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BELLE, Iris. 2017. The architecture, engineering and construction industry and blockchain technology. In: JI, G. & TONG, Z. (eds.) Digital Culture 数码文化
Proceedings of 2017 National Conference on Digital Technologies in Architectural Education and DADA 2017 International Conference on Digital Architecture.
Nanjing: China Architecture Industry Publishers, pp. 279-284.
Iris Belle
College of Architecture and Urban Planning Tongji University, Shanghai, China, belleiris@tongji.edu.cn
The architecture, engineering and construction industry and
blockchain technology
Abstract: The trusted exchange of data lies at the heart of many processes in the fourth industrial revolution. Blockchain
technology, or Distributed Ledger Technology (DLT), promises to ensure that data is secure, decentralized and immutable.
In the financial, insurance and logistic sectors blockchain technology is treated as the next big disruptive force. A
restructuring of services, resources and channels of distribution is already visible. This paper explores how the architecture,
engineering and construction industry could profit from the application of blockchain technology and in how far the vision
drawn for the digitalization of the industry is paving the way for their future applications.
The scope of analysis are policy papers on topics of digitalization from China and leading European nations. The aim is to
identify benefits and risks of the digitalization process and highlight drivers and obstacles in the application of new tools,
specifically blockchain technology, for facilitating project organization and transparency during architecture design and
construction stages that will lead to better performance and quality of buildings and cities.
Keywords: blockchain technology; digital information exchange; sectoral transformation
1 Introduction
Advances in software and hardware go in tandem
with evolution of the architecture, engineering and
construction (AEC) industry. Firms have internally
digitalized architectural design and engineering processes,
tendering and contracting, the fabrication of components
and have automatized the operation of buildings. Still, a
recent study by McKinsey has rated the speed at which the
construction sector is travelling towards a digital future as
low, just above agriculture and hunting [1 ]. Strategic
national plans aiming to promote the digital transformation
of the AEC industry focus mainly on adopting building
information modeling (BIM), a digital tool to facilitate
project management by providing a platform for sharing
information, identifying problems and collaborating on
joint solutions. Firms in most countries, however, showed
reluctance to adopt BIM and where adoption is mandatory,
the strategy is rolled out in stages [2]. How data and
information about design, procurement, construction
processes and building operation can be exchanged across
teams, organizations and professions to the benefit of all
participants raises both technical and organizational
questions. Challenges associated with the sharing of
information and digital collaboration are related with trust
and networking costs [3]. The novel invention of the
blockchain technology, or more general, Distributed
Ledger Technology (DLT), offers new possibilities,
promising to ensure that data is secure, decentralized and
immutable. Today, DLT and smart contracts are driving the
development of business models in industries that rely
heavily on financial transactions and the exchange of
information. If successful they will profoundly change not
only services and products, but also the way work is
structured. Research about the application of DLTs in the
AEC industry has barely started. This paper explores how
the architecture, engineering and construction industry
BELLE, Iris. 2017. The architecture, engineering and construction industry and blockchain technology. In: JI, G. & TONG, Z. (eds.) Digital Culture 数码文化
Proceedings of 2017 National Conference on Digital Technologies in Architectural Education and DADA 2017 International Conference on Digital Architecture.
Nanjing: China Architecture Industry Publishers, pp. 279-284.
could profit from the application of DLTs and in how far
the vision drawn for the digitalization of the industry is
paving the way for their future applications.
2 Blockchain technology
Blockchain technology is a database technology that
verifies and stores transactions. The database hence created
combines four features: (1) It is public, not owned by
anybody, (2) it is decentral, not stored on one single
computer but on many computers owned by different
people across the world, (3) constantly synchronized to
keep the transactions up to date, and (4) secured by
cryptography to make it tamper proof and hacker proof.
When does this come in handy? This chapter will explore
existing use cases and theoretical questions.
2.1 Cryptocurrency beginnings
In 2009 a mystery character by the name of Satoshi
Nakamoto published a paper online called “Bitcoin: A
Peer-to-Peer Electronic Cash System” [4]. The paper
presented a solution to the problem how to trade currency
without an intermediary, a task previously thought could
only be done by legitimizing trusted socio-cultural
institutions to act as a watchdog – state regulated banks in
the case of currency. In the case of currencies, the job of
the third party is to make sure that each dollar is only be
spent once in a transaction, a problem known as
double-spending. Nakamoto’s brilliant solution allows
nodes in a network (i.e. computers running the same
protocol) agreeing on what transactions took place. To
record the transaction computers compete against each
other, solving a mathematical puzzle. The first computer on
the network present the solution gets to write a block on
the ledger, which is proof the coin was spent and earns
credit for the work. This system is called ‘proof of work’.
