The Blockchain Revolution In Construction By: Bassem Hamdy and Ron Goldshmidt
Introduction: What is a blockchain Blockchain is a big buzzword these days. But even though the term is on the tip of everyone’s tongue, with claims that blockchain will revolutionize industries all over, not many actually understand what blockchain is or what this technology offers.
Brief History of the Blockchain: Bitcoin and Satoshi Nakamoto The origins of blockchain dates back to 2008, when the anonymous Satoshi Nakamoto published the idea for a new digital currency called Bitcoin in the Bitcoin whitepaper. Instead of having a single central authority or middleman such as a bank or a payment processor hold on to transaction records, verify the legitimacy of transactions, and prevent fraud, Satoshi came up with the idea of spreading transaction records across computers (“nodes”) located around the world. Satoshi hypothesized that a “chain” of blocks, which are groups of transactions, can be stored and verified on computers all around the world through a decentralized “ledger”. This distributed or “decentralized” system of record keeping means that transactions could not be duplicated or falsified without all other nodes on the network being aware, since every node on the network possesses a full record of all Bitcoin transactions (“the blockchain”) from the very first Bitcoin transaction. Changing transaction records would require gaining a majority share of the network’s computing power by obtaining an unbelievable amount of nodes, a feat that is virtually impossible, thus inherently securing the integrity of the network.
Blockchain Today The blockchain idea has served Bitcoin well. Since Bitcoin’s first transaction in 2009, the network has not suffered from any successful attacks. The bitcoin network allows payments to be made quickly and efficiently within seconds or minutes since transactions can be verified by thousands of nodes without the need for longer periods of validation by a single entity required by things like credit cards. Though Bitcoin has become immensely popular in its own right, with the underlying idea of blockchain or unchangeable transaction records spread across more than one entity creating global interest, the demand for blockchain to do things like speed up transaction verification, ensure record integrity, and more is growing at a breakneck pace: Spending on blockchain solutions research from 2016-2021 is forecast to grow 81.2% (five-year compound annual growth rate) with spending to reach $9.7 billion in 2021. With the financial industry leading the way, Blockchain’s uses are being explored by a diverse array of industries and processes, such as auditing, compliance, healthcare, supply chain, and now construction.
The Blockchain Revolution in Construction Many industries spread the idea about how they’re going to use the “revolutionary” technology of blockchain to improve things, but there are only so many industries where blockchain would actually provide huge benefits.
The Basic Construction Process Here is what a basic (it can get more complicated) construction process looks like: 1.
Someone comes up with a project
2.
He or she hires an architect and engineers to design the project (conceptual drawing and specifications with limited details)
3.
He or she bids the project to a general contractor
4.
General contractor gives an estimate for the project
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More details are added to the initial drawing and specifications
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General contractor initiates the bidding process for specific parts of the project to specialty subcontractors
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Subcontractors give estimates for their work
8.
Subcontracts are chosen for the project
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Drawings and specifications for the project are continuously refined and updated
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Changes are made due to field conditions
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Due to constant changes, drawings and specifications are no longer homogenous across the various parties
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With coordination slowly falling apart, mistakes begin to be happen
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Because of lack of coordination and resulting mistakes, work has to be redone, eating up money and time
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With various parts of the project taking more money and time than expected, litigation occurs amongst parties due to work not fulfilling expectations
Not really so basic, right? Imagine coordinating all of that‌For one project.
Real world
Former Attempts at Coordinating Construction: MGM Resorts International vs. TPC The Harmon was a Las Vegas high-rise hotel set to the centerpiece of CityCenter, the biggest privately funded construction project ($8.5 billion) in the history of the United States. The Harmon designed to have 400 hotel rooms, 207 condos, and 49 floors. Even for Vegas, it was grand. Issues started to emerge, however, when it was discovered that vital steel reinforcements (rebar) were improperly installed. The rebar problems were blamed on a subcontractor, who in turn blamed these problems on a different subcontractor, who it later turned out had falsified inspection records to show the building was structurally sound. This structural problem led to a major change in design – so major that 21 floors had to be removed, abandoning the condominium section of the project completely. Eventually, the problem became so severe that it led to massive multi-party litigation, a stop in construction, and plans by MGM Resorts International, co-owner of the City Center complex, to demolish The Harmon completely. Demolition alone was projected to cost $11.5 million, but that figure pales in comparison to the figures in the legal disputes ensuing. Both MGM and TPC blamed each other and multiple other contractors for the project’s failures and sought damages as high as $500 million. This figure doesn’t even include other litigants, such as steel companies and buyers of the condos that were never built.
