the public part in the certificate. This allows the car to prove things like its existence, age or mileage to third parties.

When the car is sold, the following protocol is used:

  1. The buyer generates a nonce (random number) and asks the seller to send them the car data.
  2. The seller gives the car that nonce, and the car returns a data structure signed with its identification key. The data contains the nonce, the car’s public certificate, data about the car, the public key of the current owner, and the transaction + Merkle branch which transferred ownership last time. This ensures the buyer knows what they are getting and that it came from the real seller (it's not a replay).
  3. The seller selects a key to receive the payment, k1 and names their price P.
  4. The buyer generates a new ownership key k2.
  5. The buyer creates a transaction with two inputs and two outputs. The first input signs for P coins. The second input is connected to the output holding T coins for the ownership address. The first output sends P coins to k1 and the second output sends T coins to k2. This transaction is not valid because only the first input can be signed. The buyer passes this partially complete transaction to the seller, who then signs the second input with the car's current ownership key and broadcasts the transaction.
  6. They wait for some confirmations.
  7. The buyer presents the car with the Bitcoin transaction, a Merkle branch linking it to the block header and then enough block headers to fill in the gap from the cars current ownership transaction. The car sees that the new transaction re-assigns ownership and is further along in the chain than its current one, plus it has enough work piled on top to be sure the tx won't be reversed. It then updates its ownership information. The car does not need to keep a full record of the chain nor all headers, but rather just enough data to be able to connect future block headers to the one it was previously presented with.

According to the wiki entry, not only could a smartphone serve as the hardware necessary to verify the vehicle’s ownership key, it could even be used to be the unique ignition key, theoretically securing the car from theft.

We aren’t at that point yet, but projects such as Ethereum, for example, are working to get us all there.

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