Blockchain: What Is It and How Will It Affect the Construction Industry?

Everywhere you turn these days, someone is talking about “blockchain.” Have you begun to wonder whether blockchain could change the way the construction industry does business, and if so, how? Read on to find out the answer to these questions and to spark your imagination about the capabilities of this powerful new technology.

What is Blockchain?

In general, blockchain provides a distributed, immutable and open recording system, which relies on cryptography and public verification of transactions instead of a centralized trusted authority like banks or government officials. Each block within a blockchain includes information associated with transactions, which might include authorization to access data, exchange of information or an exchange of anything that has value which can be represented electronically. For example, in the event two individuals wish to exchange electronic goods or services (such as a bitcoin transaction), one individual could cryptographically sign a transaction request, upload it to the blockchain for verification, and, once verified, the goods or services move from that individual to the receiving party.

Blockchain’s reliability means transactions of the future will enjoy increased transparency, heightened trust, faster and easier methodology and an unalterable record that is difficult to hack or spoof. Blockchain will change every industry, including the construction industry, and its past successes illuminate the future possibilities of this technology. For example, blockchain has become increasingly accepted in the health care industry due to its amazing potential to safely manage sensitive information about patient health. It is also widely used in the food industry, especially for food safety.

How Have Medical Device Companies Successfully Used Blockchain Technology?

Because blockchain technology is trustworthy and secure, it is tailor-made for the medical device industry, where accuracy and precision are key. Blockchain can help secure patient-specific, HIPAA-protected information on devices. It can also help the devices share the data when necessary, all while keeping the information secure, private and traceable. Blockchain also assists in Food and Drug Administration (“FDA”) compliance by revolutionizing the permanent record-keeping of the development, design, part sourcing, production and distribution of each and every device. The FDA mandates that manufacturers use a unique device identification system (“UDI”) to track medical devices through manufacture, distribution and use. Blockchain technology makes this task a breeze, since it allows manufactured medical devices to be completely traceable, as the UDI system requires. Furthermore, in the event of a device malfunction, the FDA and other regulatory agencies investigate to assign responsibility. Blockchain’s ability to track and validate each step of the manufacturing process makes it much easier to determine which subcontractor’s part was the component that failed.

How Has Blockchain Revolutionized the Food Industry?

Retailer Walmart has jumped to the forefront in making use of blockchain technology. With the help of IBM’s blockchain technology, Walmart has vastly improved its protocol for identifying and recalling contaminated foods. Before blockchain, Walmart (like most grocers) was forced to preemptively remove food from its shelves that may or may not have been contaminated. However, Walmart now uses IBM’s blockchain technology to independently verify an array of information about a particular Walmart food product, such as the time and place of origination; environmental conditions; whether it was farmed organically; and other factors that may have an effect on food safety and quality. Thanks to blockchain technology, Walmart can track details about its produce in only two seconds, where it used to take six days.
In the grocery industry, it is plain to see that blockchain technology improves food safety and saves time and money too. Walmart’s experiment has triggered the imagination of retailers everywhere, as they see possibilities for blockchain’s use in other areas including order fulfillment, procurement and inventory control.

Can the Construction Industry Use Blockchain?

Considering the examples of the medical device industry and Walmart, the possibilities of blockchain in the construction industry appear enormous. First, blockchain can allow a construction company to trace a component or tool along a complex supply chain. Distributed tracking through blockchain traces the component whenever it moves from step-to-step along the supply chain, recording the whole product journey and reducing the possibility of running short of critical parts, building supplies or specialized tools. This information is immutable and instantly available, which can help when the client has that last minute change of heart about doorknob styles and must obtain 27 more of them within a day. Blockchain will furthermore facilitate communication between departments along every step, all the while keeping product records safe and organized. And even if one set of records is altered or destroyed, blockchain’s distributed system will retain the product’s tracking information, keeping manufacturing lines moving and preventing a breakdown of the supply chain, which can save contractors and construction companies time as well as money. 
Blockchain can further assist construction companies in investigating and responding to failures. As we know, it is sometimes difficult to determine which part or parts failed when a construction project goes wrong, or which subcontractor performed the piece of the job in question. No one obtains parts from only one supplier. A single part may be provided by many suppliers—whoever has the amount needed at exactly the right time. And no one uses just one subcontractor either. Without the use of blockchain, when there is a problem with a construction project, it may prove difficult to perform root cause analysis and connect the problem to the specific component and the supplier who manufactured the component, or to the specific subcontractor who worked on that part of the project. Blockchain technology can trace the actions of subcontractors, as well as the history of the parts and components that those subcontractors may employ in their work. It is important to know who caused the failure as this may prove critical in assessing and dividing responsibility. Performing this analysis often consumes valuable time and energy.

Blockchain prevents this problem. Like Walmart’s traceable food products, the design and building process of an entire construction project and its components can be recorded every step of the way if blockchain technology is used. The technology will force subcontractors and the manufacturers of parts and components to remain accountable for their roles in a construction project. The key advantage to this process is the immutability of the data hosted on the blockchain.

What’s Next?

Blockchain may indeed revolutionize the construction industry. Blockchain’s amazing storage and verification capabilities can transform project accountability as well as the tracing of parts, components and the actions of subcontractors. Many industries are already making use of blockchain technology, and undoubtedly, the construction industry will see its adoption as well. In our blockchain driven society, which construction companies will take the lead and show the rest what blockchain can really do?

For more information about blockchain, contact Nick Merker at nicholas.merker@icemiller.com or another member of Ice Miller’s Data Security and Privacy Group. For more information on our Blockchain Practice, visit www.icemiller.com/practices/blockchain/.

This article is intended for general information purposes only and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.