Practical Implementation of Blockchain and Tokenization in Construction

In a world of rapidly evolving technologies, blockchain, and tokenization are no longer just terms of cryptocurrency and finance. They have become solid foundations for revolutionizing various industries, and construction is no exception. The practical implementation of blockchain, smart contracts, and tokenization technologies opens up unlimited prospects for improving construction transparency and efficiency at every project stage. In this article, we dive into the world of innovation, exploring exactly how these technologies are applied to construction and what benefits they offer for the entire industry.

Ownership Rights Registration

The registration of property titles in the construction industry often faces several significant challenges. First, it involves difficulties in recording changes in ownership after construction is completed, which can lead to confusion and conflict. Second, the registration process can be long and drawn out, delaying the completion of construction projects and limiting access to financing. A third challenge is more transparency and trust between clients, contractors, and other stakeholders, leading to disputes and legal problems. Also, we should remember outdated registration systems and the high probability of errors, the possibility of falsified documents, double selling, and disputes over rights. These problems create legal and financial risks for all parties.

A scheme for transparent property registration in a blockchain ledger. Source.

Blockchain and tokenization technologies can solve most of these problems. For example, blockchain enables the creation and storage of digital records of real estate ownership that are almost impossible to hack and where data cannot be deleted or altered. This can create an open real estate registry that provides trust and transparency between all market participants (agents, banks, owners, buyers, sellers, contractors, insurance companies, and government agencies). In addition, a blockchain registry eliminates the need for paper documents that can be lost, damaged, forged, or stolen.

Here are some practical examples of how blockchain is being used to launch transparent and secure real estate title registries:

Georgia. In 2016, Georgia's National Agency for State Registration launched a blockchain-based land management project with Bitfury Group. The platform allows registering ownership of land plots and other real estate assets on the blockchain.

Sweden. In 2017, the Swedish Land Registry Agency tested a blockchain platform for registering real estate titles in collaboration with telecommunications companies Telia and Kairos Future. The platform makes it possible to simplify and speed up the process of transferring ownership rights, as well as reduce costs and risks.

Ukraine. In 2018, the Ukrainian State Registration Agency launched a real estate title registration project based on Bitfury's Exonum platform. The project allows the creation of digital certificates of ownership rights stored in the blockchain.

The US. Medici Land Governance, a subsidiary of significant retailer Overstock.com, has been creating a global blockchain land registry since 2018. The project uses blockchain and other technologies to support land governance, appropriation, and administration through a trusted public land title registry. The project operates in the US, Zambia, Rwanda, Mexico, and several other countries.

Document Flow Automatization

Another application of blockchain in construction is using it to automate the storage and exchange of documents. A blockchain-based data and documentation system can reduce time and resources, streamline document exchange and control processes, and help reduce litigation costs, especially on large projects. In addition, these technologies can lead to increased efficiency in project execution.

Here are a few ways exactly how this can be achieved:

Digital documents. Instead of traditional paper documents, all documents related to the construction process can be digitized and stored in a blockchain registry. Each document can be represented as a unique token that contains information about its content, time of creation, and status. This allows participants in the construction process to easily share and verify documents and automatically track change and version history.

Confirmation of authenticity and integrity. Blockchain can be used to write hashes of documents on the blockchain, ensuring the immutability and authenticity of documents. When a document is modified and added, the hash will be automatically updated and written to the blockchain. This makes verifying each document's integrity and authenticity easy, minimizing the risks of tampering or data loss.

Decentralized matching. Blockchain can also enable decentralized approval and signing of documents during construction. Stakeholders can use their unique digital identifiers to sign documents, and a record of each signature will be securely stored on the blockchain. This dramatically simplifies the document approval process, reduces the need for physical paper signatures, and increases the efficiency of the process.

Several significant projects use blockchain to automate document management in the construction industry. For example, Provenance has developed a platform that allows the creation of digital reports on the origin of materials, quality certificates, and other documents. Velox.RE launched a system to automate the document management process, which allows the creation and exchange of digital documents, simplifies the signing and approval process, and provides document authentication.

