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6.3 SABLES: Transaction Process

The SABLES concepts are grouped together and are visible in the Figure 6.3 as Group 1: Digital Identities (left on the model), Group 2: Digital Assets (centre of the model), and Group 3: Smart Contracts (right of the model). In BPMN, a group is a collection of activities and sub-processes that fall within the same category. Group 1 consists of activities adhering to digital identities whereby all parties involved in the transaction create digital identities and get assigned addresses on the blockchain. Digital identities offer increased security and data privacy. Group 2 consists of activities associated with digital assets whereby physical properties and title deeds are recognised as tokens on the blockchain. These activities are aimed at moving real estate records onto the blockchain. Group 3 consists of activities associated with smart contracts and are directed towards the real estate transaction once all property records are recorded on blockchain. Smart contracts assist property funds and ownership to be exchanged. Together, these concepts and their activities (sub-processes) pave the way for the transaction to occur and for a blockchain-based mechanism to come into being.

The integrated business process model in Figure 6.3 consists of one pool which holds six swim-lanes. Of the six swim-lanes, two are nested swim-lanes, which are swim-lanes that contain additional lanes within them, known as inner swim-lanes. The pool, SABLES, represents the transaction platform on which transactions will be held. The six swim-lanes are as follows, reading from the top to bottom: swim-lane 1 represents the transacting parties which are the buyer and seller, swim-lane 2 represents conveyancers which are the transfer attorney and the bond attorney, swim-lane 3 represents the BCCA, a created position that recognises a participant who has the necessary conveyancing knowledge but also technical knowledge of blockchain, with the role of overseeing the transaction and creating the required smart contracts, swim-lane 4 represents the SABLES blockchain registry and this is a nested swim- lane with the inner lanes being responsible for both land records and smart contracts, swim- lane 5 represents required South African public services and is also a nested swim-lane, with the inner lanes accounting for SARS, councils and municipalities and land registry officials such as deeds chief registrars, swim-lane 6 represents financial institutions such as online banking portals. Furthermore, the business process model illustrates two additional elements, above and below the SABLES transaction platform. The layer above represents the SSIDM system employed for digital identities and digital assets. The layer below represents the blockchain network on which SABLES operates. These two are not separate entities to the SABLES transaction platform, but they are shown to illustrate the architecture of the transaction

6.3 SABLES: Transaction Process

platform, in other words, SABLES runs on blockchain technology (the network at the bottom) and makes use of an integrated SSIDM system (the system at the top).

Transaction Process: Group 1

The transaction begins with the seller accessing the SABLES platform and registering their property for sale (swim-lane 1). Upon completion of this, the BCCA will be notified of the seller’s desire to sell their property (swim-lane 3). The process so far has been conducted through user tasks (tasks carried out by humans but assisted with software or applications) on a common platform which is accessible to all parties. Next, the BCCA will conduct two activities concurrently and in BPMN this is indicated by a parallel getaway (used to synchronise and combine activities). Firstly, the BCCA will create the escrow smart contract (swim-lane 4, inner-lane 2) which will hold funds and assets as well as monitor the status of the transaction. The hash of this smart contract will be recorded on the blockchain network, (element at the bottom of the integrated business process model), making it publicly available. Secondly, the BCCA will invite all stakeholders who are going to be involved in the transaction, to the deal. An assumption of SABLES is that all stakeholders will be registered on the transaction platform and have access to it at all times, because these are fixed stakeholders required in all transactions. Only transacting parties will register as they are involved in transactions. As a result, stakeholders such as conveyancers will get assigned to deals as real estate is listed for sale on the platform. Once all stakeholders are invited, digital identities (in the form of individuals or oracles) will be created with the assistance of a SSIDM system (element at the top of the integrated business process model). The creation of the digital assets is supported through service tasks (a task that uses a web service or an automated application to complete an activity) as users will enter their identification information (official ID number, tax number, and proof of residence) and the SSIDM system will generate digital identities based on the entered data. This assists in reducing traditionally required FICA paper-based documents as well as expediting due diligence processes, concluding Group 1 of the process.

Transaction Process: Group 2

The transaction now moves into Group 2, whereby real estate records are moved onto blockchain. The BCCA will request the property information from the seller and the original title deed from the transfer attorney (swim-lane 2). The transfer attorney will communicate (if necessary, if the required documents do not already exist on the blockchain) through the platform, with the land registry officials (swim-lane 5, inner-lane 3) to obtain the original title

6.3 SABLES: Transaction Process

deed. In doing so, off-chain interaction will undoubtedly occur as the traditional paper-based title deed is collected. This is inevitable, as in order to digitise documents and move towards a technologically based system, the original documents will have to be acquired (here, the challenge of initial correct information, mentioned in Section 4.6.2, is faced). Once the required information is collected, a deed smart contract (swim-lane 4, inner-lane 1) is created, which records the current owner on the blockchain-based land registry. The title deed and the property itself are then tokenised by the BCCA and represented as digital asset-backed tokens. These tokens are then linked to the current owner’s digital identity address. This is done through the SSIDM system, concluding the activities of Group 2.

Transaction Process: Group 3

The transaction then moves into its final phase, which is represented by Group 3, smart contracts and exchange of funds and ownership. As property information is stored on a digital token, the information of this token is available to the users on the network. As a result, potential buyers have access, as allowed by the token access limits set forth by the seller, to the real estate information. Buyers will request the property and the transferring attorney will be notified, which will set in motion two follow-on activities. Firstly, the transfer attorney will then draft the offer to purchase document which is required as per South African conveyancing law. This will be drafted into the escrow smart contract by the BCCA and will be digitally signed by the transacting parties. Secondly, the required certificates (rates and clearance, transfer duty, and SPLUMA) will be collected from the South African public services (swim- lane 5, inner-lane 1 and 2) through manual user tasks. The escrow and deed smart contracts will both be updated with the relevant information as well as the transaction status. Lastly, the transfer of funds and assets occurs. When paying for the property, buyers have the following choices: (1) cryptocurrency whereby funds are transferred from the buyer’s wallet to the escrow smart contract to the seller’s wallet; (2) fiat currency (cash) whereby a financial institution (swim-lane 6) transfers the funds to the escrow smart contract which eventually transfers them to the sellers bank; (3) or through fiat currency (bond) which is conducted through a set of smart contracts between the transacting parties, conveyancers, and the financial institution. The bond option is represented as a collapsed sub-process in the integrated business process model (Figure 6.3) but the entire bond sub-process is illustrated in Figure 6.2.

6.3 SABLES: Transaction Process

Figure 6.2: South African Real Estate Blockchain-based Transaction: Bond Process

Regardless of the payment method chosen, the escrow smart contract will record payment. As the payment is made, so the consequent transfer of ownership will occur. The deed smart contract will transfer the ownership to the buyer in the blockchain-based land registry (swim- lane 4, inner-lane 1) and the digital tokens (title deed token and property token) will be transferred to the buyer’s address. The transfer of ownership is thus two-fold, allowing for extra security (Nasarre-Aznar, 2018). These transfers are executed by pre-programmed smart contracts based on all the prior conditions being met, that is, ensuring documents such as the Offer to Purchase and the Transfer Duty receipt are in place as well as ensuring the funds have been paid. Upon these conditions being met, the smart contracts will automatically update and execute the conditioned transfers. The escrow smart contract will then change the status of the transaction to complete and a notification to all stakeholders will be distributed. In closing the transaction, all digitised documents and smart contracts will be on the blockchain network and available to all stakeholders, providing a complete audit trail of the transaction process. This concludes Group 3 activities and the transaction as a whole.