Denmark: The Benefits Of Blockchain Technology In Construction

Last Updated: 1 August 2019
Article by Line Rener Nyeland

Denmark is currently ranked as the country with the highest digitalization in the EU. The construction industry, however, still lags behind. In fact, construction is among the least digitized sectors in Denmark, even though the building stock constitutes a very large socio-economic asset, with values from investments amounting to approximately 45% of the total investments in the Danish economy.

The lack of digitalization is presumably due to a conservative industry that has not yet had the necessary financial incentive to keep up with the times. If, however, the construction industry does not keep up with the increasing digitilization of other industries, there is a risk that great value will be lost in the long term.

Sustainability as a driver for digitalization

Many argue that sustainability might just be the driver that will lead to a more digitalized construction industry.

Given that construction accounts for a large share of society's energy and resource consumption, digitization can ultimately lead to more sustainable building by promoting productivity, quality and resource saving. And as sustainability is booming and there is generally more focus on making better use of the worlds resources, the players in the construction industry are also looking for ways to incorporate sustainability into their field; be they developers, contractors, architects, or engineers.

Fortunately, to a large extent, the technology needed to increase digitalization in construction - and ultimately a more sustainable building - is already available. However, it is not being used to its full potential.

Some of the available technologies that can be used (and which, to some extent, are being used) in various phases of construction are 3D printing, AI/deep learning, big data, BIM model, digital twin, drones, IoT, robotics and VR/AR.

Another available technology is blockchain or other distributed ledger technology. Most people have heard of blockchain in connection with cryptocurrency; however, blockchain technology has lots of other potential and beneficial applications, including in construction.

Blockchain: A groundbreaking technology?

Blockchain is referred to by many of those with technical savvy as the new internet, as it has the potential to be groundbreaking in the same way as the internet was in the 1990s by setting information free.

So, what is blockchain technology? And how is it beneficial in construction?

Blockchain is:

  • a technology and a business practice built on peer-to-peer transactions, allowing trust-based interactions, shifting the governance from central institutions to distributed networks of peer-to-peer collaboration;
  • a packet of information (a block) with the ability to create an historical and permanent ledger of transaction details, allowing data to be stored identically with everyone in the network, for as long as it is in digital form; and
  • at the same time, every blockchain has a specific structure and rules (smart contracts) making it much more than an ordinary database.

These key qualities make blockchain technology good at handling complex transactions, establishing a chain of custody and history, as well as serving as a secure and open database available to users - all of which can be beneficial in construction. In particular, blockchain technology's ability to build data layers in the value chain is unique.

A passport for building materials

Today there are no obvious ways to track building materials throughout the life cycle of a building, and information regarding production, condition and potential recycling options of the building materials goes to waste, as does the potential value of such data.

An example of the benefits of using blockchain in construction is using a blockchain to document and track building materials, serving as a sort of passport for those materials.

In practice, a blockchain is already established in the production of the building materials, registering the product and the product's declaration. The product is then registered with its location, the person who has the product in hand, its condition and expected purpose. At the same time there is an ongoing process of logging potential recycling options and extraction instructions, depending on the status of the product's delivery, incorporation and extraction. All data is verified by every individual in the network and distributed 1:1 to all individuals in the network, where it remains for as long as needed (throughout the life cycle of the building and beyond).

The blockchain thus creates a chain of custody for building materials, enabling a more sustainable - and circular - approach to the use of building materials.

The blockchain will also allow the tracking of building materials that, many years after having been built into a building, may be found to be faulty or unfit for purpose. This enables building owners to track if the specific building materials - with a specific composition, from a specific manufacturer, from a specific production, from a specific date - have been used in a building, thereby avoiding a long and costly investigation on the issue.

This type of passport is not suited to being put into an ordinary database since the information is provided by various sources in the supply chain. It is clear that the blockchain's peer-to-peer validation - where every individual in the network must verify the data, thus creating a consensus about what has happened with the building materials and when - is key to its success.

New legal challenges

The industry is seeking clarification of the legal framework when using blockchain (and other) technology in construction and sees the current lack of clarification as a major disincentive to adopting it.

An increase in digitalization in construction - and the consequent increased sustainability in construction - therefore also depends on those providing legal advice in this area. It places demands on legal advisors to understand how a blockchain works in order to be able to identify the new legal challenges and solutions to which the application of this technology gives rise.

General legal challenges in using blockchain technology are, for example, data protection law and competition law, as free-flowing data in a network in some cases might not be in compliance with these laws. Other legal challenges are jurisdiction, allocation of risk and liability, intellectual property rights, enforceability of smart contracts and exit assistance, all of which must be regulated by the contract(s) setting up the specific blockchain.

DLA Piper Denmark is currently working on an analysis of the possible legal challenges associated with the use of blockchain and other technology in construction, including how we can help our clients to meet these challenges.

NB: Inspired by the need to increase digitalization in construction, DLA Piper Denmark has developed a small piece of construction technology (contech), which also serves as legaltech. DLA Piper Denmark has launched an app with the new Danish agreement-based set of rules for construction, including legal comments. The app AB 18 - altid ved handen is ready for download from the App Store and Google Play.

"Most people have heard of blockchain technology in connection with cryptocurrency; however, blockchain technology has lots of other potential and beneficial applications, also within construction."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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