Scheme of realization of document flow automation in construction. Source.

Another company, PixelPlex, has developed the DocFlow platform, which tokenizes the entire document cycle. The platform makes it easy and fast to track document usage and ownership (all versions of documents). It automates document processing, issuance, and receipt while complying with GDPR (General Data Protection Regulation) and other regulatory requirements.

Construction Project Management

Construction project management is a complex and demanding process that involves planning, coordinating, controlling, and closing projects to client requirements, deadlines, and budgets.

Various challenges can arise during this process:

Difficulty in coordinating different project participants such as banks, architects, engineers, contractors, and suppliers, which can lead to delays and inconsistencies in the execution of construction works;

Limited transparency and insufficient information sharing between project participants lead to difficulties in control and decision-making;

Lack of reliable document storage and authentication systems can lead to data loss or disputes;

Difficulty in managing budgets and financial risks, as construction projects are often subject to unexpected costs and plan changes.

These challenges require effective solutions to ensure consistency, transparency, risk management, and effective communication between project participants. For example, the BTU Protocol blockchain platform provides an infrastructure for construction project management where contracts, agreements, and financial transactions can be easily and quickly created and tracked, providing transparency and automation of project management processes.

Another project, Builderium, uses blockchain to create a protocol that connects customers and contractors in the construction industry. This simplifies contractor selection, contracting, and project management processes, ensuring that all processes are transparent, secure, and efficient.

Building Information Modeling

Some fantastic innovations are happening in the construction industry right now that are significantly improving project delivery processes. One such innovation is the development and implementation of Integrated Project Delivery (IPD) software combined with Building Information Modeling (BIM). IPD is an environment for collaboration and information sharing between all project participants in the early stages of a project. BIM is a three-dimensional dynamic model that reflects the real-time state of the building, which includes geometry, spatial relationships, geography, and properties of building components.

Moreover, the generated BIM model is a complete parametric digital construction project, which means that when one aspect of the project is changed, other aspects affected by that change are also automatically adjusted. This makes BIM a great fit with IPD, as they create a unified space for all parties to collaborate in the design and implementation of construction projects.

The only significant problem with BIM is the difficulty in tracking any changes made by project users when accessing the construction model. Construction contracts, design modifications, change orders, and all other project changes must be manually entered into the model and shared with project participants because BIM products can’t track and validate data and modifications to the model itself.

lementation in Building Information Modeling. Source.

This problem can be solved by using blockchain. It allows tracking and authentication of any changes or modifications to the project. Users will be notified in real-time of any changes and uploads, who made the changes, and what changes were made. Implementing blockchain technology in BIM/IPD will make it easier for all parties to work together by collecting, maintaining, updating, and archiving all project information in a secure, reliable, transparent, and decentralized database.

Here are a few companies that are using blockchain in BIM/IPD:

Autodesk uses blockchain to implement smart contracts, predictive asset maintenance, proactive third-party control, and instant collaboration between all IPD participants.

DB Systel GmbH applies blockchain in BIM to tokenize intellectual property assets. The company is also involved in developing standards and guidelines for using blockchain in BIM.

Brickschain has developed a blockchain solution for managing and analyzing data in the construction industry. They offer their protocol to track and validate changes to BIM models, manage workflow, and enable secure information sharing.

Topaz also has a blockchain-based platform for collaboration and management of construction projects. The platform includes tools to create and share BIM models, track changes, and automatically approve design decisions.

Construction Contracts and Payments

In the area of construction contracts and payments, there are some challenges and problems that make it difficult to negotiate and execute contracts and manage payments effectively. One of the main challenges is the constant need to monitor and verify compliance with contract terms and conditions, which can cause delays and disputes between contracting parties. In addition, long lead times and high bank transfer fees can slow the process of paying invoices and create financial inconvenience for all parties. Also, the lack of trust, transparency, uniform systems, and standards makes accounting and managing financial flows in construction and related processes easier.

