Harness the Power of Blockchain Technology

August 15, 2018

When buying and selling bitcoin and other digital cryptocurrencies became a popular investment strategy, the concept of the blockchain entered the public discussion for the first time. But while many Americans have heard of the technology, its potential applications in the construction industry are just starting to become widely understood. In addition to underpinning digital currencies, blockchain technology could have far-reaching implications for how the construction industry conducts transactions and collaborates,increasing productivity and facilitating the swift resolution of disputes.

 

Simply put, blockchain is a secure means of exchanging real-time information and conducting transfers of money and other items of value across multiple parties through a distributed encrypted ledger system that does not necessitate the involvement of banks, lawyers, or any other third party intermediaries. The transactions, known as blocks, are stored in a shared digital record book of transactions that are linked together in a sequence, known as the chain. All of the transactions in these blocks are permanently available in a peer-to-peer network distributed across multiple servers or computers, and can be accessed upon demand. All parties who are authorized to share the record book have the ability to validate the transactions and add records in the form of blocks, but are not permitted to modify existing records.

 

From the perspective of a construction manager, the records held in a blockchain ledger are not unlike familiar forms of documentation that have sequenced line items linked to transactions, such as work and purchase orders, requests for information, and inspection forms. Currently, sharing this complex documentation with other stakeholders in a construction project is difficult to do in real time, as the information is stored in databases maintained by different organizations and individuals. The use of blockchain technology can greatly improve the flow of construction project data.

 

While blockchain is similar in some ways to Building Information Modeling (BIM), a software that enables the generation and management of 3D project models, it is more comprehensive and flexible. Instead of relying solely on a centralized BIM platform to exchange information, project stakeholders can move the data stored in BIM to a distributed ledger, thereby ensuring that any changes made to the model by one party are communicated transparently to all stakeholders through the addition of an immutable, time-stamped record.

 

Blockchain is also set to revolutionize how the construction industry manages contracts and payments. Rather than the owner relying on escrow to store and distribute funds to a vendor or a contractor upon completion of a contract, the blockchain can be used to create a “smart contract” that is linked to a transparent checklist of contract terms that must be satisfied before a payment is made from the owner’s “project wallet.” After a contractor has completed a required step, an inspector approves the work and the payment is automatically triggered. This streamlining of payments reduces the chances of legal disputes, as it ensures that each agreed-upon milestone stipulated in the contract work is completed before the payment is disbursed.

 

In addition, blockchain technology is being applied to supply chain management. For example, if the purchase of building materials has been approved, the line item details can be instantly sent to the supplier. The funds for the materials can be released from the project wallet in installments, with one payment being made when the order is confirmed, another when the materials are loaded into shipping, and a third when the materials arrive at the site in the condition stipulated in the contract. In the meantime, the team on site can prepare for the arrival of the materials, and structure their work accordingly. The relevant stakeholders are instantly alerted if the delivery of the materials is delayed. Thus, a blockchain system makes it easier to implement a lean approach to project delivery.

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