Why Blockchain will NOT change the construction industry

When Bitcoin started getting mainstream attention, many people wondered how they could get involved in what looked like a growing new industry. Others thought it would never work, be shut down, or were hostile to the idea.

Therefore when a new narrative emerged which promised to be both a legitimate use of the phenomenon and also a way for traditional business to profit, it was wholeheartedly embraced. ‘Blockchain Technology’ was touted as the secret ingredient – and its uses were to go way beyond just digital money. Any middleman providing trust could be done away with. Bankers, lawyers, accountants and insurance companies were doomed. Logistics, supply chain and asset management were going to change forever.

The construction industry was not to be spared the enthusiasm. Many thought benefits of Blockchain could lay in Payments, Project Management, Supply Chain, BIM and Asset Management.

However, despite the early excitement that was shown in these possibilities, it is now becoming clear that only payments (facilitated by Bitcoin) are likely to be affected in the future.

Why?

It seems that the word ‘blockchain’ has become a buzzword with an increasingly fractured meaning. When you examine what most people mean when they discuss it, they are usually referring to DLT or Distributed Ledger Technology. DLT is in essence a way of storing data on a network of computers (rather than at a central location) while also ensuring that the data cannot be changed after it was originally written.

If this sounds like something a network and a secure database can do, it’s because it can. In fact, many people are now realising that humble database technology would be a better solution to their problem than DLT after all.

Payments and Project Management

The potential disruption to payments and project management rests on the idea of a ‘Smart Contract’ which can execute without a human third party being a trusted judge or arbiter. Those who have been involved in negotiating contracts can probably relate how frustrating, time consuming and seemingly wasteful the process can be. Wouldn’t an infallible computerised smart contract therefore solve these problems?

Despite this ideal and several years of attempts however, smart contracts have yet to prove any substantive beneficial application in the real world. There are at least two major problems which lead to friction.

Firstly, all contracts, whether smart or not, require each party to take on risk which:

• Is based on a limited amount of information at the time;
• Considers the ability of each party to carry out their part of the bargain; and
• Hopes that at completion, each party will be satisfied that the objective was met

The problem with formulating a fixed contract is that each of the above considerations will change in the future which is a reason many contracts in the industry are re-negotiated or disputed during delivery. The fact that a smart contract is fixed and unchangeable on a computer network does not offer a way out of this dilemma. The proposed solution therefore does not address the real problem.

The second reason is that smart contracts need a way of getting data from the real world into a form that a network of computers can understand. This data collector and interpreter is called an Oracle and its job would be to determine, for example, if a building is still on programme or that it has been built correctly to code. The problem with the use of an Oracle however is clearly that many of these type of judgements are open to human interpretation. So – if the Oracle and therefore the smart contract depends on human decisions, how is it any better than current practice?

Supply Chain and Procurement

It was thought that Blockchain could assist supply chain management by tracking materials from source to constructed location while at the same time ensuring no doubt about the origin or manufacturing standards of each item.

These ideas rely on the concept of a DLT being a perfect source of unchangeable truth. As discussed above however, a secure database could easily fulfil the function of a source of unalterable data, while any truth to the data relies on the honesty of the entity writing data to the DLT in the first place.

The case for Blockchain on the procurement side have included streamlining the process of proving peoples qualifications and work history. The idea being that this information would be committed to some kind of official data chain which could be used to verify claims in place of making phone calls to past colleges or similar current practice.

Clear hurdles to this would be firstly, most people would not be comfortable in the idea of having their identity locked in a data stream somewhere and secondly, it doesn’t seem that the benefit outweighs the work required to create such a system.

BIM / Asset Management

According to one report (1), “The fundamental concept that can enable the combination of BIM and blockchain technology is their shared ability to serve as a single source of truth” and that it is “creating solutions to the long-standing issue of lack of accountability and fragmented information sources in the construction industry.”

So, Blockchain was seen as:

• A source of information that is ‘always true’; and
• A way to collect verified information into one place

There’s no doubt that a system which provided this would be an improvement in the industry if implemented. However firstly, a blockchain does not offer a better way to achieve these aim over a secure database. Secondly, the fact that it has not been done yet (with existing technology) indicates that the industry has not valued the benefits of achieving them enough to implement a solution.

Another benefit discussed is the idea that progress in BIM could trigger automatic payments to companies in a smart contract. This is again reliant on properties of smart contracts which are problematic as discussed above.

Conclusion

It is becoming clear that DLT, which is really only a data storage system used by the Bitcoin network, does not provide the magic that excited so many on its own. Bitcoin works where cryptography, competitive economic intensives, social consensus and DLT all work together. Extract a chain of blocks from this mix and you get merely a complicated way of achieving what current technology can already achieve at best.

References / Further Reading

(1) Blockchain Technology in the Construction Industry, ICE, December 2018: https://www.ice.org.uk/ICEDevelopmentWebPortal/media/Documents/News/Blog/Blockchain-technology-in-Construction-2018-12-17.pdf

(2) Blockchain and the built environment, Arup, February 2019: https://www.arup.com/perspectives/publications/research/section/blockchain-and-the-built-environment?query=blockchain

(3) BIMChain: https://bimchain.io/about-us/