With the increasing digital transformation of the construction industry over the past decade, developers from inside and outside the industry are more interested than ever in adopting technology to meet the needs of construction professionals.

One piece of technology with significant potential for the industry is blockchain, the digital ledger technology best known for its use in the cryptocurrency Bitcoin. With blockchain, it's possible to establish trust across multiple, unrelated third parties and provide a document that everyone involved in a construction process can draw from and rely on.

The technology could have a big impact on the construction industry, and a number of companies are already experimenting with its use. Here's how blockchain works and the benefits that it can provide the industry.

What Is Blockchain?

The blockchain is a type of distributed ledger—a system that digitally tracks transactions. Each time a new transaction or agreement is made, the blockchain confirms and then adds information about that transaction to an overall ledger, creating a chronological and independently verified log of all transactions for a given project, site or business relationship.

To ensure that the added data isn't lost, the blockchain will make copies of itself on thousands of different computers, while also continuously checking to make sure that these copies agree with each other. The ledger, once created, can be accessed by anyone involved in the relationship at any time. In effect, this provides a fully digital bookkeeping system for all stakeholders. Because the log is created and recreated so many times, it's extremely difficult for anyone to tamper with the data once recorded. This means it's reasonable for all parties involved to assume that the information is trustworthy.

How Blockchain Could Transform the Construction Industry

The most significant benefit of the blockchain is in trust, transparency and ease of access to important documents such as invoices.

Often, a construction project may have a large number of stakeholders, such as construction workers and companies, architectural firms and materials suppliers. Coordinating business operations and administration among these stakeholders is often a major undertaking.

Safety management consultants, for example, can provide essential safety advice for construction companies, but they may not have easy access to documents that show which practices or materials a given participant is using or supplying. As a result, they may not have all of the information they need to properly advise the client on potential safety risks and best practices.

Typically, there are no universally available records of payments made, materials shipped or work hours logged. Because of this, records may vary or conflict, potentially leading to a breakdown of trust and communication, especially in the case of a cost or time overrun where it's not entirely clear who is to blame.

A distributed digital ledger can help solve this problem. No matter what each stakeholder's individual documents say, everyone has access to a log with the same information. This documentation could help avoid disagreements over delayed payments, like the dispute around the Purple Line subway project in Maryland, just outside Washington, D.C., where builders threatened to quit when cost overruns made it unclear how or when they would be paid.

The Future of Blockchain in Construction

The increasing complexity of modern construction projects, both in an administrative and architectural sense, means that these projects can quickly become difficult to coordinate, and potentially lead to mistrust and disputes if the involved parties disagree about basic project facts.

Better documentation and new systems that promote trust and transparency of data are likely to provide some major benefits for construction industry companies of all kinds.

Because blockchain can provide both of these advantages, adoption of the tech may help construction companies avoid major crises, as well as disputes over pay and project timelines.