The record thus created, verified and remembered is called
the ‘blockchain’. Each new transaction is added as a block
to a chain, hence ‘blockchain’. The new blockchain is
updated to all computers on the network, hence it is
distributed.
2.2 Game-theory and cryptography
In essence, blockchain is a combination of game
theory and cryptography [3]. Incentives to participate in the
network are designed in a way that makes the digital
system fault tolerant and secure: The cost of attacking the
system maliciously would require to deliver a ‘proof of
work’ higher than economic rewards. Data privacy is
ensured as information is shared by participants via a
private key and only partially.
The blockchain protocol works so well for bitcoin,
because the event that computers have to agree on is binary:
true or false. Either the transaction took place, or it did not.
This principle is exactly the same for each transaction.
Bitcoin blunders that made the headlines, when bitcoins
were stolen or lost, took place at the point when or after the
bitcoin entered the digital wallet [5]. A long time before the
blockchain solved the double-spending problem for bitcoin,
Nick Szabo, a computer scientist and legal scholar,
outlined in his paper “The God Protocols” the dilemmas of
online transactions without a trusted third party. Some
dilemmas remain unsolved even with blockchain
technology available. Difficult for the blockchain are two
types of transactions: (1) situations where even with a
trusted intermediary settling a negotiation is ambiguous,
for example when third party expertise (like that of a
lawyer) is needed; and (2) when “algorithmically
specifying the negotiating rules and output contract terms”
of a task is difficult [6 ]. These comments point to a huge
challenge: in order to design a distributed ledger that can
store value, transfer value and manage value, the
mechanisms of negotiation and the performance expected
of the contract, e.g. the theory of the game, need to be
clearly understood.
2.3 Applications beyond cryptocurrency
High security and privacy makes blockchain technology fit
for other scenarios which traditionally need a third party
overseeing the transactions: (1) administering Smart
BELLE, Iris. 2017. The architecture, engineering and construction industry and blockchain technology. In: JI, G. & TONG, Z. (eds.) Digital Culture 数码文化
Proceedings of 2017 National Conference on Digital Technologies in Architectural Education and DADA 2017 International Conference on Digital Architecture.
Nanjing: China Architecture Industry Publishers, pp. 279-284.
Contracts, (2) combining Smart Contracts to form a
Decentralized Autonomous Organization (DAO), and (3)
certifying proof of existence for certain data (e.g. giving an
object or a person a digital identity).
The restructuring of services, resources and channels
of distribution embracing the blockchain is already visible
in the financial, insurance and logistics industries, most of
which have already created their own in-house blockchain
research groups or like IBM’s Hyperledger, established
research platforms [7].
2.3.1 Functions additions to the blockchain
A block on a blockchain can carry small amount of
digital information. This can be used as instructions to link
to physical assets, comparable to a coupon system. For
example a rental car company can represent each of their
cars as a colored coin and sell the coin as a token for car
usage. The rental car will unlock if it receives a message
with the private key of the person renting the car. The same
scenario applies for managing digital assets, like use-rights
to songs, movies or software.
Another piece of digital information that can be
attached to a bitcoin is a smart contract. A smart contract is
“a computerized transaction protocol that executes the
terms of a contract.” [7] This can be done automatically, if
the specified event occurs. In the case of car rental, a
colored coin would be returned automatically once the
lease term expires.
Decentralized autonomous organizations (DAOs) –
are entire sets of long-term smart contracts that mimic
decision making rationales and processes of a business
organization, and reduce management-level staff
significantly. Transactions records and program rules are
maintained on the blockchain and thus transparent to the
owners of the blockchain [8].
2.3.2 Application examples
New York based company ConsenSys, one of the
developers of Ethereum, a cryptocurrency alternative to
bitcoin, put their money where their mouth is and designed
their own corporate structure to operate as a decentralized
autonomous organization. Employees are co-owners and
hold shares in the company. They can choose which
projects to work on and what task to contribute to,
incentivized by a rise in shares once projects make returns.
This is a project with an uncertain ending but if successful
could change the way some and teams firms work [9].
Proof of existence is the core business model of
Everledger, a company who creates a digital thumbprint on
the blockchain linking it to a valuable good, for example
diamonds, thus proving their authenticity and provenance.
Increasing confidence of sellers, buyers and insurers,
Everledger uses IBM’s Hyperledger blockchain as a hybrid
model between public and private blockchain.
2.4 Criticism, risk, limitations
Blockchain types, which are created by using a
proof-of-work method like the one underlying the bitcoin,
have been criticized for wasting computing power and
energy. The energy used to write the bitcoin blockchain
consumes currently as much energy as the entire country of
Taj ik ist an [10]. Developers of other blockchain variations,
notably Ethereum, are looking to make the verification
processes less energy consuming.
