Blockchain, the future of the construction market

By Matheus Darós Pagani
CEO of 4CADIA Foundation

Blockchain technology has the potential to revolutionize almost every known market. Even a conservative sector like construction can be affected very soon. This is because this technology enables better execution of strategic projects involving multiple actors.

The decentralized peer-to-peer network can provide excellent governance tools for teams of contractors, subcontractors, workers and suppliers interacting in an environment governed by various codes, regulations and standards.

A plastered system

Virtually all construction projects are governed by systems that rely on a lot of paperwork, contractual processes and lengthy negotiations. It is relatively common for there to be disagreements between the various participants in a business about the nature of their responsibility. This often implies payment delays and budget changes that were not foreseen at the beginning of each project. Often the relationships between the parties are established on the basis of mutual mistrust, which can lead to legal damage and headaches for all involved.

Why the blockchain

The use of blockchain can bring several benefits to this industry. For example, it can speed up the execution of planned steps, providing an important means for stakeholders in the business to follow its progress. With this technology, you can specify tasks for each party in an unchanging ledger, which makes the release of funds from party to party conditional on the delivery of a particular stage, product or service. This more effective, transparent, secure, and inexpensive governance model can be established by creating a self-monitoring, self-regulating, cyber-resilient system of data transactions, in which each party is encouraged to do its duty. This is the replacement of a “fear” of possible punishment/execution by the direct incentive of financial remuneration.

The blockchain allows for the creation of a distributed digital agreement, ensuring that data is decentralized among several nodes of the network, which have similar data, without any actor having total control over the information on the network. Through Smart Contracts it is possible to define the level of interaction and permission of the actors, including conditioning the payments themselves to the correct fulfillment of defined information and conditions. The benefits of using this technology include timely information, unambiguous communication and fewer errors.

Potential advantages for the sector

• Reduction of administrative costs, protection of intellectual property rights and elimination of heavy bureaucracy.
• Facilitating the creation of records of past qualification achievements, allowing the comparison of team constellations productivity.
• Savings in time, costs, human error and labor through data transparency and shared decision making.
• Reorganization of relationships among the various stakeholders of a business, fostering mutual collaboration and alignment of interests.
• Optimization of resource allocation, with the blockchain integrated with the Internet of Things, enabling the identification of bottlenecks that consume time, work and money in a project.
• Simplification of risk management, both by easy access to information, but also by mitigating the uncertainties of legal processes when necessary for the execution of contractual clauses.

Beyond the market

In addition to all these advantages, the immutability of the network can contribute to a complete public register on works, which allows access to characteristics that often end up lost in public bureaucracy or in files forgotten in large construction companies.