Bitcoin has been surging this year, setting off a modern day gold rush as casual and institutional investors alike clamor to buy the virtual currency. It’s seen a spike in value from around $700 in January of 2017 to around $17,000 per bitcoin in December. That’s not a typo.
But what is bitcoin?
Why is it worth anything, and what if any impact will it have on the construction industry?
At its core, the blockchain, bitcoin’s underlying technology, is used as a means of distributing digital information. It creates a system for money to be exchanged for goods or services outside of the traditional monetary system which stores and records transactions. Bitcoin, the blockchain’s most prominent example, serves as a digital currency and a store of value, which some have compared to digital gold. Before blockchain technology, escrow was the typical method of exchange. Eventually, coders realized they could create an entire network that equalized access to this new method of exchanging value, with each transaction and addition to the system permanently referenceable and visible. That’s the blockchain.
Bitcoin’s value is derived from people wanting access to it. Purchasing and holding bitcoin means you’re part of that network, and since there will only ever be around 21 million bitcoin in existence, it will always be subject to supply and demand. Investors are torn on the future of bitcoin, some likening it to a Ponzi scheme, and other saying it will one day replace paper currency. Some say it will crash and burn, others say the price of bitcoin will one day surge to six- or even seven-figures. Since it’s so new, and the market is so volatile, it’s impossible to say at this moment what will happen.
The escrow piece of it is where the construction industry stands to be affected, specifically where it comes to contract disputes. Using the blockchain, so-called “smart contracts” can be made which contain sets of specific, embeddable instructions that must be satisfied before any payment will be made, eliminating middlemen (like lawyers) and reducing the chance of payment disputes.
What’s the upshot?
The potential for this is especially useful in construction projects that involve multiple contracts with multiple vendors. Using blockchain and smart contracts, you can create essentially a checklist of the agreed upon contract terms, which each must be met before any money changes hands. Every step and transaction is then viewable on a continuous line of data. This can also improve workflows, as each project stakeholder has the ability to view every aspect of the project’s completion in real-time.
The construction industry is attempting to figure out how blockchain technology can be leveraged with the aim of incentivizing collaboration and making the payment process more transparent. DotBuiltEnvironment is currently developing two prototype blockchain apps specifically made for construction, ConstructCoin and TraderTransferTrust, a project banking app.
ConstructCoin creates a market for construction information, incentivizing those who create the information with payments.
“A spreadsheet of construction information might include a line for data that costs £1 to produce, which the client could buy for £2 when it is completed. This approach could do a lot to incentivise collaboration,” Neil Thompson, CEO of dotBuiltEnvironment told Construction Manager magazine.
TraderTransferTrust utilizes blockchain technology and smart contracts, and is being designed to harness the blockchain’s digitally based proof of work function, ensuring payments are automatically delivered upon certain conditions being met.
Big industry minds are getting behind blockchain’s potential for the construction industry. The Construction Blockchain Consortium is a research body made up primarily of academics and consultants which explores possible ways the blockchain can improve construction processes, focusing on knowledge transfer, research and development and education and training. It’s early days for the group, but the fact that so many top industry minds are getting on board portends well for the technology’s future.
The construction industry, as a general rule, is not known as an early adopter of technology, and until the blockchain’s potential benefits are better understood, the technology will likely be slow to be adopted more broadly within construction. It certainly holds the potential to revolutionize some key construction processes, simplifying billing and boosting collaboration, but it’s whether that potential takes root that will determine its future place in the business.