The blockchain itself is protected by military grade
cryptography, but smart contracts and other information
added open a backdoor for malware. The absence of an
intermediary moves the responsibility for backing up
digital wallets or other private data stored on the
blockchain to their owners. Should a wallet be erased
accidentally, the content will be gone forever. The legal
status of some blockchain applications, like DAOs, is still
unclear, due to their novelty, implications on taxation and
labour law.
The function of blockchain applications is limited to
scenarios where transaction protocol can programmed in a
way that anticipates and manages to coordinate all types of
user behaviors. Thus, they require a high understanding of
the social and cultural mechanisms underpinning the
processes that are to be moved from the overview of a third
party to a decentralized self-regulating system. As
described above, decisions that require third party
experience or are in any by their nature hard to express as
BELLE, Iris. 2017. The architecture, engineering and construction industry and blockchain technology. In: JI, G. & TONG, Z. (eds.) Digital Culture 数码文化
Proceedings of 2017 National Conference on Digital Technologies in Architectural Education and DADA 2017 International Conference on Digital Architecture.
Nanjing: China Architecture Industry Publishers, pp. 279-284.
predefined alternative outcomes, cannot be put on the
blockchain.
The application of blockchain technology to business
eco-systems is economically reasonable only, when the
cost of verification lies below the cost of the intermediary.
3 The AEC industry
No direct mention of blockchain technology is found
in AEC industry reports, at the time of writing. A
mandatory precondition for blockchain application is a
high degree of digitalization of information, digital
processes and a reliable digital infrastructure. Keeping the
blockchain technology’s advantages and limitations in
mind, the status of digital evolution, barriers and next
frontiers of digital transformation in the AEC industry are
presented.
3.1 Industry reports and technological change
Reports generally take a careful stance towards technology
as a tool. Preceding the blockchain by a decade, the Egan
Report “does not consider that technology on its own can
provide the answer to the need for greater efficiency and
quality in construction” and recommends to “to approach
change by first sorting out the culture, then defining and
improving processes and finally applying technology as a
tool to support these cultural and process improvements.”
[11] The necessity to collect large scale data on building
performance during operation and analyze them digitally
was mentioned in reports decades ago [12], just as the
potential of digital models that force teams to anticipate
design problems first in the virtual world, rather than on
the construction site [11].
Sector reports traditionally look at four big topics:
(1) Market situation of supply and demand
(monitoring the state of the existing building stock
forecasting demand for retrofitting, demolition and
new construction as well as overall economic and
demographic, ecological and technological
developments)
(2) Efficiency of the work process (analyzing effects
of regulatory tools on the value chain)
(3) Effectiveness of the work process (looking at the
quality of the built environment)
(4) Skills and education (capacity of future
workforce)
3.2 Current frontiers
Specialized reports focus on the potentials and risks
of the digital processes [13-15]. Their main objective is to
promote the digitalization of design, engineering and
construction by identifying and clearing obstacles and
introducing incentives and encourage firms to use BIM in
their workflow. BIM demands a new way of collaborating
across firms and professions, asking them to add
information to a shared digital model with geometric,
temporal, financial and asset management dimensions. The
model can simulate the operation of the building, comfort
levels, life-cycle costs and ecological costs. Variations of
combinations of spatial layout, building equipment and
materials, operation and occupant behaviors, can thus be
compared. At all stages of the project process, project
members across teams and companies have access to the
model and can add to it. Time for sharing and evaluating
information is thus reduced considerably [16]. Industry
observers are excited about the technological ability to
make decisions based on transparent and comprehensive
data sets, that are accessible anytime and hope to increase
efficiency and improve planning outcomes through better
collaboration in the design, engineering and construction
process. [15]
.
3.3 Barriers to digitalization of processes
Digital transformation meant so far for many firms
merely to replace ink pens and slide rulers with computers
and CAD software. They do not digitally link geometric
information and specifications of building components are,
the organization of teams and projects remains unchanged.
BELLE, Iris. 2017. The architecture, engineering and construction industry and blockchain technology. In: JI, G. & TONG, Z. (eds.) Digital Culture 数码文化
Proceedings of 2017 National Conference on Digital Technologies in Architectural Education and DADA 2017 International Conference on Digital Architecture.
Nanjing: China Architecture Industry Publishers, pp. 279-284.
AEC industry reports identify a lack of education both
at the firm level and at the workforce level. First,
companies do not have the knowledge how to incorporate
BIM in their development plan. Second, there is no
perceived benefit to use BIM because projects are small
and little complex. Third, clients don’t request to use BIM.
Fourth, a firm would have to invest time and resources
while it is not immediately clear if there will be a return on
investment and the few firms that see a necessity face
difficulties to find BIM professionals on the job market [17].
