Explainers

Blockchain and construction: opportunities and challenges

5 November 2018 | By Jennifer Li and Mohamad Kassem, Northumbria University

Research done at Northumbria University by PhD candidate Jennifer Li under the supervision of Dr Mohamad Kassem is exploring blockchain applications in construction. Here, the research team provides a round-up of opportunities, challenges and prospects facing blockchain and its use in construction.

It’s no secret that the construction sector has struggled to embrace technological advancements in comparison with other industries such as energy, retail, automotive, and manufacturing. Lack of trust in other parties and traditional procurement approaches aggravate the inadequate levels of collaboration in construction. BIM processes and technologies have been contributing to address these challenges, but their adoption level remains slow globally. 

The not-so-new kid on the block is blockchain, or to use the more generic term, distributed ledger technology, introduced to the world in 2008 with the white paper on bitcoin, the world’s first cryptocurrency. This is blockchain 1.0, internet-based currencies. Blockchain is an immutable, transparent, distributed, public ledger of transactions.

Blockchain 2.0 introduces the use of smart contracts (a computerized transaction protocol that executes the terms of a contract) that have the potential to revolutionise economies and markets and is where we currently stand in terms of using the technology. Blockchain 3.0 takes us a step further into applications integrating government services, health, arts, culture and more.  

How blockchain works

A distributed ledger is simply a database of transactions, whether that be related to a financial transaction, asset information, communication or any piece of digital information that holds value. 

The difference between a traditional ledger and a blockchain is that a traditional ledger is processed and stored centrally (for example, by a bank) and a blockchain is processed and stored by all computers (called nodes) on a peer-to-peer network, making it decentralised.

A blockchain can be public and unpermissioned where anyone can participate and have full access to the ledger or it can be private and permissioned where access must be granted by the network and read/write rights granted according to requirements of the blockchain owner(s).

On a blockchain, such as that for bitcoin, transactions are validated by all nodes through performing complex mathematical equations as part of the proof-of-work protocol and a consensus must be reached by a majority of nodes on the network.

This changes the way trust is used where a user no longer needs to trust the person they are transacting with nor do they need to employ the services of an intermediary to validate a transaction because it is being done peer-to-peer via the network. 

Blockchain is secure by design, its cryptography and distributed consensus mechanism offers anonymity, persistence, auditability, resilience and fault-tolerance. 

What can blockchain do for construction?

Transparency about data ownership is achieved with blockchain. As a result, collaboration and trust between parties will increase and data will be shared more freely. If contributors can also be rewarded for sharing data (eg through tokenisation) and rewarded further still when that data is bought by a client, this will revolutionise the way organisations think about sharing.

A historical record provides essential traceability and auditability for activities such as timestamping, transactions, contracts, information depositories etc. The blockchain can increase transparency through its immutable ledger for each type of agreement and transaction throughout a construction project. 

Reputation rating on the blockchain is a potential booster for increasing collaboration throughout the supply chain, for example, promoting strategic partnerships. Where there are legal issues regarding proof of ownership and rights and in the event of a single [shared-access] BIM model, responsibilities, liabilities and intellectual property rights can be made explicit and transparent to all project parties on the blockchain, leading to increased trust.

The need for multiple verifications and certifications will be reduced as data will be accessible to all parties via the blockchain speeding up processes, particularly in functions such as planning and design of construction projects.

The historical ledger will provide proof-of-provenance, allowing investigators to immediately pinpoint where problems occurred in the supply chain and possibly prevent events such as Grenfell Tower as people are held more accountable for their actions through increased transparency and an enhanced evidentiary trail. 

In the supply chain, real-time tracking of goods and services will be enhanced making them more visible and providing a history from origin.

Smart contracts can be used to automate payments upon successful inspection of completed tasks and payments can be made in cryptocurrency, further speeding up the payment process.

Project bank accounts (PBAs) can be automated and facilitated through smart contracts where project funds are ring-fenced in a trust account and payments are made simultaneously to the main and subcontractors without having to be cascaded down the supply chain.

Etch can enable instantaneous micropayments to labourers on site who are paid the same day for work completed.

Significant parts of legal contracts will be written into code changing how organisations operate and, coupled with speedier payments, smart contracts will help to reduce the number of disputes through standardisation and increased clarity.

Where tasks and their execution status become automated with smart contracts, artificial intelligence, and sensors/IoT, resources can be reallocated, administrative activities reduced, time and cost savings made, and risks transferred and reduced. 

Blockchain will enable the secure and trusted sharing of digital twins of built assets that provide valuable detailed information throughout the lifecycle of an asset from inception to decommissioning for construction project managers, facilities managers, buyers/sellers, surveyors, demolition teams etc. 

