Blockchain Technology in the construction industry

January 20, 2022

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Construction productivity has been flat for decades, while that of manufacturing has nearly doubled over the same period and continues to improve. The industry needs to improve its efficiency, productivity and embrace new, emerging technologies. Digitization is part of this improvement.

Introduction

The construction sector is a massive part of the global economy, with approximately $10 trillion spent on goods and services annually. However, it remains highly fragmented and unproductive, with stagnant productivity for decades compared to the continuous improvement seen in manufacturing. To address this issue and embrace new technologies, the construction industry is undergoing digitization.

The first digitization wave saw a shift from hand drawings to computer modeling software, leading to faster construction, improved communication, and specialized trades. The industry is now witnessing a second digitization revolution, with the potential centering around blockchain technology. In this article, we explore the workings of blockchain, its applications in architecture, engineering, and construction, and the challenges it faces.

Blockchain Explained

Blockchain is a digital ledger that stores information in blocks, each containing data, a hash (a unique identifier), and the hash of the previous block, forming a chain of blocks. The cryptographic nature of blockchain ensures its security, as each transaction is recorded using encrypted data. Attempted tampering results in a new hash, easily detectable by users.

One significant advantage of blockchain is the establishment of trust without the need for intermediaries. Unlike the current internet, which lacks inherent trust, blockchain allows all users collectively to retain control, eliminating the need for third-party intermediaries like banks or notaries.

Practical Applications

Beyond the hype surrounding cryptocurrencies like bitcoin, blockchain finds practical applications in architecture and construction:

Smart Contracts: Blockchain enables the creation of smart, digital contracts with predefined rules, deadlines, and penalties. It automates the enforcement of these rules throughout the project, including recording labor hours.
Skilled Labor: Vendors and suppliers can use unique identifiers on the blockchain to record their performance and establish reputation, simplifying the vetting process for hiring.
Payments: Blockchain can facilitate faster payments, reducing delays and cash flow issues that plague the construction industry.
Supply Chain Management: By logging and tracing materials on the blockchain, delivery times are improved, dispute resolution is faster, and inventory control is more efficient, resulting in cost reductions and faster schedules.
BIM & Smart Asset Management: Combining Building Information Models (BIM) with blockchain through smart contracts improves transparency, communication, and workmanship on a project.

Challenges to Blockchain

However, several challenges must be overcome for blockchain to become the norm in construction:

Cultural and Organizational Shift: Widespread adoption requires a significant cultural and organizational shift, along with the development of new business models.
Building Codes and Regulations: Adapting blockchain documents to building codes and regulations will take time.
Cost: The construction industry’s narrow profit margins may hinder smaller companies from investing in blockchain technology.
Imperfect BIM Models: Current BIM models are not always flawless, which may present challenges in relying solely on them for blockchain applications.

While blockchain holds promise for large, complex projects, smaller companies that still work with 2D modeling may not see immediate benefits. The construction industry tends to be slow in adopting new technologies, but the discussions surrounding blockchain are promising and exciting for its potential impact.