What is the Blockchain and what are the practical applications of smart contracts, asks John McDermott as part of his research for his MSc in BIM and Integrated Design at University of Salford.
No matter how “blue sky” utilising the Blockchain in construction may seem it is hard to deny the potential it holds to revolutionise many aspects of the industry.
I’ve always been a bit Fox Mulder when it comes to BIM. I want to believe in its potential but the notion of trust, collaboration, accountability and mutual reward is hard to visualise on construction projects. This is where Blockchain comes in.
Inherent in the construction industry is adversarial behaviour, disputes, claims and litigation. The Code of Hammurabi, a Babylonian law code dating from the 18th century BC, contains a series of provisions dealing specifically with construction disputes and includes some rather severe penalties for builders found to be negligent – namely death!
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In 2009 the Housing Grants, Construction and Regeneration Act 1996 was replaced with Local Democracy, Economic Development and Construction Act 2009 (Termed the Construction Act old and new) in an aid to improve existing payment mechanisms and avoid insolvencies.
Though integrated Project Insurance promises to address the risk associated with construction through a shared joint insurance policy, which theoretically reduces cost and breeds mutual trust and collaboration, within the construction industry payment is still a huge problem.
However, BIM has been billed as the means of eradicating silo mentalities and archetypal behaviours, and with the power of blockchain this may become a reality.
What is the Blockchain?
The Blockchain is a database of all transactions across a peer-to-peer network. The Blockchain is seen as the main technological advancement delivered by the development and stable use of Bitcoin because it stands as a “Trust less” proof mechanism of all the transactions on the network, in many ways superior to human verification.
The Blockchain allows the disintermediation of all transactions of any type between all parties on a global basis. Essentially, a Blockchain is a permanent and digitised chain of transactions, grouped together in blocks that cannot be altered, which creates an unchangeable record of every transaction.
Smart contracts
Smart contracts are computer programs that secure, enforce, and execute the settlement of recorded agreements between people and organisations. As such, they assist in negotiating and defining these agreements.
The term “smart contracts” was coined by Nick Szabo in 1994 when technology such as Blockchain was not available to demonstrate the theory – a smart contract is a computerised transaction protocol that executes the terms of a contract.
The general objectives of smart contract design are to satisfy common contractual conditional (such as payment terms, liens, confidentiality, and even enforcement), minimise the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs, and other transaction costs.
How do smart contracts apply to the construction industry?
The potential for the use of smart contracts in construction is underlined by Helder Cardeira in his white paper entitled “The advantages of using a web payment platform in the construction industry based on smart contracts and crypto currencies”.
It is explained simply that, when A pays B, instructions can be embedded in the transaction so that a specific sum follows through to pay C. B has no other option than to pay C, as the funds will not be available unless the instructions are fulfilled.
The paper also suggests that cost savings will accrue from supply chain members not having to chase payment or having to finance lengthy credit periods. Smart contracts it is suggested could eliminate payment disputes and concentrate the project team on the end goal.
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Though wouldn’t any transaction still have a mining cost, which would somehow need to be incentivised and paid for? And without a sufficient number of network nodes mining the transactions, wouldn’t it actually take quite some time for the probability of the transaction to be verified, or run the risk of a larger part of the chain being manipulated?
Some points to potentially consider:
1. The concept of “smart contracts” has been raised in relation to direct, singular transactions that can be invoked when certain conditions are met (eg buying and selling of stocks/shares when a threshold is reached). As such, a computerised transaction protocol are sorts of rules or framework which can be agreed to/prearranged by parties.
2. The intent of blockchains appears to short circuit (or possibly replace?) the framework that sits behind global financial transactions. This includes banking and finance regulations and agreements (including between countries, institutions, organisations etc) derived from a long history of commerce. It is a framework that has established a certain level of trust, reliance or faith in “the system”. Although this does not mean it is efficient.
3. Blockchains represent evidence (eg of a transaction record, which theoretically can be reinforced by independent but linked systems).
4. Cryptocurrency is just like any other form of currency – something in which members of a society (or collective) deem as having a value.
Translating these ideas into construction contexts, the following may be worth considering:
• Construction projects can comprise multiple participants and contracts, including that are multi-faceted, of different durations etc. Fulfilling certain conditions for payment can be less straight forward, especially if parties disagree, their objectives diverge or they are not party to the contract. Performance based conditions may offer another consideration.
• The use of a web payment platform is not necessarily new (see example by Textura http://www.textura-australasia.com/ ). Nor are other forms that promote transparency (eg trust accounts). However, these may not strictly ascribe to the form of blockchain despite some conceptual overlaps (eg potential for a tracking/audit system). Further, cryptocurrencies are not necessarily required, and this is arguably a separate issue.
• How smart contracts could work with BIM, other project management systems etc is not clear. This includes whether these tools are intended to provide the evidence/data towards fulfilling conditions or supporting the evidentiary trail (eg using BIM as visual representation of works outstanding/complete, payment issued).
Generally, the use of certain terms when referencing or describing “smart contracts” may require clarification (eg “intelligent contracts”). Another adaptation of the discussion above could relate to the idea of nanosecond procurement.
Good luck with the research and I look forward to reading more.
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Hollie
Great post, John! Smart contracts can truly be a step forward for the industry. I would suggest that you check out our newly published blog post about BIM and its maturity levels. You may find some good value to it!
https://geniebelt.com/blog/bim-maturity-levels
Thank you for this post
I’m trying to figure out how blockchain and smartcontract can be useful to allow a decentralization of BIM models by securing external references.
Does someone has the same idea? Or a clue of something already done in this way.
I would like to know if there are real cases of blockchain application with bim or bim with blockchain.
Thank you