4 Blockchain scenarios for the AEC
industry
AEC industry reports available by mid-2017 don’t
mention the blockchain as a technology to watch out for.
This study thus looked at articles on industry blogs instead.
The mood generally oscillates between positive and
hopeful, with a grain of skepticism. Most commentators
admit that as much as they like the idea of transforming the
AEC industry into a peer-to-peer system profiting from the
distributed ledger technology of the blockchain, they don’t
consider the AEC industry ready for blockchain technology
regulating collaboration and exchange of information
anytime soon. They point to the slow speed at which the
AEC industry is setting up standards for digital
cooperation and the scaling effect necessary [18].
What insiders to the AEC industry get excited about
when imagining blockchain scenarios are the chances to
cut administrative costs that have come with the
digitalization, particularly the protection or licensing of
Intellectual Property Rights. This is an issue BIM
developers have also looked into [19]. Solving the IPR
question, could speed up digitization and compliance with
standards if it would open a new stream of revenue for
some members selling their designs or workflows while
saving other members work time. However, once sold and
built, a bad structural system is nothing as ephemeral as a
bad pop-song. Along with royalties and pricing come back
questions of quality standards and liabilities.
Building reputation on the blockchain is another
potential application. Experience has shown, that one
single firm seldom determines the quality of a building. It
is the collaboration of companies along the entire value
chain that makes a difference. Some architects with their
designs rely on collaboration with a structural engineer
who is specialized in certain structures or on suppliers of
construction materials. Newcomers form strategic
partnerships with veterans to participate in projects they
would not have credentials to acquire alone. A registry that
helps compare achievements of team constellations would
thus accommodate the question whether construction
quality can be achieved via firm vs. firm competition or
should in fact be a competition of supply chain vs. supply
chain. With statistics about performances at hand, clients
would be free to make better informed choices.
Building performance was previously hard to
compare and even harder to link to architects, engineers,
builders and materials supplies. The discussion about green
building standards is one example. Equipped with sensors,
a smart building component can send information about its
performance to a distributed data base, rather than directly
to the manufacturer, who might not be interested in
disclosing actual performance. Via Smart Contracts, such
components can be programmed to initiate maintenance
and repair routines autonomously, preventing dangerous
deterioration. Life-cycle analyses of individual buildings
could be compared taking constellations of spatial layout,
building equipment, occupant behavior, operation, cost,
energy and raw material consumption into account, and
serve as a basis for better training curricula. Currently the
industry is averse to sharing more information than
necessary, for fear of legal consequences in case of low
performance. This should not be the objective. The
objective should be to provide accurate quantitative
information as a basis for continuous learning and
improvement.
Commentators on blockchain applications see
challenges particularly in the capabilities of the industry to
cooperate and organize work processes. Those are the same
challenges pointed out by sector reports. The blockchain is
no magic bullet. It is a technology tool that programs
BELLE, Iris. 2017. The architecture, engineering and construction industry and blockchain technology. In: JI, G. & TONG, Z. (eds.) Digital Culture 数码文化
Proceedings of 2017 National Conference on Digital Technologies in Architectural Education and DADA 2017 International Conference on Digital Architecture.
Nanjing: China Architecture Industry Publishers, pp. 279-284.
organizational culture. Its code can get no better than the
rules of collaboration set and accepted by its user
community.
5 Concluding thoughts
The AEC industry is digitizing its work processes
slower than industries that have adopted the blockchain so
far. The perceived barriers to digitalization holding back
the majority of AEC firms to establish a new culture of
collaborating and sharing digital information are cost,
absence of client demand, and uncertain point of return on
investment. At the time of writing, industry reports did not
mention blockchain as a tool that could create incentives
and thus speed up digitalization. The analysis of
blockchain technology, particularly its economic side, has
shown, that it is not merely a technology, but requires deep
understanding of actors, their interests and collaboration
processes to design a fault tolerant digital system for
secure transactions. For such a system to be economically
viable the intermediaries it would replace need to be more
costly than the verification process of transactions. This
seems hardly the case in an industry where a high level of
trust is based on expert knowledge forms the basis for
collaboration. This type of knowledge is irreplaceable by
computation based on binary queries. It is however
thinkable that firms with great tech-affinity will take the
initiative and explore Decentralized Organizational
Systems that facilitate novel forms of collaboration
between project members and teams in segments of the
value chain that can be expressed with algorithms,
particularly where reducing the administrative load on
reporting, governance, monitoring responsibilities and
transfer of risk could save costs and time. In order to do so,
it is necessary to identify and better understand the role of
intermediaries and what value they add to the project at
what cost.
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Proceedings of 2017 National Conference on Digital Technologies in Architectural Education and DADA 2017 International Conference on Digital Architecture.
Nanjing: China Architecture Industry Publishers, pp. 279-284.
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