How encrypted databases and cryptocurrencies could transform the way contracts are managed and payments are sent within the construction industry
It’s not often that you get to tie the conservative world of construction together with the hi-octane lifestyle of Superstar DJs, but if the former were to look at the advantages of the latest secure communications techniques then it really could be rubbing shoulders with the later.
It might take a leap of tremendous faith – not something the construction industry is traditionally blessed with – but with a little forethought and a willingness to plunge headlong into the choppy waters of cryptocurrencies, the industry could be looking at waving goodbye to the scourge of late payments, retentions and cashflow crises and saying hello to smart contracts and instant payment.
The route to this fiscally efficient Shangri-La is through Blockchain technology. Fundamentally the blockchain is a database made from a series of secure, encrypted entries – or blocks - that can contain information. The information in these blocks is confirmed at the point of acceptance into the chain and is then secured, making it virtually impossible to alter any of the data that they contain without the acceptance or knowledge of other sections of the chain – perfect for international money transfers, shareholder information or indeed complicated and nuanced business contracts.
With a little forethought and a willingness to plunge headlong into the choppy waters of cryptocurrencies, the industry could be looking at waving goodbye to the scourge of late payments
The music world has already cottoned on to the idea that the blockchain can help deliver payment fairly and instantly. American star DJ Deadly Buda is using the system to pay the artists that feature in his latest ‘Rock the Blockchain’ music mix. He has integrated smart contracts into the blockchain that supports the Musicoin cryptocurrency and by attaching them to this latest mix, those artists are paid their royalties with seconds of the mix being played.
Now the success of that system rather depends on everyone in the system being signed up to the Musicoin currency and happy to be paid in it, but swap Musicoin for a more widely accepted cryptocurrency such as Bitcoin, DJ Deadly Buda for a main contractor and the supplementary artists for sub-contractors and it is easy to see just how blockchain technology could benefit the construction industry.
By placing all contractual requirements within smart contracts and the financial triggers within the blockchain then we could see sub-contractors getting paid automatically and immediately – with no contractual fighting and an indisputable trail of proof showing clauses had been met.
If blockchain has the potential to integrate with BIM software, then it could automatically generate contracts between supplier when amendments are made to construction model
It is the ability to create, validate, authenticate and audit contracts and agreements in real-time, across borders, without third-party intervention, almost standardisation by proxy, that makes this technology so appealing to the construction world. Blockchain also takes transparency to a new level with ability to track the supply chain in terms of material, contracts and payments, with ‘real-time’ information regarding when material have arrived on site.
Operationally, if blockchain has the potential to integrate with BIM software, then it could automatically generate contracts between supplier when amendments/updates are made to construction model.
Of course, there is the relative danger of the unknown. The concept of dealing within a currency that is supported only by the fact that there are so many others exposed to it even the prospect of its failure is viewed as abhorrent, can be difficult for some to accept.
But for others the blockchain has the potential to offer a secure alternative to the traditional banking process, saving time and money while also offering the chance of real, tangible benefit to the supply chain with smarter, cost effective, fair and immediate contracts.