An Opportunity to Initiate (one in a series)
A Commentary on the Possible Impacts of the Blockchain in Construction
The difference between Smart Contracts and BitCoin will galvanize how the construction industry will be affected by the powerful new technology of the blockchain.
There seem to be emerging two separate and distinct ideas regarding how the blockchain will look once it comes to mass market. Further, as we are specifically looking from the perspective of the construction industry, we'll discuss how it will likely impact our current practices.
The purists within the blockchain community are steeped in the Nick Szabo school of thought that security and decentralization are the only goals and that the creation of a unique currency is the only way to achieve them. In a sense, they are correct. The BitCoin approach to the blockchain attempts, by creating a distinct currency, to create a sphere of independent economy. Its purpose is to be separated from constraints related to the ties of national sovereignty and geopolitical friction.
It is a bold endeavor. However, by framing the system within the context of the cloud-based digital realm, the resources necessary for its success are so readily available that the otherwise "natural" resources needed to enable its confluence do not present an impediment. As a matter of fact, where other forms of currency, whether they be shells, gold, or the greenback, require either a highly unique set of natural conditions or an artificial restraint for the purpose of scarcity - BitCoin, in this way, represents a most elegant system in which the recording and keeping of the agreed-upon ledger also doubles as the element of scarcity that adds value.
The spark that inflamed the fuel of this economic wildfire was the resource-draining requirement of the "proof-of-work" as the method for authenticating the entities that have deemed themselves as the authorities worthy of such a task. The resource being drained is the programming power system of anonymously connected computers.
The fact that, as a society, we have such an abundance of this type of computing power, the required fuel for this machinery of the blockchain, it is easy to get carried away in predicting an impact equal to the to the coal-draining industrial boom.
What is more difficult to predict is the shape, or form, that will be represented by the blockchain when it arrives to the public at-large. This is because there is a less specific, more general framework for blockchain technology being championed by Ethereum, among others. The theme of the Smart Contract is their vessel, and a concise explanation of the difference between a Smart Contract and BitCoin is as follows:
Smart Contracts are to BitCoin as General-language/Turing-type Computers are to TI Calculators (shout out to you, Wozniak :)
In essence, a Smart Contract is a computer program that seeks to leverage situations expressed in statistical or numerical terms. The idea is that if the terms of the agreement can be expressed in numerical value, then there is no need for a third-party intermediary for the purpose of adjudication. As mathematical expressions are the basis for Boolean logic, likewise Boolean logic can be used to execute statistically-based contractual elements.
The most popular example is the vending machine. We don't need a third-party intermediary for the purpose of adjudication when we buy an over-priced bag of cookies. Rather, it is a situation that is expressed in statistical/numerical terms (i.e. quantity of one (1) selection E9 for the price of $.75). Another clear example is drought insurance for farmers. Very simply, if "X" amount of rain doesn't fall, then "Y" amount of funds are due.
As you can imagine, the use of escrow accounts play a role, as do other common commerce tools of the day. Therein lies the rub with the aforementioned BitCoin purists. Recall that the essence of the Blockchain effort was to devoid its brand of economy of the need for any type of third-part intermediary. And as Mr. Szabo stated, "Trusted third-parties are security risks."
For, if a digital transaction is still in need of a system-traditional role-player such as an escrow account held within a traditional bank, then the purpose of ultra security and decentralization has been compromised. What good is the automated expression of a smart contract if the bank holding the escrow account has been hacked and the funds have been removed from the situation all together.
On the other hand, there is still value to be had with the automation of "dry code" elements within a smart contract. For example, let's look at the construction industry. Once we've thrown our logistic system into the cloud, the opportunities for smart contract execution become apparent, with progress payments and completion dates shining as two clear examples of situations that can be made into cleanly definable statistical variables fit for digital execution.
In this way, Smart Contracts solve the most immediate problem currently inhibiting the BitCoin sphere, that it is not complete. So long as it is required for any member of a BitCoin transaction to exchange value with a traditional geopolitical currency, then the integral uncertainty of doing so will restrain its growth and value. However, as the sub-elements of an operating economy come on-line with using the currency as a method of trade, then so decreases this inherent uncertainty, as seen by the steady increase in value of BitCoin relative to the USD.
With that being said, it's up in the air regarding what shape the blockchain will take when it inevitably comes to meet the construction industry. Will the currency-method of blockchain bring a method of construction finance where the strength of a currency's cryptographic code is measured for the purpose of valuation? Will current methods of "wet" contracting be altered only by delineating their embedded dry-type situations for the purpose of limiting the reach of an intermediary's arm?
Either way, Cycle Rate Performance has already started to build the infrastructure of the construction industry's digital language, making it ready for the eventual conversation.
Thanks for reading and please feel free to let me know what you think.
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