Blockchain in construction

Blockchain Explained

Benefits of B2B blockchain in construction

June 17, 2022

Managing major design and construction projects involves dealing with complex supply chains and coordinating multiple stakeholders from architects and engineers to building firms, materials suppliers and accountants. It can be a major headache, compounded by an abundance of building codes, safety regulations and standards. The process is prone to inefficiencies, errors and mistrust, while there is an increasing drive to be more sustainable.

The construction industry has been changing its business practices and embracing digital transformation to adapt to these challenges and one of the key emerging technologies is B2B blockchain. In 2018, the ‘Blockchain Technology in the Construction Industry’ report published by the Institute of Civil Engineers, cited blockchain as a ‘disruptive technology that could revolutionise the industry’. In his forward, Nathan Baker, the then Director of ICE Engineering Knowledge, said: “Make no mistake, blockchain has arrived, offering immense opportunity for the industry to become more effective, transparent, productive and sustainable.” The report highlighted three main features of blockchain that offered many competitive advantages for the industry: transparency, traceability and collaboration.

A B2B blockchain platform stores and manages files of information into groups of data, which are then cryptographically signed and linked together to form a chain. As well as the data itself, each block contains a record of exactly when it was created, producing a complete timeline history, which cannot be corrupted, lost or changed. Essentially, it creates a single immutable source of truth. The process is completely transparent and accountable.

The first public blockchains appeared in 2008 largely driven by the emergence of Bitcoin and other cryptocurrencies. They can be described as fully decentralised where there is no single entity in overall control and anyone can download the software, view the ledger and interact with the blockchain. But for businesses that want to run enterprise applications, this model presents many challenges around management, privacy, accountability and cost.

That’s why a new generation of B2B blockchains has emerged, where a single authority or organisation ultimately retains control and no one can enter this type of network without proper authentication. B2B blockchains are ‘permissioned’ and focus on companies and institutions where the blockchain empowers and supports the business rather than the individual users.

Going smart

Smart contracts are a key feature of B2B blockchains and can automatically execute, control or document legally relevant events and actions according to defined terms of a contract or an agreement. The objective of smart contracts is to reduce or eliminate the need for trusted intermediators and to automate the process to reduce delays. Cost savings can be made on arbitration and enforcement, as well as the reduction of fraud losses and other malicious or accidental exposures.

B2B blockchain and the use of smart contracts can deliver a more streamlined and transparent procurement process, reducing the high level of fragmentation and complexity of major projects. Furthermore, the provenance of the materials can be traced back to support sustainability claims, meet ESG targets and reduce waste, as well as driving the quality of products and services with high accountability.

For construction projects, all information on the materials bought can be visible on the blockchain, such as production and quality certificates, together with the track of transportation, until delivery to the site. Through this immutable chain, stakeholders can have confidence in the quality, safety specifications and standards of materials at any point in the supply chain. Together with BIM, blockchain can create the single source of truth for all aspects of a construction project to deliver transparency and trust.

Dealing with fraud

Fraud affects organisations of all sizes and can occur at any step in a supply chain from bribes offered during supplier selection to fraudulent payments, guarantees and forged cheques as well as the introduction of fake and counterfeit materials. Blockchain technology can eliminate suspicious and duplicate transactions by securely and chronologically logging and time-stamping each transaction. Once verified using an advanced consensus algorithm and then cryptographically sealed into data blocks, the transaction is immutable and tamper-evident to everyone on the network. This also means that the information is always accessible. This is important when you consider that construction solutions and services firm Aon estimates that 95% of information about a construction project is lost in the transition to the completed project’s first owner. Using a blockchain based system can store lifecycle information about every asset in a building project including warranties, certifications and replacements.

Preventing cyberattacks

A recent report published by The European Union Cybersecurity Agency (ENISA) precited a four-fold increase in supply chain attacks during the last six months of 2021. The ENISA-sponsored study Threat Landscape for Supply Chain Attacks found that older frameworks used to defend against supply chain attacks no longer provide adequate security and that organisations must find new means of securing against supply chain threats. In 62% of analysed attacks, cyber criminals exploited supplier trust to reach critical access points and 20% of supply chain attacks targeted data.
With B2B blockchains, it is far more difficult for cyber criminals to compromise the network and penetrate supply chains. The immutable and tamper-evident storage of data provides security, provenance, verification and evidentiary audits.

Importantly, B2B blockchains do not need to use cryptocurrencies or native tokens for the network and as fewer resources and participants are required to run the B2B blockchain, the result is reduced costs on a far more predictable scale. As the ICE report concluded, “blockchain technology has the potential to affect both changes and facilitate this innovation” in the construction industry. By migrating the current supply chain and project management system toward a more transparent and fair practice, the industry can become a more trusted entity.

Speak with our industry-leading experts about blockchain for construction, today.

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