Blockchain offers several ways to address these challenges. For example, it allows the creation and storage of digital records of various aspects of contracts, such as terms, conditions, timelines, costs, changes, confirmations, payments, and more. All parties will have access to this data and be assured of its reliability and validity, ensuring high trust, security, and transparency between all parties to the contract.

Payment processing scheme in construction using smart contracts. Source.

Smart contracts can also automate and speed up negotiating, signing, and processing payments. Smart contracts can reduce the cost and time of transactions and the risks of fraud, disputes, or errors.

Here are some examples of practical applications of blockchain and tokenization technologies to optimize construction contracts and payments:

Builderium provides a platform for managing construction contracts using blockchain technology. They create digital contracts that automatically fulfill all contract terms and conditions and provide transparency and reliability during the construction process.

ShelterZoom has developed a blockchain-based platform for entering into and managing construction contracts. Their solutions allow contract participants to electronically sign and fulfill transactions in real time, providing transparency and security.

Cobuild uses blockchain to simplify the payment process in the construction industry. Their platform automates and accelerates the confirmation and payment process between project participants, reducing the risk of delays and disputes.

Proactive Third-Party Oversight

Proactive third-party supervision is the systematic and independent checking and monitoring of project performance at various stages of construction to prevent problems and ensure compliance with requirements and standards. Such supervision is required when multiple subcontractors and service providers are hired for a construction project. Furthermore, the overall increase in monitoring workload requires the creation of new roles and responsibilities to oversee the completion of tasks and compliance with prescribed rules.

The complexity of proactive supervision is related to the need for highly efficient coordination and collaboration between different project parties. This requires public platforms with common standards for data exchange that all parties will trust. Such a system can only be developed using blockchain technology, namely, a distributed and unchangeable registry. Such a registry allows project parties to quickly and securely exchange information and store and track documentation, changes, and corrections. In addition, the use of blockchain also enables auditing and a more accurate assessment of the quality of work and efficient management of finances, labor, and time.

Examples of companies applying blockchain to proactive third-party oversight include Provenance, ConsenSys, Factom, and Autodesk. All these companies use blockchain for proactive third-party oversight and instant collaboration between all parties involved in a construction project.

Construction Funding

Blockchain and tokenization can significantly improve construction financing by addressing several key challenges. First, blockchain provides transparency and data integrity, allowing financial transactions and utilization of funds to be easily verified and validated. This reduces the risk of fraud and increases trust between participants in the construction process. Second, tokenizing assets, such as real estate or construction projects, enables investment from a wide range of investors, including small and retail investors. This increases the availability of investment in real estate construction and promotes diversity of capital sources.

In addition, blockchain and tokenization facilitate and automate the processes involved in recording and distributing financial flows, reducing bureaucracy and reducing transaction time and costs. Some examples of projects in this area include Smartlands, Harbor, Brickbloc, and Polymath.

Logistics and Supply Chains

There are also several challenges in logistics and supply chain:

Difficulty in coordination between different actors in the chain, such as material suppliers, carriers, and contractors;

Lack of transparency and difficulty in tracking goods and materials throughout the supply chain;

High costs associated with transportation and warehousing of construction materials.

The main factors hindering these challenges are the lack of an open tracking system and trust between supply chain participants. Blockchain enables the creation of an accounting and tracking system where all participants can access real-time information on the status of deliveries, storage conditions, and quality of materials. Tokenization, in turn, allows digital tokens to represent and record materials and goods in the supply chain, making them easier to track and manage. This reduces the risk of loss, improves planning, and optimizes construction logistics and supply chain costs.

Companies that have introduced blockchain and tokenization into the supply chain on a practical level include Autodesk and Chronicled.

Smart Cities and Ecosystems

Blockchain and tokenization can also play a key role in building smart cities. Blockchain allows data about smart devices, sensors, control systems, and other components to be recorded and stored in a secure and immutable form. This will ensure the integrity of the data and prevent it from being tampered with or altered. At the same time, tokenization allows the creation of virtual tokens representing various assets or rights in a smart city, such as the right to access certain services or management privileges. In addition, tokens can be used for accounting and resource management, transportation system management, payment for services, and much more.