While the trial involving MGM Resorts International and six of the seven contractors contracted for the project never took place, MGM ended up paying TPC a $153 million settlement. You wouldn’t expect such a huge blunder from companies like MGM Resorts International and a huge and a venerable GC. These are companies that have brought the world projects like: ›Bellagio Las Vegas ›Hard Rock Hotel and Casino Las Vegas ›Hudson Yards, >$20 billion development project reshaping Midtown Manhattan ›Trump Las Vegas The worst part about The Harmon debacle was that MGM Resorts International mandated the use of a central project management system by everyone involved in the project to prevent issues arising from lack of coordination. If large, experienced players like MGM Resorts International and large respected GC’s can’t get it right, clearly something is wrong…
A New Paradigm: Brickschain Although companies like MGM Resorts International have tried to improve construction project management through the use of centralized systems, these efforts have consistently shown their flaws. This is because the real truth about construction project details are owned by the various specialists on a project who all use their own firewalled and dedicated systems. In addition, due to the real fear of litigation, parties to the construction process such as subcontractors will many times keep this crucial information to themselves. Instead of a centralized central authority system which depends on trustworthy reporting, an infrastructure that records all data from all parties going all the way back to the original project design is sorely needed.
Enter Brickchain: A Distributed Ledger for Construction and Facilities Management Instead of scrambling to try to get various parties to report information about a construction project in a somewhat organized manner, Brickschain uses blockchain to bring order to the chaotic construction process. Since a blockchain is chronological in nature, all information regarding a project would be recorded step-by-step throughout the construction process from initial scope to final delivery. Each block in such a blockchain would represent a specific event or transaction in the construction process. To ensure compliance, smart contracts (or self-executing contracts made of computer code) would validate component parts of the contract using both digital and physical verification processes. Firewalled data wouldn’t be a concern since the blockchain would be viewable at any time to any of the parties working on the project. Moreover, this data would not be stored by any one party, preventing tampering, loss, or other mismanagement of data. Instead, it would be distributed across computing devices (nodes) owned by the various parties involved.
The benefits of a decentralized construction system would be powerful and include:
Asset Provenance Verifying the origins of assets can often be difficult in construction if records are not kept and stored properly. This was seen in the case of The Harmon. Since Brickschain can record every important transaction throughout the course of construction, whether that is at the design stage, completion stage, or beyond, buyers and sellers would be able to access crucial information like building materials, specifications, and more even years down the line. For example, if a building material is found to be dangerous in the future (as in the case of asbestos), blockchain would enable one to quickly find whether or not that material was used in construction by accessing a full history of all records related to a building or facility. The provenance would even allow to trace to where exactly in the physical structure of the building these materials exist. The result would be a huge cost and time savings in tracing, locating, and removing these materials.
Immutability The same way that transaction records in Bitcoin can’t be changed, using blockchain in construction would mean that construction records and transactions couldn’t be modified either. In the asset provenance example, records of materials, specifications, and more, could be accessed years down the line without worrying that records were changed or worse, disappeared. Everyone could trust a given record as it wouldn’t have changed and could be verified by multiple parties (nodes) around the world. Particular areas where immutability could be useful include the likes of discovery and litigation, an area of huge expense to the construction industry today.
Data Interoperability Various parties, such as architects, contractors, and engineers often have to share data to work together on projects. Data is often shared in different formats and using different licences, both of which may not exist in the future to someone accessing the data.
Remember Betamax cassettes? Blockchain stores data in the simplest, lowest common denominator form, allowing all parties to access data now and into the future.
Point in Time Records Blockchain technology stores information in a chronological manner. Information is stored as it happens, which means that one can access information about a building or facility in chronological order, without having to piece together information that might span decades.
Cost Savings By having records that are easily accessible, chronological, and unchanged, costs will greatly be reduced in construction as facility management becomes optimized, audit times are reduced or eliminated, and transactions are verified instantly.
Preventative Maintenance By being able to access a building's materials and physical components in real time through an active library of data, large swaths of preventative maintenance data will become more automated and enhanced through access to data logs on what is in the building, as well as integration with IOT devices. This will result in tremendous cost savings in facilities management as manual processes are automated and preventative processes are enabled to extend the life cycle of a building and its components in a proactive fashion.
Insurance and Facilities Management Risk Reduction and Management Having transactions that are easily verifiable can reduce material risks like litigation over issues such as building regulations and safety. If there is a recall on a material years down the road (for example a bulb that can cause a building fire) the recorded data will be triggered to provide warning to the owner and facility managers.
Increase in Asset Values Having a building or facility with an accessible and reliable history allows for easy and transparent asset transferal, which is sure to increase asset values for those who place their assets on the blockchain.
Conclusion Data gets duplicated and lost as projects are built, upgraded and managed. By utilizing Brickschain and blockchain technology, we can manage a construction process from inception to build buildings more efficiently and sustainably while also saving on data coordination, rework, legal claims, discovery costs, and downstream maintenance. A building on the blockchain is a safer, more risk managed, data rich asset. Ultimately, all buildings will be required to have this data to get insured and financed.