With one Scottish building firm becoming the UK’s first to accept cryptocurrency, the rest of the sector may not be far behind. Steven Cooke anticipates the benefits of this and other blockchain-based innovations
The UK construction industry has innovation in its DNA. New technologies, materials and techniques play a vital part in the sector’s ability to deliver the built environment we need. As we look to a post-pandemic future, the infusion of technologies such as blockchain and cryptocurrency point a way towards the industry being able to reinvent itself yet again, overhauling areas such as logistics and cash flow, while reducing the impact of that sector’s bête noire – human error.
Blockchain and cryptocurrencies do carry risks, not least the potential for price volatility and the impact of tightening regulations. But used appropriately, they could add considerable value to the sector.
Edinburgh-based fit-out specialist Orocco recently became the first construction company in the UK to accept cryptocurrency as payment for projects. I believe others will follow suit – and I will explain why.
Understanding blockchain and cryptocurrency
Blockchain and cryptocurrency are relatively new technologies. Complex as they may seem, appreciating their potential for the construction industry first requires understanding what they are.
Fundamentally, blockchain is a digital sequence of blocks of data, with each block having a unique identifier linking it to the previous data block, creating a chain. These blocks are permanent; changing the blockchain means adding new blocks, not changing blocks that already exist, thereby creating a verifiable and permanent ledger.
Cryptocurrencies are decentralised digital currencies and among the first recognised applications of blockchain. One of the best-known examples of cryptocurrency is bitcoin. Like all cryptocurrencies, bitcoin has value because the market says it has. While this value may fluctuate more than traditional currencies, it is safe to say cryptocurrency isn’t going away any time soon.
Using blockchain in construction
With improved visibility and reliability, blockchain has the potential to solve some major logistical issues for construction supply chain managers, opening up new possibilities for business development.
Blockchain can detect mistakes when they happen, such as a shipment of the wrong materials arriving on site
As blockchain technology is recorded in real time, blind spots in logistics management are eliminated and co-ordination improved. As a single source of truth, blockchain-backed logistics software will create more certainty, eliminating unclaimed design changes implemented near the end of a project, since every change includes a record of who made it and when.
Blockchain-backed software enables supply chain managers to overcome one of the biggest problems in the sector – human error. Working with AI algorithms, blockchain can detect mistakes when they happen, such as a shipment of the wrong materials arriving on site, making corrections possible before the problem escalates.
Blockchain technology can also be used to create smart contracts, automatically triggering incentivised payments when agreed milestones are reached. By integrating blockchain into BIM software, ambiguities around whether work has been completed to required standards can be eliminated.
Cryptocurrency can modernise construction cash flows
Because cryptocurrency is digital, it can be used to make instant virtual payments. This helps solve cash flow issues and opens the door for automated payment processes, such as smart contracts, making it possible to create incentivised instant payments that can enhance productivity. Construction firms can also pay contractors swiftly, based on valuations, or easily enforce financial penalties for late work.
Because cryptocurrency is digital, it can be used to make instant virtual payments. This helps solve cash flow issues
Agreeing to cryptocurrency payments with a foreign client or vendor can cut down on transaction times and fees paid, while the built-in blockchain protection inherent to cryptocurrency makes it easier to trust the legitimacy of payments.
And since each transaction is automatically recorded via blockchain’s immutable ledger, it is possible to create a chronologically ordered catalogue of cryptocurrency transactions with indisputable proof of payment statuses, times and other information, all verified by a decentralised network of devices. Such information can therefore support any future claims or disputes.
The risks of blockchain and cryptocurrencies
No new technology is foolproof, and there are risks associated with both blockchain and cryptocurrency. Nonetheless, these are minimal and can be reduced further through careful planning and consideration of the following factors.
While they have been around for a while, blockchain and cryptocurrencies are new enough that regulation is patchy. It is in the user’s best interest therefore to keep up to date on any law changes pertaining to them.
And since cryptocurrency is deregulated, some jurisdictions regard it as property for the purposes of tax. If a business starts using cryptocurrency to pay for materials or services, or accepts it as a form of payment, it needs to understand any potential tax liabilities.
Then there is the issue of valuation. While their value has generally increased over time, cryptocurrencies are incredibly volatile compared with traditional forms of currency. If a business does decide to start using or accepting cryptocurrency it will need to allow for a certain level of risk tolerance. But then this works both ways, since the chosen cryptocurrency might rapidly inflate in value, enabling the user to cash in at some point.
In light of its potential benefits, blockchain and cryptocurrency are likely to play a fundamental role in the rapidly evolving construction industry. While we are still in the early adopter phase of using such technologies – and the risks certainly need to be assessed – forward-thinking companies could gain a meaningful competitive advantage by considering and implementing these solutions now.
Steven Cooke is group director for strategic growth at Linesight