Blockchain Explained for Construction Company Owners
One of the latest words being bandied about online in construction publications is “blockchain”. In case you thought blockchain was something to do with Bitcoin (as many do), today we’re going to explain the basics to inform our readers of what matters in the world of construction.
Blockchain technology began back in 2008 in a bid to establish a digital currency and Bitcoin is the example that most of us are aware of. Blockchain is a new method of storing and recording transactions – it’s a peer-to-peer controlled distributed transactional database. Contracts and other financial transactions are recorded and confirmed as complete in a digital ledger. This differs from a traditional database because it has no central authority – there is no middleman such as a lawyer who confirms the conditions of a contract, or a bank which transfers money. Blockchain does not rely on a single company or database – it’s universal.
A Blockchain consists of nodes, each of which contains information which can be categorised as follows:
- Evidence of a bank’s financial transaction
- Ownership certificate
- Authenticity statement
Each piece of information in a Blockchain “database” is “chained” to the rest with a digital signature, ensuring a faster and more secure method of exchanging data. This promotes the exclusion of intermediary parties (middle men) in transactions which occur between two members of the same peer-to-peer network.
Because Blockchain is so versatile and flexible, this could be advantageous to the construction industry by adding more transparency to every type of transaction and agreement in a construction project. With construction attracting more than its fair share of disputes, most of which are connected with payments, it’s possible to use Blockchain technology as a “contract administrator” to provide “smart contracts”. Every node of a Blockchain can contain all the information on the contractual agreement and the conditions under which a contract will be regarded as completed.
This will result in the construction industry eliminating the intermediary parties (like lawyers) which function on an if/when basis. For instance, if a roofing contractor has completed the roof, he can ask for it to be inspected and, if the work passes inspection, the roofer will automatically be paid.
A Blockchain can also be used to enhance workflow and improve the collaboration process on building projects, resulting in an improvement in overall performance. The increase in transparency brought by Blockchain will lead to an increase in accountability and a data-driven decision-making process which lessens the risk of delays in completion and minimises the chance of disputes and risks.
A major advantage of Blockchain is the fact that project updates (for instance, the completion of a phase of the project or the delivery of materials on site will be provided to everybody involved instantly, in real time. This not only decreases project delays, but also decreases the need for “rework”, currently one of the main bugbears on most construction projects.
As an industry, construction has been traditionally slow in adopting new technology, but this has changed in recent years largely thanks to BIM and the introduction of other, construction-based software. Blockchain is a powerful new tool to add to our toolboxes and we’ll have more information on this next week. Follow us on Facebook and Twitter to stay ahead of the curve when it comes to construction news and developments.