Balancing blockchain hype with reality

05 May 2019
Blockchain could make the construction sector more efficient and transparent for all the players involved in a project, but the cost of implementation is still too high for many firms

The arrival of blockchain, or distributed ledger technology, has been accompanied by hype and scepticism. Those on board see the clear potential in its adoption and those who do not argue that it continues to be a technology looking for a problem to solve.

Simply put, a blockchain is a time-stamped series of immutable records of data managed by a cluster of computers not owned by any single entity. Each of these ‘blocks’ of data are bound to each other, or ‘chained’, by cryptographic principles.

In construction, blockchain remains a nascent technology whose applications are still in the pilot phase. It could have the potential to revolutionise the sector, but the real impact of the technology is believed to be three to five years away from delivery.

Already, the cost and complexity of implementing blockchain-based solutions has led to early projects being quietly shelved, or having to evolve in a way that reduces their independence on the technology.

One core benefit of blockchain is the ability to execute transactions without third-party control. But this freedom typically carries a cost that has left the claims of improved efficiency open to debate.

Bright future

UK data analytics firm GlobalData nevertheless sees strong growth in blockchain-related revenue over the next six years, and forecasts the overall market for blockchain will generate revenues of just under $2bn by 2025. Of this, service-based revenues attributable to blockchain will see higher rates of growth, albeit from a lower starting point.

These service-based revenues are why blockchain is so attractive to larger technology players and systems integrators. Tech leaders such as IBM and Microsoft, and IT services companies such as Accenture are using blockchain as a catalyst to engage with clients on the more complex challenge of modernising inefficient and only partly digitised processes.

Advocates of the technology in construction include the Construction Blockchain Consortium, which argues that the sector is largely characterised by fragmentation in processes, services and firms, with a persistent disconnect between design and construction. This disconnect, it adds, is mainly due to the lack of trustworthy information across the supply chain. Blockchain, it believes, can bridge this disconnect through the use of transparent transactions.

‘Blockchain Technology in the Construction Industry’, a December 2018 report by the Institution of Civil Engineers (ICE) also pointed to the “highly fragmented, scattered and complex supply chain” of capital infrastructure projects around the world.

It cited London’s Crossrail project, with its more than 700 UK suppliers, and Dubai’s Burj Khalifa, which saw more than 12,000 workers from over 100 countries on site at the peak of its construction.

Managing such complexity requires “enormous effort and resources”, the ICE noted, and such projects typically experience “mistakes, delays and accidents at various stages”, which, combined with systemic problems with accountability in the industry, often result in blame deflection. These are the main ‘pain points’ where blockchain can make the process more efficient and transparent for all participants involved in the project, the ICE said.

According to the report, 75 per cent of capital projects in the UK are over-budget and 20 per cent of cost overruns are caused by errors such as inefficient project governance and poor project control.

Using smart contracts – based on blockchain – “can reverse and improve this worrying trend in the construction industry and unlock the benefits within the built environment sector”, the ICE said.

Smart contracts operate using workflows that operate on the basis of ‘if/then’ principles. An example could be a contractor only receiving payment upon satisfactory completion of work, or only ordering supplies for the next phase of a project when certain works are completed.

Providing proof

Beyond smart contracts, blockchain could be used to provide digital proof for certain critical data, such as personal identification or professional certification, in the construction sector. Blockchain can also be used to provide greater supply chain transparency. Construction materials typically have scannable codes so that purchasers know everything about the product back to the raw material stage. Every transaction occurring on the supply chain could be recorded in a blockchain.

It can likewise facilitate the development of longitudinal life-cycle records for buildings and facilities from planning to design and construction through commissioning, usage, maintenance and decommissioning.

However, construction industry users would be well-advised to treat blockchain as one tool in a well-stocked toolbox, and by no means assume that, whatever the problem, blockchain will somehow help fix it.

There is a risk in thinking blockchain will be a panacea of sorts for managing complex transactions. So far, only a few construction firms have taken strides towards adoption, which either suggests the use-case remains uncompelling, or that the industry is being risk-savvy, as it should continue to be.

About the author

David Bicknell is principal analyst, thematic research, at GlobalDataDavid Bicknell is principal analyst, thematic research, at GlobalData

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