How Blockchain Could Transform the Construction Industry
If you’ve used Google Drive to store and share any of your files, then you’re already familiar with the concept of what managing a project with blockchain technology looks like. Just as Google Drive allows multiple users to access documents and record user edits in real time, blockchains track and record transactions. Previously, blockchain was limited to cryptocurrencies and financial services; however, in today’s article, we’ll be exploring its potential applications in the construction industry.
We’ll define what blockchain is, how it functions, what it means for the construction industry, and the potential drawbacks of adopting blockchains and smart contracts for construction project management. In this complex industry in which a delay or claim can give rise to a dispute at any moment, it’s never too early to contact a Raleigh contractor lawyer with Cotney Attorneys & Consultants to aid you in conflict prevention and resolution on your construction projects.
What is Blockchain?
To many people, Bitcoin and blockchain technology may be the same thing, but Bitcoin is actually just the best-known example of a successful application of blockchain technology. It has been said that Bitcoin is to blockchain as email is to the internet. Since its entrance into the financial sector in January of 2009, blockchain technology has had many applications in a variety of sectors, from providing citizens with secure electronic vote-counting systems to making money transfer a fast and affordable option for impoverished people in Sub-Saharan Africa.
In the simplest terms, blockchain is a type of technology that can secure and simplify transactions between parties across a peer-to-peer network. It acts as a distributed, immutable ledger that facilitates the process of tracking assets and recording transactions. These assets can be tangible, such as land or cash, or intangible, such as intellectual property and copyrights. The decentralized system isn’t stored in any single location, and there’s no need for a trusted third-party intermediary or “middle-man” to secure the transaction. If you’re interested in learning more about how lien law, contingent payments clauses, or other legal aspects may interact with blockchain contracts, consult with a Raleigh construction lawyer to review your state statutes regarding micro-contracts.
Where Does the Construction Industry Come Into Play?
At this point, you might be asking yourself where the construction industry comes into play with all this talk about blockchain technology. The overarching problem that blockchain technology attempts to solve is the traditional reliance individuals and companies place upon third parties to validate, protect, and preserve transactions. For example, when a subcontractor sends an email to his or her supervisor verifying that the project’s contractual requirements have been met, he or she is relying on a third party for this email to be delivered.
With blockchain technology, the third party is removed and there’s instant, irremovable verification that a transaction has occurred for all participants to view. This eliminates any uncertainty and promotes consensus among the participants of the project. There is no question of whether or not a transaction was completed before the project’s deadline or what the status of the project is. To learn more about how a Greensboro contractor lawyer can draft a contract for your construction project that effectively defines the scope of work and avoids costly delays and looming deadlines, contact Cotney Attorneys & Consultants .
The Introduction of Smart Contracts
The first step in the implementation of blockchain technology for construction projects is the introduction of smart contracts. Smart contracts are machine-readable programs written in code that are set to self-execute when a set of predetermined terms has been met. Or, in other words, an agreement between two parties that allows a digital transaction to occur over the blockchain when certain conditions of the agreement are met. For example, the contract may say something along the lines of: “When the framer has completed the framing of the building for the construction project and this action has been digitally confirmed by both parties, payment to the framer can be released.”
Depending on the size and scope of your project, you could require anywhere from dozens to hundreds of smart contracts. A decentralized autonomous organization (DAO) can deliver secure records of the transactions that occur during the course of your construction project so that multiple contracts can work together smoothly and all parties are able to view the status of the project in real time. By the end of the project, you’re left with a permanent, fixed record of all transactions that took place. Before agreeing to any contract, make sure to have a knowledgeable Greensboro contractor attorney review the legal documents to break down the terms and conditions defined by the agreement and address any potential issues.
What Are the Potential Drawbacks?
As with any relatively new technology, the implementation of blockchain technology and smart contracts is not without its drawbacks. For starters, the construction industry is still hesitant to adopt new technology, particularly one that requires participants to go through an onboarding process. Additionally, there’s always a question regarding a scarcity of resources. Are construction firms prepared to take on the cost, both for the systems and to hire the necessary people, to create and implement blockchain systems?
Smart contracts are also not yet legally binding on their own. They need to be executed by a human to make them legal via an arrangement that is both machine and human-readable. Most construction projects with blockchain technology are currently making use of what is known as Ricardian contracts, in which a machine version runs in parallel with the human-readable version. This is an intermediate solution, for the time being, until the machine-readable and executed contract has proven to be doing as we expect. The details are certainly still being fined-tuned.
In the Meantime, How Can You Manage Claims, Delays, and Defects?
While the construction industry moves towards understanding the potential of blockchain technology to remove intermediary in the construction lifecycle and increase efficiency, you still need assistance in managing claims, delays, and defects on your construction project. That’s where Cotney Attorneys & Consultants, a Raleigh construction law firm, comes in. We know the conflicts you’re faced with on a daily basis and are prepared to provide you with the legal counsel you need to resolve disputes in an efficient and appropriate manner.
When you contact and retain the services of a reputable Raleigh contractor attorney, we’ll draft and review any and all of your construction contracts to ensure your best interests are being protected on every front with the necessary key provisions. Then, if a dispute does arise, a Raleigh construction attorney will be there to represent you in any type of alternative dispute resolution services or in litigation matters. This includes license defense, construction defects, payment disputes, breach of contract, and more. If you are involved in an ongoing dispute or anticipate an issue arising, consult our Greensboro construction law lawyers.
If you would like to speak with a Raleigh construction litigation attorney, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.