Blockchain contributes to improved workflow through encouraging more open project environments. This opportunity is linked to the role blockchain can play in increasing collaboration and transparency and improving accountability and project control. BIM technology uptake may increase due to the need for peer-to-peer information sharing.

If these peer-to-peer exchanges within workflows are supported with smart contracts, the waiting time for “sign-off” would be eliminated as input for the completed task would be followed by an automatic forward to continue to work. This will positively impact on the schedule performance of construction projects.

Hurdles to overcome

The internet was conceived in the 1980s and it took until well into the 1990s for it to become mainstream. Today, the internet is driving almost everything we do and it’s also enabling development of blockchain technologies. Ten years after its initial inception, blockchain is starting to permeate almost every industry, but it’s not without its challenges.

Authenticity of data will remain a challenge with regards legitimacy of the data uploaded to the blockchain, but the likes of wearable devices, biometrics, drone and sensing technologies may reduce the scope to defraud. 

For blockchains such as the bitcoin protocol that functions on a proof-of-work basis, a series of technical challenges need to be solved before it can become mainstream, such as ensuring sufficient bandwidth and capacity is available for stability of the system. 

More importantly, energy consumption required to perform proof-of-work calculations is not sustainable nor socially acceptable given implications for CO2 levels, current grid capacities and peak demand management.

Continuous internet connectivity, or means of offline data storage until connectivity can be achieved, are required wherever construction projects are taking place, for example, parties within the supply chain that lack connectivity in a warehouse could cause breaks in the provenance chain. 

As with BIM, interoperability could cause problems where different software programmes are employed and applications intersect. 

Construction applications using cryptocurrencies and successful tokenisation will have a long lead time while they remain volatile. Throughout 2017, the value of one bitcoin fluctuated between $1,000 and $20,000. On top of that, transaction processing is nowhere near sufficient to compete with the likes of Visa and Mastercard.

Bitcoin can process one block of transactions every 10 minutes – Visa can process up to 20,000 transactions per second. While it’s unlikely that level of throughput will ever be required for a construction project, current processing power would not be sufficient where [near] real-time transactions are required.  

The key legal concerns are discussed in previous BIM+ articles by legal expert, May Winfield, and include: allocation of risk, scope of obligations, scope for variations in the contract, grounds for termination of a contract, standardisation of processes and terminology, ownership/intellectual property rights, confidentiality/data protection, corruption/bribery, appointment of a legally-recognised entity to bear responsibility of automated actions.  

Consideration should also be given to the “parties’ rights to claim additional costs, time and, in the case of NEC contracts, compensation events” along with “[w]ho bears the risk should they result in delays or increased costs to the project?”

Finally, what happens to the blockchain in the event of insolvency and/or termination?

As we immerse ourselves further into the digital economy, the risk of malicious attacks increases.  Currently, blockchain is open to threats around accessibility, anonymity, authentication and access control, denial-of-service (DoS) attacks, modification attacks, dropping attacks and appending attacks.  

The construction industry is typically slow at adopting new technologies and historically resistant to change so the full extent of the benefits to be realised may not be achieved. Because of this, readiness for adoption will also be an issue where the technological state of the construction industry is not sufficiently digitalised to take full advantage of blockchain technologies and implementation is likely to be costly. 

Readiness requires sufficiently skilled people trained in blockchain technologies including the ability to code smart contracts where a badly programmed contract could be disastrous; the construction industry doesn’t currently have this capability.

One of the largest challenges prevalent in the construction industry is regulation and its lack of enforcement, which has been cited as a cause of the failure surrounding the cladding of Grenfell Tower. There is a distinct lack of regulation for blockchain technologies at its current stage of development.

This is not a recipe for success and represents a major underlying problem for the construction industry that needs resolution alongside resolving technological advancements. In the meantime, it’s important that risks and responsibilities be explicitly set out in contracts.

So what do we do now?

Blockchain looks like it’s here to stay. Those that jump on board and embrace it will likely reap important rewards. Those that miss the boat will likely catch one further downstream but it might be a little used and the waters a little choppy to navigate. No one knows whether blockchain technologies will see similarities with the dotcom boom and bust, but what is clear is that the internet revolutionised the way we do everything.

The blockchain is touted as having the potential to disrupt everything further still. Better yet, it has the potential to solve many of the world’s problems and integrate societies like never seen before.

There is need for further investigation of the readiness of the industry, its organisations and processes, in order to evaluate what changes need to occur before implementation can be successful. The hurdles and opportunities need to be addressed within a multifaceted approach addressing four dimensions: technical, social, political and process.

Development of a regulatory framework will provide grounding for the technology to thrive in the construction industry. The construction industry is encouraged to get on board and move with the tides so that when blockchain becomes mainstream, we’re already reaping benefits and revolutionising the way we design, construct and operate assets. 

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