Infrastructure Outlook: The Future Is Now: Blockchain and Cryptocurrency in the Construction Industry
For a profession that’s been around for decades, the construction industry has innovation firmly at its heart. New technology, materials and techniques are vital in construction, and can create a healthy advantage over competitors if executed correctly.
Blockchain and cryptocurrency are relatively new technologies, but their uses are being explored in just about everything. To understand the potential for blockchain and cryptocurrencies in the construction industry first requires understanding exactly what they are.
On one level, it’s impossible to explain blockchain without a deep and thorough discussion of distributed data networks and other complex technological concepts. On another level, it can be understood fundamentally as a digital “chain” of “blocks.” Each block is composed of data and includes a unique identifier linking it to the previous block, creating a chain. These blocks are permanent; making a change to the blockchain means adding new blocks, not changing the blocks that already exist.
Because of this, blockchain creates a permanent ledger that can be easily verified. Changes are tracked across a peer-to-peer network, making them visible in real-time, so users can see exactly when changes are made and by whom. When data are entered on the network, there’s an immutable record of it happening. In an age where verifiable truth can be hard to come by, blockchain provides a valuable source of reliability.
Although blockchain started small, it’s now a rapidly growing business. Gartner predicts blockchain will generate more than $3 trillion in new business value by 2030.
Cryptocurrencies—or simply crypto—are decentralized digital currencies and among the first widely recognized applications of blockchain. Bitcoin is one of the earliest and best-known examples of cryptocurrency, but there are many different crypto formats currently in circulation today.
Much like blockchain, truly understanding the nature of crypto requires a complex understanding of a number of technical matters. It may help to think of each crypto “coin” as a unique digital booklet of solved Sudoku puzzles. The complexity of the puzzles can help determine the rarity and therefore value of the coins, although the actual value of any crypto is driven solely by the market.
For example, in May 2010, a programmer bought two Papa John’s pizzas for 10,000 Bitcoins. Just five years later, a single Bitcoin was worth somewhere around $250. As of the time this column was written, one Bitcoin costs approximately $55,000—which means the coins spent on those two pizzas would be worth more than half a billion dollars.
The rapid swing in value comes from Bitcoin establishing itself as a legitimate form of currency during the last decade. There’s an argument to be made that if no one had ever proven you could use Bitcoin to buy something tangible, it would still be relatively worthless. Crypto, like all currency, has value because the market declares it does, and while that value may fluctuate more than traditional currencies, it’s safe to say at this point that crypto isn’t going away anytime soon.
Using Blockchain in Construction
Blockchain creates an immutable ledger and reflects changes in real time, which makes it valuable for use as supply chain management software. With improved visibility and reliability, blockchain solves some major issues for supply chain managers and opens up the following new possibilities:
Improved Trust and Visibility
As blockchain technology is recorded in real time, blind spots in logistics management are eliminated, and coordination is improved between the sectors involved in a construction project. Since it serves as a single source of truth, blockchain-backed logistics software will reduce back-and-forth communications to improve overall efficiency. It also can eliminate design changes implemented near the end of a project that no one will take responsibility for, as every change includes a record of who made it and when it happened. In other words, there’s no longer a need to waste time calling vendors to check the status of a shipment; if it’s not in the blockchain record, the task is incomplete.
Mistakes Caught When They Happen
Blockchain-backed software gives supply chain managers the ability to overcome one of the biggest problems they face: human error. This includes mistyped or duplicate entries, inventory mistakes and lost shipments—all of which can be difficult to detect. Blockchain can work in conjunction with AI algorithms to detect these mistakes when they happen, making it possible to correct them before the problem escalates (e.g., a huge shipment of the wrong materials arriving onsite). Human error is bound to happen, but with blockchain, construction managers and contractors have technology to help them be proactive, not reactive.
Creation of a Smarter Workflow
With blockchain, every element of the supply chain gets a unique individual identifier, making it possible to automate certain processes, such as checking various materials or testing results against building codes and standards. Throughout the construction process, clients may request design changes. Blockchain could create a complex workflow to easily check the impact of each design change.
Bringing Intelligence into Contracts
Blockchain also can be used to create “smart contracts” that automatically trigger incentivized payments when certain milestones are reached. This can be done by integrating blockchain into your BIM software, opening up a wealth of possibilities for construction contracts while eliminating any ambiguity in whether work has been completed to the required standards. This distributed data approach allows both parties to see when a milestone is reached and a payment is triggered—there’s no waiting and no need to verify beyond the blockchain record.
How Cryptocurrency Can Modernize Construction Cash Flows
Blockchain brings a host of benefits to the construction industry, and its offshoot cryptocurrency carries various uses of its own. Crypto is digital, deregulated, incredibly versatile and can benefit the construction industry in many ways.
Generation of Instant Payments
As crypto is a digital currency, it can be used to make instant virtual payments. This helps solve cash-flow issues and opens the door for a number of automated payment processes, such as smart contracts, making it possible to create incentivized instant payments that can enhance productivity. Construction firms can pay contractors straight away based on valuations, or easily enforce financial penalties for late work.
Crypto exists independently of any specific nation, meaning it carries no foreign transaction fees. Agreeing to crypto payments with a foreign client or vendor can cut down on transaction times and fees paid. The built-in blockchain protection inherent to crypto also makes it easier to trust the legitimacy of payments.
Since each transaction is automatically recorded via blockchain’s immutable ledger, crypto payments provide simplified financial bookkeeping. It’s possible to create a chronological catalog of transactions with indisputable proof of payment status, times and other information, all verified by a decentralized network of devices. This information can help support any future claims or disputes.
The Risks of Blockchain and Crypto
No new technology is foolproof, and there are risks associated with both blockchain and cryptocurrency. Nonetheless, these risks are minimal and can be reduced even further through careful planning and consideration of the following factors before bringing these new technologies into your company’s practices.
Regulation Can Change
Blockchain and cryptocurrencies aren’t exactly new, but they’re new enough that governments and other organizations are still trying to work out how to regulate them. While it’s highly unlikely to happen, the federal government could decide to ban or severely limit the market for cryptocurrency if it so chooses. It’s in the user’s best interest to keep up to date on any law changes pertaining to new technologies.
Taxes and Incentives
Cryptocurrency is deregulated, meaning it isn’t issued by a central body, but that doesn’t mean it’s a tax-free currency. Many governments, including the United States, consider crypto as property for the purpose of tax. If a business starts using crypto to pay for materials or services, or accepts it as a form of payment, it needs to understand any tax for which it could be liable.
The value of Bitcoin and other cryptocurrencies can fluctuate dramatically, as outlined above. If a business decides to start using or accepting crypto, it will need to allow for a certain level of risk tolerance. While mainstream cryptos like Bitcoin are more likely to hold a relatively stable value, they’re far from guaranteed. Of course, this works both ways—the cryptocurrency could also rapidly inflate in value, enabling the user to cash in down the line.
How to Get Started
If you’re ready to start incorporating blockchain and cryptocurrency into your construction business, it’s easy to get started. There are already off-the-shelf solutions for bringing blockchain into your supply chain and inventory management, and it’s becoming easier to accept Bitcoin and other cryptocurrencies.
The benefits of blockchain and crypto are plentiful, and we’re still in an early adopter phase of using these technologies. Forward-thinking companies can gain a meaningful advantage over their competitors by implementing these solutions now.